microfinance for sanitation: the east africa context

MicroSaveMarket-led solutions for financial services


CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of MicroSave is strictly prohibited

Microfinance in East Africa

WaterAid Regional Workshop Embedding Microfinance in Sanitation Programs

Ledger Bahari Beach Hotel, Dar es Salaam16th May 2014

By George Muruka, Senior Specialist: Microfinance and Livelihoods at MicroSave


Sanitation Situation There is an urgent need to facilitate

access to improved sanitation facilities!

2


Types of Sanitation FacilitesSanitation Facilities ContinuumUnimproved Facilities Improved Facilities

Moving people from using …

•No facilities, • bush or field (open

defecation)• Buckets

To using improved facilities such as…

•Facility• Pit latrine

• Open pit

• Hanging toilet or hanging latrine

• Pit latrine without slab,

• Shared or public facilities of any type

• Pit latrine with slab

• Ventilated improved pit (VIP) latrine

• Composting toilet

• Pour-flush

• Flush i.e. not to piped sewer system/ septic tank/ pit latrine

• Flush or pour-flush to:

• Septic tank• Piped sewer system


Microfinance as a development tool

• Microfinance is the provision of a broad range of financial services to poor/low income people to manage their livelihoods.

• From microcredit to microfinance: Microcredit refers to credit only. But the poor also need all financial services and therefore microfinance.

• Microfinance services include: savings, loans, micro-insurance, livelihoods financing, money transfer and payments etc.

• Deployment and access is usually through multiple delivery channels e.g. branches, ATM, mobile phones,

• Currently theme, financial inclusion, focuses on banking the unbanked. Regional Context:

Low access to formal financial services

(About 25% of adults accessing formal financial services. 6 EA

countries , pop. est. 345 million)


Financial Sector Overview

East Africa Region

5


Microfinance: Country Context 1/5 (Info. 2010 to date)

TANZANIA (pop. est. 49 million)BanksBoT (www.bot-tz.org)

29 Few mass market banks e.g. NMB

MFIs 40+ mf service providers2 Regulated MFIs

Focus on meeting prudential requirements

Member Based

7+ Community BanksSeveral SACCOs/SACAs

Great potential but yet to diversify offerings

Network TAMFI (www.tamfi.co.tz)

Potential partner to access MFIs

Access to formal financial Services

17% • Mobile money yet to change situation

• Rural livelihoods and low population density hinders growth

Sanitation promoters

• Government projects

• NGO projects• CBOs members

own financing

• Limited private sector financing

6


Microfinance: Country Context 2/5

KENYA (pop. est. 44 million)BanksCBK (www.centralbank.go.ke )

43 Some mass banks e.g. Equity, K-Rep, Cooperatives, Jamii etcOthers have mf units/depts

MFIs 50 Multiple national & regional credit only MFIs, 6+ regulated

Member Based 5,000+ SACCOs Strengthening of regulations e.g. 200 SACCOs with FOSA

Network AMFI(www.amfikenya.com)

Strengthened by efforts on MFI regulations and microfinance banks membership


32% Mobile money changing the dynamics


Largely Government, NGOs, CBOs support

Substantial private sector financing being experienced

7



UGANDA (pop. est. 35 million)BanksBoU (www.bou.or.ug )

23 Few mass banks e.g. Centenary

MFIs 124 (10+regulated deposit taking )

Focus on rural and per-urban traders

Member Based Multiple & unregulated rural SACCOs, weakened by government funding

Weak control system and low staff capacity

Network AMFIU (www.amfiu.org.ug)

Strong network


32% Growing access to mobile money services (MTN, Airtel etc)


Government, NGOs, CBOs

Limited private sector financingMore efforts required

8



ETHIOPIA (pop. est. 91 million)Banks 17 3 state, 70% of assets, high

liquidity, low interbank lending, CBE largest branches

MFIs 30 23 regulated, 1+ million clients, 3-5% interest on savings, except from income tax. Largest 4 = 88% of savings, 83% of credit

Member Based Limited SACCOs

Farm produce cooperatives,

Network AEMFI(www.aemfi-ethiopia.org)

Strong network, sector training and publication


?? ??


Government housings program

Limited private commercial sector driven sanitation financing 9



RWANDA (Pop. 13 million)Banks 9 3 National, 6 Foreign

MFIs 62+ MFI organisations (multiple legal forms)

• Concentration around Kigali• 65 branches, 27% of total

outlets

Member Based

Umerenge SACCOs • A central bank fin. access program reach rural areas

• Mobile bank linkage

Network AMIR (http://amir.org.rw)

62 members, FE and value chain financing projects

Access to formal services

30% Highest around Kigali

Mid income by 2020, and 80% access by 2017


Largely driven by public and NGOs

SACCO program and MFIs are highly potential

10


Microfinance Services Suppliers vs legal status

1. Members based institutions e.g. SACCOs, Self help groups (SHGs) and Community Banks. Typically represent communal efforts to pool and access financial services amongst a defined membership.

2. Credit only MFIs: often registered as NGOs

3. Deposit Taking MFIs/Microfinance banks: Regulated by central bank in respective countries

4. Retail Commercial Banks targeting mass market/bottom of the pyramid/the low income market segment. Fully regulated by central bank


Sanitation-finance approaches /Products

Household level:1. Toilet/sanitation facilities construction from own funds

2. Village solidarity & participatory toilet construction financing (in kind contributions + loans e.g. SEDIT VICOBA program, traditional NGOs programs

3. MFIs loans through solidarity groups for construction, repairs, sewage connections.

Community level (Sanfin for scaling up sanitation):1. Co-financing: NGOs grants and CBOs cash and in-kind

contribution e.g. Maji na Ufanisi in Kenya.

2. Sanitation Fund: Mix of savings groups table banking (savings/loans) + external grants/loans e.g. CCI Jenga fund

3. Sanitation Enterprises e.g. Cash flow based loans by banks and MFIs to individual entrepreneurs/registered CBOs


Embedding & Scaling Up Sanitation Microfinance

13


Why the slow approach to financing sanitation?

1.Limited understanding of the sanitation sector/Marketo FIs are familiar with business and trading sectorso Lack of strategy on sanitation financingo Low staff capacity

2.Unclear regulatory environmento Unclear policy especially on private systemso However, public actors slowly appreciating role of private

operators due to limited public funds

3.Sanitation service operators slowly commercializing their activities

o Weak legal structure e.g. CBOs, FBOs, individuals etco Government funding expectationo Excessive focus on advocacy, capacity building/training o NGOs are not familiar with the demands of FIs e.g.

Financial proposalo Limited commercialization of WATSAN activities


Scaling up Sanitation financing1. Integrating sanitation and Housing schemes

o Targeted sanitation/housing programs by NGOs/CBOs o Funding CBOs to manage public sanitation facilities e.g. UN

Habitat, TAFSUS & Municipal Council, Tanzania.o Need for capacity building to CBOs

2. Smart subsidy schemes with commercial banks & MFIso Output based financing for community water/Sanitation

projects e.g. WSP and K-Rep Bank in 2005. Program invested US$ 1.1. m, Community water projects received development loans from US$ 75,000 –170,000), K-Rep committed US$ 4 million to scale up the program.

o Direct financing of sanitation facilities to reduce capital cost. Leading to reduction of loans amounts required by the borrowers

3. Loan guarantee schemes for community project o Collaboration between Bank and Sanitation NGO e.g. Family

Bank & Practical Action (Kenya), US$ 65,000 guarantee fund.


Embedding Sanitation Microfinance Process

Product Roll outProduct Roll out

Processes still under development _Sanfin project in Tanzania

Review of Strategy & Products

Review of Strategy & Products

Product Development/Refinement(6 months)

Product Development/Refinement(6 months)

Sanfin Team (MFIs & San NGOs)

Pilot Test6 – 12 months

Pilot Test6 – 12 months

• MFI/NGOs buy-In,

• Staff Training ,• Demand mapping

& creation(continuous)

• MFI/NGOs buy-In,

• Staff Training ,• Demand mapping

& creation(continuous)


CBO Managed Public Toilet Enterprise


CBOs Receipts and Transaction Records


Sanitation Infrastructure Development

19


20

THANK YOU

microfinance for sanitation: the east africa context

Economy & Finance

microfinance services

formal financial services

financial inclusion

mfis access

mobile money services

improved sanitation

low access

mass banks