Investing in Liquidity: Merging Sustainability and Bankability for Financing Water and Sanitation


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Kajetan Hetzer, Sustainability analyst, SR Investment consultant - SNS Asset Management / SNS REAAL Water Fund - The Netherlands

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Investing in Liquidity: Merging Sustainability and Bankability for Financing Water and Sanitation

  1. 1. Investing in Liquidity Financing Basic Needs for the Bottom of the Pyramid
  2. 2. Company profile and corporate principles <ul><li>SNS REAAL is an innovative retail bank-insurer </li></ul><ul><ul><li>Total assets around € 103 billion </li></ul></ul><ul><ul><li>More than 6.000 full-time employees </li></ul></ul><ul><ul><li>100% Dutch </li></ul></ul><ul><ul><li>Strong sustainable labels are ASN Bank and SNS Asset Management </li></ul></ul><ul><li>Department Asset Management organisation of SNS REAAL, focussed on: </li></ul><ul><ul><li>institutional investors: pension funds, societal organisations etc. </li></ul></ul><ul><ul><li>SNS REAAL: insurance companies and investment funds </li></ul></ul><ul><ul><li>Research consultancy for various internal and external funds/clients </li></ul></ul><ul><li>Focus “sustainability”. Specialisation: sustainability analysis and Social Responsible (sustainable) Investment. Market leader in the Netherlands directed on sustainable institutional asset management </li></ul><ul><li>Funds directed on development countries: SNS Institutional Microfinance Fund (one of the largest worldwide), SNS REAAL Water Fund </li></ul>
  3. 3. Mission: Using Microfinance for upscaling Investment policy Investments in water and sanitation projects via Microfinance , in order to contribute to poverty alleviation and support building-up a sustainable living in developing and transition countries <ul><li>1. Financial criteria: </li></ul><ul><ul><li>“ H 2 O”-earmarked investments via Micro Finance Institutions (MFIs) </li></ul></ul><ul><ul><li>Ø Return about 8% </li></ul></ul><ul><ul><li>+/- 7 years payback period </li></ul></ul><ul><li>2. Sustainability criteria: </li></ul><ul><li>Investments that lower the “water stress” situation and create up-scaling mechanisms for improved livelihood and basic needs </li></ul><ul><li>3. Operational criteria </li></ul><ul><li>Investments via Microfinance Institutions; </li></ul><ul><li>Cooperation with reliable & capable partners; outsourcing </li></ul>
  4. 4. SNS REAAL & Microfinance <ul><li>SNS REAAL has various successful products and partners with regard </li></ul><ul><li>to microfinance </li></ul><ul><ul><li>SNS Institutional Microfinance Fund (EUR 273 mln; one of the largest microfinance funds worldwide) </li></ul></ul><ul><ul><li>ASN Novib Fund </li></ul></ul><ul><ul><li>Triple Jump, Developing World Markets, Water.Org, UNDP </li></ul></ul><ul><ul><li>Combination with water has potential for upscaling and synergy advantages with various organisations and local governments </li></ul></ul>
  5. 5. Investment scope and themes related to water & sanitation <ul><li>Water Supply ( generate, tap and/or furnish (transport) sources of clean drinking water, either for household or business) </li></ul><ul><li>Water Treatment (collection, treatment, purification, filtration and/or re-use of water (including wastewater) </li></ul><ul><li>Water Management (collect and/or conserve existing water sources, either by reducing wastage or making its utilization more efficient and/or environmentally friendly and/or sustainable) </li></ul><ul><li>Water for Agriculture (Irrigation) </li></ul><ul><li>Sanitation Access (disposal systems that are public or private and hygienically separate human excreta from human contact) </li></ul><ul><li>Contamination Prevention (of water sources via facilities, systems and/or other infrastructure) </li></ul><ul><li>Maintenance and Repair (of facilities, infrastructure and/or systems used to provide clean water or access to adequate sanitation) </li></ul><ul><li>Hydro Power and Alternative Energy (small hydro & green energy of which a substantial portion of the power generated is used to provide access to water and/or sanitation </li></ul>
  6. 6. Microfinance-water market matching <ul><li> Adopted from: ; </li></ul>Water supply / demand worldwide
  7. 7. Water flows, where Money goes Impact of Micro Finance in Water - Time saving due to improved access to water - Stability due to sustainable / durable water access & sanitation - Affordability - Reduction of conflits - Status - > Property values - Pollution prevention - Preservation of health and hygiene - Preservation of water resources - Capacity autofinance - Production capacity - Production security - (Cost) Savings - Employment - Resource effectiveness SOCIAL ECONOMICAL ENVIRONMENT HEALTH Integral Approach via Value Chain
  8. 8. Where is the business case? -> Economical Value Drivers Based on market reserach South Asia and Sub-Sahara Afrika <ul><li>Finance gap for sanitation: available US$500 million versus gap US$8 billion per year </li></ul><ul><li>Investment US$1 has leverage effect of US$5-28 due to time savings etc. </li></ul><ul><li>Increased productivity, improved health situation </li></ul><ul><li>Additional income of US$200-400/annually per household due to improved water supply </li></ul><ul><li>Additional income of US$250-285/annually per household due to improved irrigation </li></ul>
  9. 9. Market perspectives “Blue” MF-Credits <ul><li>Annual general demand of Microfinance US$ 135 mrd. (for 70-80 </li></ul><ul><li>million families); Ø credit < US$ 160,- </li></ul><ul><li>Of which potential for “Blue Credits”: </li></ul><ul><li>in SE & S.Asia and Sub-Sahara Africa for next decade: US$12 billion for 125 million clients (based on research by Gates Foundation) </li></ul><ul><li>in South Asia and Sub-Sahara Africa: </li></ul><ul><li>US$ 20-50 billion (depending on segment) </li></ul><ul><li>+ other interesting markets in Central and Eastern Europe, Central Asia, Latin America. </li></ul>
  10. 10. Microfinance in water <ul><li>Micro credits for water and sanitation facilities to individuals, communities (CBOs) or local small entrepreneurs in development countries </li></ul><ul><li>Examples improved water supply to increase productivity & sanitation to reduce health costs </li></ul><ul><ul><li>Direct (example local farmers) </li></ul></ul><ul><ul><li>Indirect (example as result of improved hygiene) </li></ul></ul>
  11. 11. H 2 O-investment via Microfinance MFI Local Bank <ul><li>Borrower,e.g. </li></ul><ul><li>Entrepreneur - Community - Individuals </li></ul>Loan MF Loan Repayment Repayment Blending with subsidies / seed money eventually (partial) Guarantee eventually
  12. 12. Example: NGO-MFI “BISWA”, India <ul><li>5 year Loan of USD 2 million to BISWA </li></ul><ul><li>Biswa on-lends funds to clients for sanitation construction </li></ul><ul><li>Cost sanitation circa US$ 100 </li></ul><ul><li>Finances 20,000 sanitation loans every 6 months </li></ul><ul><li>59,000 sanitation loans Oct.08-Apr.09 </li></ul><ul><li>People below poverty line subsidised by Total Sanitation Campaign </li></ul>Sanitation in Orissa and Chattisgarh (from Copyright © 2009 BISWA: Bharat Integrated Social Welfare Agency. All Rights Reserved
  13. 13. Added Value of Micro Finance in Water <ul><li>Water Micro Credit = Credit + sustainable change: </li></ul><ul><li>Social mobilisation, including the poor(est) </li></ul><ul><li>Development of community institutions </li></ul><ul><li>Community based planning & monitoring </li></ul><ul><li>Improved participatory techniques (incl. hygiene and sanitation) </li></ul><ul><li>Change in attitudes & values, value chain approach </li></ul><ul><li>Improved market access </li></ul>
  14. 14. MF beyond money only <ul><li>Organizational and operational aspects </li></ul><ul><li>Networking and information gathering </li></ul><ul><li>Community and kinship development </li></ul><ul><li>Skill and vocational development </li></ul><ul><li>Leadership development </li></ul><ul><li>Trust building </li></ul><ul><li>Small enterprise management </li></ul><ul><li>Education and health </li></ul>
  15. 15. 1 . Financial Criteria 2. Sustainability Criteria on MFIs and projects 3. Specific Water Criteria General Assessment Criteria on Micro Finance Institutions (MFIs)
  16. 16. Financial Criteria on Borrowers <ul><li>Loan type / purpose </li></ul><ul><li>Income via generating activities or cost savings </li></ul><ul><li>Characteristics expenditures (individuals or household level) </li></ul><ul><li>Affordability & willingness to pay </li></ul><ul><li>(alternative) Collaterals </li></ul><ul><li>Social cohesion / social pressure to repay </li></ul><ul><li>Appropriate sanctions </li></ul>
  17. 17. Financial Criteria on MFIs <ul><li>Capital adequacy (sufficient capital) </li></ul><ul><li>Portfolio at Risk (PAR; delayed repayment) </li></ul><ul><li>Write-offs (default repayment) </li></ul><ul><li>Operating expenses/loans </li></ul><ul><li>Profitability: </li></ul><ul><ul><li>Return on Equity (ROE) </li></ul></ul><ul><ul><li>Return on Assets (ROA) </li></ul></ul>
  18. 18. Sustainability Criteria <ul><ul><li>Financial criteria </li></ul></ul><ul><ul><li>Profitability, operational costs, default/Portfolio at risk </li></ul></ul><ul><ul><li>Legal framework, Governance, Capacity </li></ul></ul><ul><ul><li>Ensuring compliance, reporting & monitoring </li></ul></ul><ul><ul><li>Social criteria </li></ul></ul><ul><ul><li>Stakeholder Approach, accountability, affordability, equality, gender </li></ul></ul><ul><ul><li>Environmental criteria </li></ul></ul><ul><ul><li>Sustaining water- and ecosystems and livelihoods </li></ul></ul><ul><ul><li>Technology, management, service & financial conditions </li></ul></ul><ul><ul><li>Appropriate solutions; Fits well into specific situation </li></ul></ul>
  19. 19. Summary: Mutual interest Microfinance & Water <ul><li>Creation and protection of stability, health and productivity. </li></ul><ul><li>Strengthening current MF investments, reducing risks, create </li></ul><ul><li>enabling environment for new client base </li></ul><ul><li>Improving outreach, and financial and social performance. </li></ul><ul><li>Improving viability by having larger loans portfolio without losing </li></ul><ul><li>focus on the poor and better meet social performances </li></ul>
  20. 20. <ul><ul><ul><ul><li>Example “Tulip” Filter of Basic Water Needs Foundation </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Very affordable (EUR 7,= ) and high quality ceramic filter </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Local Production Facility in India (Auroville) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Promising order portfolio (40.000) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Clean Water to > 200.000 Indian people </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Easy to use: simple and robust </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Spare parts available: EUR 3,= </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Durable: > 3 yrs </li></ul></ul></ul></ul>Example: BoP Product Development <ul><li>Critical Succes Criteria: </li></ul><ul><li>“ Bushproof” (robust, repairable) </li></ul><ul><li>Awareness </li></ul><ul><li>Availability </li></ul><ul><li>Affordability </li></ul><ul><li>Acceptability </li></ul>
  21. 21. Stakeholder Engagement Investment types Project suppliers Loans Renewable promoters Construction, engineering and consultancy Local government, communities NGOs Local banks, MFIs Equipment manufacturers and suppliers Equity Private equity (VC) Bonds Guarantees Mezzanine finance Philantrophic Innovative (micro, ecosystem service) Innovative support via: mix soft&hard finance, guarantees, fiscal, control,… Public & quasi-public Enabling environment!
  22. 22. Smart Alliances Research Quasi public Private Entrepreneurs Finance: - subsidies - investments Public Gvmt.’s Micro Water Facility DGIS
  23. 23. Join our partnership The Sustainable Investor Contact: ; tel.: 0031 73 683 3355