Microfinance for sanitation: the East Africa context

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George Muruka, senior microfinance consultant at MicroSave, takes us through the microfinance context in the East Africa region (Ethiopia, Rwanda, Uganda and Tanzania), including regulation and future policy trends for promoting financial inclusion.

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<ul><li> 1. MicroSaveMarket-led solutions for financial services MicroSaveMarket-led solutions for financial services CONFIDENTIAL AND PROPRIETARY Any 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 Salaam 16th May 2014 By George Muruka, Senior Specialist: Microfinance and Livelihoods at MicroSave </li></ul> <p> 2. MicroSaveMarket-led solutions for financial services Sanitation Situation There is an urgent need to facilitate access to improved sanitation facilities! 2 3. MicroSaveMarket-led solutions for financial services Types of Sanitation Facilites Sanitation Facilities Continuum Unimproved 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/ Flush or pour-flush to: Septic tank Piped sewer system 4. MicroSaveMarket-led solutions for financial services 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) 5. MicroSaveMarket-led solutions for financial services Financial Sector Overview East Africa Region 5 6. MicroSaveMarket-led solutions for financial services Microfinance: Country Context 1/5 (Info. 2010 to date) TANZANIA (pop. est. 49 million) Banks BoT (www.bot- tz.org) 29 Few mass market banks e.g. NMB MFIs 40+ mf service providers 2 Regulated MFIs Focus on meeting prudential requirements Member Based 7+ Community Banks Several 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 7. MicroSaveMarket-led solutions for financial services Microfinance: Country Context 2/5 KENYA (pop. est. 44 million) Banks CBK (www.centralbank .go.ke ) 43 Some mass banks e.g. Equity, K- Rep, Cooperatives, Jamii etc Others have mf units/depts MFIs 50 Multiple national &amp; regional credit only MFIs, 6+ regulated Member Based 5,000+ SACCOs Strengthening of regulations e.g. 200 SACCOs with FOSA Network AMFI (www.amfikenya.co m) Strengthened by efforts on MFI regulations and microfinance banks membership Access to formal financial Services 32% Mobile money changing the dynamics Sanitation promoters Largely Government, NGOs, CBOs support Substantial private sector financing being experienced 7 8. MicroSaveMarket-led solutions for financial services Microfinance: Country Context 3/5 UGANDA (pop. est. 35 million) Banks BoU (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 &amp; unregulated rural SACCOs, weakened by government funding Weak control system and low staff capacity Network AMFIU (www.amfiu.org.ug) Strong network Access to formal financial Services 32% Growing access to mobile money services (MTN, Airtel etc) Sanitation promoters Government, NGOs, CBOs Limited private sector financing More efforts required 8 9. MicroSaveMarket-led solutions for financial services Microfinance: Country Context 4/5 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 Access to formal financial Services ?? ?? Sanitation promoters Government housings program Limited private commercial sector driven sanitation financing 9 10. MicroSaveMarket-led solutions for financial services Microfinance: Country Context 5/5 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 Sanitation promoters Largely driven by public and NGOs SACCO program and MFIs are highly potential 10 11. MicroSaveMarket-led solutions for financial services 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 12. MicroSaveMarket-led solutions for financial services Sanitation-finance approaches /Products Household level: 1. Toilet/sanitation facilities construction from own funds 2. Village solidarity &amp; 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 13. MicroSaveMarket-led solutions for financial services Embedding &amp; Scaling Up Sanitation Microfinance 13 14. MicroSaveMarket-led solutions for financial services Why the slow approach to financing sanitation? 1.Limited understanding of the sanitation sector/Market o FIs are familiar with business and trading sectors o Lack of strategy on sanitation financing o Low staff capacity 1.Unclear regulatory environment o Unclear policy especially on private systems o However, public actors slowly appreciating role of private operators due to limited public funds 1.Sanitation service operators slowly commercializing their activities o Weak legal structure e.g. CBOs, FBOs, individuals etc o Government funding expectation o Excessive focus on advocacy, capacity building/training o NGOs are not familiar with the demands of FIs e.g. Financial proposal o Limited commercialization of WATSAN activities 15. MicroSaveMarket-led solutions for financial services Scaling up Sanitation financing 1. 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 &amp; Municipal Council, Tanzania. o Need for capacity building to CBOs 1. Smart subsidy schemes with commercial banks &amp; MFIs o 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 1. Loan guarantee schemes for community project o Collaboration between Bank and Sanitation NGO e.g. Family Bank &amp; Practical Action (Kenya), US$ 65,000 guarantee fund. 16. MicroSaveMarket-led solutions for financial services Embedding Sanitation Microfinance Process Product Roll out Product Roll out Processes still under development _Sanfin project in Tanzania Review of Strategy &amp; Products Review of Strategy &amp; Products Product Development/ Refinement (6 months) Product Development/ Refinement (6 months) Sanfin Team (MFIs &amp; San NGOs) Pilot Test 6 12 months Pilot Test 6 12 months MFI/NGOs buy- In, Staff Training , Demand mapping &amp; creation (continuous) MFI/NGOs buy- In, Staff Training , Demand mapping &amp; creation (continuous) 17. MicroSaveMarket-led solutions for financial services CBO Managed Public Toilet Enterprise 18. MicroSaveMarket-led solutions for financial services CBOs Receipts and Transaction Records 19. MicroSaveMarket-led solutions for financial services Sanitation Infrastructure Development 19 20. MicroSaveMarket-led solutions for financial services 20 THANK YOU </p>