More on PSSPs - 1 st column: e.g. equipment suppliers, masons, small construction companies, private land & housing developers 2 nd column: NB in all cases, non financial constraints appear to be more pressing than financial ones e.g. legal constraints but can become addressed by financial efforts e.g. guarantees. Some issues need to be addressed from the national institutional level, such as in Kenya there was a change in the law to enable small scale private operators to operate legally thereby creating the opportunity for financial instruments to be used to fund WATSAN on a small scale. NB 2 It is easy to get confused here between the providers of the service at the infrastructural level and where the donor funding is being received, and what institutions are being used to channel the funding. E.g. an MFI will not implement a small scale WATSAN project but it may be used to channel the funding to whoever ultimately installs the pumps for example. In this typology we are mainly concerned with giving donors an idea of what small scale providers look like on the ground. Next we will move on to how donor funds might get there.
APEX organisations Réseaux d’organismes de microfinance : PlanetFinance, réseaux sur le web (mixmarket), réseaux régionaux (Africa microfinance network, http://afminetwork.org/ ).
1 2 GIZ strongly disagreed with funding SSF for water but agreed with funding it for sanitation – due to desire to stress the government ‘ s responsibility in utility and network provision 3 Regarding inerest rates -
Guidelines for EU donors: lists indicative areas where grant funding can be used at macro level (funding of research on policy/regulatory frameworks, training for regulators, TA on regulatory aspects), at meso level (design and setting up of credit bureaus, enhancement of rating practices, support to professional networks and trade associations to build member capacities, etc…) and at micro level (TA to MFI for development Mention about EU-ACP microfinance programme: Approach: building capacities of microfinance actors, supporting ratings and information systems and enhancing transparency and efficiency in microfinance market Mention that the European Investment Fund is also involved with microfinance but it is focused on Western Europe and Accession countries Extra Sophie A on DGIS Instruments used include loans to commercial banks and grants to MFIs and local public institutions. The main thing that is interesting about DGIS is their preference for channelling funds through NGOs. According to CGAP this also included channelling 80% of funds to MFIs through 4 Dutch NGOs. HOVIB, NOVIB, ICCO, BILANCE
APEX organisations Réseaux d ’organismes de microfinance : PlanetFinance, réseaux sur le web (mixmarket), réseaux régionaux (Africa microfinance network, http://afminetwork.org/ ).
The Small Scale Finance “puzzle” Sophie Trémolet, Stockholm, 25 August 2011
Microfinance: primarily to households, upper bound: ~ USD 5,000
Mesofinance: to small-scale enterprises, upper bound: ~ USD 500,000
Provided to Small Scale Agents (SSAs)
Households, SSIPs, SMEs, CBOs, NGOs, local governments
Why look at small scale finance?
Small Scale Agents finance and serve a substantial portion of the WATSAN market, particularly for the poor
Households are primary investors in on-site sanitation and water
SSIPs serve a high percentage of the population (40 to 90%)
SSAs face a number of constraints, including financing:
Lack of legal recognition e.g. informal status of operator, land tenure issues
Poor institutional capacity (insufficient training, lack of business skills)
Lack of capital or collateral for small private enterprises
Limited access to liquidities for consumers
Financing needs and instruments Small Scale Agents Type of infrastructure for which they need finance Financing needs Households Water Sanitation Household connections or water tanks On-site sanitation facilities
Microfinance mechanisms such as:
Savings and loans combined
Group lending and solidarity mechanisms
Community Based Organizations (CBOs) Water Sanitation CBOs, user committees, cooperatives, neighbourhood organizations and self-help groups. Upgrading, rehabilitation and extension of small piped networks/ point source operators Management of public toilets e.g. latrine cleaners and O&M
Medium term loans (for community contribution and O&M management)
Savings (savings first policy)/current accounts, short-term loans for repair
Financing needs and instruments Small Scale Agents Type of infrastructure for which they need finance Financing needs Private Enterprises Water Sanitation
Small Scale Providers
Water kiosk operators & carters
Masons, small construction companies
Small scale equipment e.g. gloves, carts, protective clothing
Short term loans (working capital)
Capital investment loans
Leasing of expensive assets
Water tankers Vacuum tankers
SME Private Operators
Small water network operators (e.g. Aguateros)
Small sewerage network operators
Private land & housing developers
- Larger scale investments for equipment (as above) - Distribution networks e.g. building small bore sewer network
Maximising the leveraging effect Sanitation financing model Source: Trémolet, Kolsky & Perez (2010) for WSP Sanitation revolving fund
How to get funds from A to B? A: Donor (source of funds) B: Small-scale Agents (SSA) Implausible? MFI / NGO (Microfinance Institution) Microfinance loan Repayment, savings Local commercial bank Commercial loan Repayment APEX (at national level) MIVs/ Multi-donor Trust Fund Donor flow: loan, equity, grant Private flow: loan, (occasional savings)
DFID has experience in SSF in general (e.g. CLIFF) but not specifically in WATSAN, except through its involvement in GPOBA (link to the K-Rep program)
EIB has ample experience in SSF in general (especially through European Investment Fund) but limited in WATSAN sector
Donor Support to SSF? Support to SSF for WATSAN? Comments Micro Meso Micro Meso AFD Y Y N N Interested in exploring SSF for WATSAN ACP-EU/DEVCO Y Y Y Y One project financed by the Water Facility (Kenya, via co-financing with WB via GPOBA) EU-ACP microfinance program (limited impact) GIZ Y Y N N Decided after extensive research in Kenya & Uganda not to support SSF for WATSAN DGIS Y Y Y Y Only 0.4% of their SSF portfolio goes to WATSAN (USD 0.3mn in 2009) and only for mesofinance SIDA Y Y Y Y Only general support via core funding provided to WSP DANIDA Y Y N N They foresee starting support to MF in Vietnam in the near future
Low coverage rates in rural areas in particular (~ 27%)
Total Sanitation Campaign aimed at boosting coverage
Growing number of NGOs and MFIs getting involved in the “toilet loan” business in urban and rural areas
NGO/MFI Number of toilet loans BISWA 115,000 in last 2 yrs Guardian 12,000 in last 3 yrs BWDC 9000 in last 3 yrs ESAF 3600 Grameen Koota 5050 RDO Trust 700 IIRD 552 SAMBAV 1710 Sample total ~ 150,000 loans ~ 750,000 people
The microfinance context in India SHG NGO Commercial Bank JLG MFI Commercial Bank NABARD
Can MF make a significant contribution to improving access to water and sanitation (in particular) in India? [in answering this question, could allude to the current difficulties faced by some MFIs following the Andhra Pradesh crisis and how this has impacted the MF market so far]
What can the Rest of the World (and in particular East Africa, where she has worked extensively) learn from the India experience? What is “special” there that could not easily be transferred and what adjustments to the model may need to be done?
In the experience of water.org, is it preferable to “bet” on supporting WATSAN NGOs to become more financially savvy or to “educate” financial institutions so that they better understand the financial needs of WATSAN actors?
Does she see more potential in microfinance for households or for small-scale entrepreneurs? Where should the emphasis go?