Sanitation markets

The role of microfinance to support access to sanitation

Sophie Trémolet, WaterAid, 17th December

Why focus on microfinance? Background to the research • Demand from practitioners

• How can access to sanitation be increased? • Typical sanitation support programmes focus

on software support but with no or limited support for access to finance

• Gaps in research: • Limited knowledge about existing sanitation

microfinance programmes, how they work and how they perform

• RCT finding in Indonesia: limited “access to credit” is key constraint preventing hh from investing in improved sanitation

Research questions • Mapping current knowledge

• What do we know about existing demand and supply for sanitation microfinance services?

• Who are key players in the sector? • Evaluating existing experiences

• Where has microfinance for (water) and sanitation been used and with which impact?

• Case studies • In India: evaluation of existing experience and lessons • In Tanzania: evaluation of existing (very limited) experience and

market potential

• Extracting practical lessons• What interventions could trigger MFIs to offer sanitation-focused

products? Action-research in Tanzania

Key findings from Mapping Study• Limited development overall • Difficult to track due to lack of data: MFIs do not record what products are used for • Documentation of existing cases very limited (work mostly done by M.Mehta for Gates Foundation and IRC)- no lessons learned on reasons of successes or failures; more analysis has been done on “housing microfinance”• Many players are “interested” but very much in the dark as to “what to do” • Key players in the sector

• Dutch government (via FINISH in India) or water.org are key players in this area, promoting microfinance as a key intervention for increasing access

• Specialised agencies / consultancies involved in sector

Key findings from case studies• Growing market in India

• At least 9 institutions offering “toilet loans”: MFIs (Guardian), Cooperative Bank (SEWA Bank) and NGOs (BISWA)

• 146,000 sanitation loans identified enabling 730,000 people to build toilets

• Very high repayment rates (98%) • Most successful if developed by existing MFIs• Some NGOs successful at developing

microfinance branch (Gramalaya/Guardian) with support from water.org or Dutch funding (FINISH project)

Key findings from case studies • Guardian (as of 2011) • First “water and sanitation-focused” MFI (spun-off from an

NGO, Gramalaya) operating since 2008• Still small-scale (1 district in Tamil Nadu - India) but growing

fast (20,000 loans disbursed over 3 years, 60% for sanitation)• Operating in rural areas and urban slums• “Toilet loans”: between USD 180 to 225, over 18 months,

18% yearly interest rate (reducing) + 3% charges• Strong demand for toilet loans, 100% repayment rates• Recognize can only reach ~ 30-40% population in villages

Financial sources: • Grant support: ~ USD 165,000 (water.org) – 6% funding• Commercial funding: ~ USD 2.6 mn (local commercial

bank, social investors incl. Acumen Fund and Milaap)• High “Leverage ratio” (16)

• In Tanzania: sanitation microfinance little developed but there is potential

Key constraint: MFIs / commercial banks not familiar with sanitation markets and not willing to take on the risk to develop these products

Action-research in Tanzania• Trigger interest of MFIs in delivering microfinance products

for sanitation (workshop, meetings, setting up Working Group “SanFin-Tz”)

• Deliver training on sanitation microfinance product development to interested institutions, with follow-up support during pilot stage

• Roles and responsibilities: – WA-Tanzania acting as host institution– Training and specialised support by MicroSave, specialised

in microfinance with experience in sanitation– Learning and overall management: Trémolet Consulting

• Extracting lessons from pilot-testing: – What was the uptake? How did MFIs perform? Is it

possible to scale up and under what conditions? What role can WA have in supporting sanitation microfinance in Tz?

SHARE Research outputs in this area

Existing • Sanitation microfinance - situation review and bibliography

(unpublished) • Case studies on microfinance in India and Tanzania• SHARE Sanitation Markets Pathfinder paper• Small-scale finance for water and sanitation (joint publication

between SHARE and EUWI Finance Working Group) • Blogs/ presentations on SHARE and tremolet.com websites

Planned / Upcoming • Journal article on sanitation microfinance • Two-day seminar on sanitation microfinance with practitioners

from WASH and microfinance (planned: May 2014 in London)

Implications for programme design (1) Supporting microfinance can play an important role as part of a broader strategy to increase access to improved sanitation

Implications for programme design (2)Microfinance is particularly relevant at a specific step of the sanitation ladder: from ODF to improved sanitation

What could WaterAid do? (1)

• Conduct further research on the functioning and impact of existing microfinance programmes

• Play an advocacy role• Seek to influence public financing policies to facilitate microfinance for sanitation (e.g. provide software support to MFIs looking to support sanitation, provide seed funding for revolving funds or guarantees)• Establish sanitation microfinance working groups (gather all key actors of the sector, including public officials) to exchange experiences and insights on sanitation microfinance: what is local experience? Is there appetite from MFIs to engage with the sanitation sector? How can they best be supported for doing so?

What could WaterAid do? (2)

Act as a channel for “smart subsidies” to MFIs, commercial banks or NGOs (this can involve a range of training on microfinance product development, system development, business skills development)

Act as technical support for MFIs on sanitation: Provide ongoing technical assistance on sanitation aspects to the MFIs

Act as broker between NGOs and MFIs: facilitate the forging of partnerships between NGOs (or government agencies) and MFIs so that microfinance interventions can be fully integrated in broader sanitation programmes

For more information

See: • http://www.shareresearch.org/Page/Det

ail/markets

• http://www.tremolet.com/focus-area/266 (sanitation financing)