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Microfinance for sanitation: how can public funders get involved?
Microfinance for sanitation: how can public funders get involved?
Microfinance for sanitation: how can public funders get involved?
Microfinance for sanitation: how can public funders get involved?
Microfinance for sanitation: how can public funders get involved?
Microfinance for sanitation: how can public funders get involved?
Microfinance for sanitation: how can public funders get involved?
Microfinance for sanitation: how can public funders get involved?
Microfinance for sanitation: how can public funders get involved?
Microfinance for sanitation: how can public funders get involved?
Microfinance for sanitation: how can public funders get involved?
Microfinance for sanitation: how can public funders get involved?
Microfinance for sanitation: how can public funders get involved?
Microfinance for sanitation: how can public funders get involved?
Microfinance for sanitation: how can public funders get involved?
Microfinance for sanitation: how can public funders get involved?
Microfinance for sanitation: how can public funders get involved?
Microfinance for sanitation: how can public funders get involved?
Microfinance for sanitation: how can public funders get involved?
Microfinance for sanitation: how can public funders get involved?
Microfinance for sanitation: how can public funders get involved?
Microfinance for sanitation: how can public funders get involved?
Microfinance for sanitation: how can public funders get involved?
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Microfinance for sanitation: how can public funders get involved?

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  1. MICROFINANCE FOR SANITATION WHY IS IT NEEDED? WHERE HAS IT WORKED? HOW CAN PUBLIC FUNDERS GET INVOLVED? 1 Mari SOPHIE TREMOLET, DAR ES SALAAM, 16TH MAY 2014
  2. Introduction 2  Objectives  Take stock of where we are in terms of using microfinance for sanitation and identify needs for public funding  Presentation overview  The sanitation crisis  What do we know about the need for and the role of microfinance for sanitation (and water)?  Where has it worked and how?  What are potential benefits and opportunities for funders?
  3. The sanitation crisis 3
  4. The sanitation crisis in numbers 4  Sanitation MDG is seriously off-track  2.6 billion without access to improved sanitation facilities  In contexts where sewerage coverage is very limited (e.g. SSA), burden of investment falls on households  Sanitation is a cost-effective intervention: CBR 9 (WHO, 2007)  Moving to SDGs: more investment will be needed to deliver sustainable services (including downstream parts of the sanitation value chain)  The example of Tanzania  26mn use unsanitary or shared latrines and 5.4mn have no latrine at all and defecate in the open  This “sanitation crisis” is a significant burden on the economy  Tanzania loses 301 billion Tsh/year due to inadequate sanitation  Equivalent to USD 5/person/year or 1% of national GDP (WSP ESI)  Estimated investment needs to increase access to improved
  5. What is needed? 5
  6. Microfinance in the “sanitation mix”6  Governments and WASH sector practitioners are working on closing the “sanitation gap” and increase access to sanitation through a mix of approaches:  Demand-side: sanitation promotion  Supply-side: sanitation marketing  In fewer cases: limited support for access to finance  Microfinance can help mobilise funding to build improved latrines  Different products and schemes likely to be needed according to income groups and ability to borrow
  7. Defining a financing strategy Communities with: • Low hygiene awareness • High open defecation OD F Behaviour change Software support Sanitation marketing Microfinance Improved sanitation Partial coverage Targeted subsidies Improved sanitation Full coverage Public investments Sustainable sanitation
  8. How microfinance can help? 8  Help households invest in on-site sanitation  Help spread the cost of investment over manageable period  Enable construction of more durable latrines: likely to be much cheaper over time  Not income generating per se but income-enhancing  Help sanitation businesses grow their activities  Invest in equipment and mobilize working capital  Income-generating, which can potentially be very substantial  See: “these guys are extremely liquid!” on
  9. What do we know?  Limited documented evidence until relatively recently but a clear surge in interest in recent years  RCT study in Indonesia funded by WSP: limited “access to credit” is a key constraint preventing households from investing in improved sanitation  RCT in Cambodia (Id Insights):  30 groups, randomly assigned to “cash” vs “credit” payment  Offering MF loans for latrines dramatically increased uptake of latrines (12% to 50% WTP),  Reduced distribution costs per latrine sold (70% reduction in distribution costs due to higher sales per village visit)
  10. Research undertaken through SHARE10  SHARE (Sanitation and Hygiene Applied Research for Equity)  A £10mn 5-year research programme on sanitation funded by DFID and led by LSHTM (2010-2015)  Four main research themes, one on “sanitation markets”  Research activities on sanitation microfinance  Scoping study (including literature review)  Case studies in India & Kenya (retrospective) and Tanzania (prospective)  “Small-scale finance report” (EUWI/SHARE publication) on how to channel donor funds to stimulate microfinance for watsan  Ongoing “action-research” activity in Tanzania supporting MFIs & NGOs to develop sanitation microfinance products (Nov 2013-Nov 2014)  Undertaken jointly with MicroSave and WaterAid  Set up Sanitation Microfinance working group (SanFin-Tz)  Trained 8 institutions (4 MFIs, 4 NGOs) on market research for developing sanitation microfinance products (January 2014)  Supporting 3 institutions (ECFLOF, Tujijenge and CCI) to develop and market test products over several months  Extracting learning: What was the uptake? How did MFIs perform? Is it
  11. Where has it worked? 11
  12. Vietnam Sanitation Revolving Fund12  SRF component in WB-financed sanitation project (2001)  Loans to low-income households to build sanitation facilities in urban areas  Small loans (average USD 145, covering 65% of investment costs), 24-month period, subsidized interest rate (< 6% yearly)  Managed by well-established MFI (Women’s Union)  Savings-and-Credit groups established at neighborhood level  WB & other donors contributed USD 3mn in seed financing  Tagged to a broader project, with hygiene & demand promotion  Results  Initial capital revolved more than twice in 3 years, then transferred to local municipality to be revolved further  Helped 200,000 households access sanitation in 7 years  100% repayment rate
  13. Leading market: India 13  Microfinance is a rapidly expanding sector in India, including for sanitation  In 2011, we had identified at least 146,000 toilet loans that enabled at least 730,000 people in India to build household sanitation facilities  Toilet loans are provided by a range of institutions: NGOs, MFIs and non-banking financial companies  Market development supported by international programmes: WaterCredit (water.org) or FINISH (Dutch- funded partnership)  Many organisations started off as NGOs, but have set up separate microfinance organisations or have initiated the process  Repayment rates have consistently been very high (above 98% and frequently at 100%)
  14. Case study: Guardian (as of 2011)14  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)
  15. More limited experiences in Tanzania15  Microfinance for sanitation is underdeveloped mainly because:  MFIs have a very limited appreciation of the financing needs of sanitation sector actors  MFI clients are wary of taking on a loan for sanitation services as these are not seen as income generating and therefore cannot contribute towards repaying the debt  Existing initiatives had limited success  They were introduced by NGOs with limited prior microfinance experience (MAMADO with SDC support, CCI with funding from Homeless International)
  16. Identified potential applications 16
  17. Key players supporting MF 17  NGOs promoting microfinance  Water.org (US-based)  WaterCredit programme, funded by various foundations  “Smart subsidies” in India, Kenya, Uganda  Recent toolkits on water & sanitation microfinance  Water for People (US-based)  Sanitation as a Business (SaaB) programme, funded by BMGF  Recent publication on their experiences (Bolivia, Guatemala, India, Malawi, Peru, Rwanda and Uganda) - 6783 loans in total (6470 loans in India, 211 in Malawi)  Eau Vive in Senegal (recent publication with AESN & FARM)  Bilateral donors: DGIS (FINISH), DFID, SIDA
  18. Benefits for funders: leveraging! 18 18 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Software support per solution Hardware subsidy per solution Average household investment per solution Sanitation financing model 0 5 10 15 20 25 Leverage ratio $ private money invested/ $ public funds spent Source: Trémolet, Kolsky & Perez (2010) for WSP Sanitation revolving fund
  19. What role can public funders play?19  Potentially substantial untapped demand but market remains small – public support/funding is justified  First priority: kick start a market response 1. Identify financing needs of “small-scale actors” 2. Identify and support the partners that can roll-out microfinance and the type of support they need in the context of an overall approach to promote sanitation 3. Identify channels to provide such support  Second priority: grow the market sustainably 1. Establish support structures to share experiences, knowledge and lobby for policy changes 2. Support existing or create new financial institutions at national level (e.g. Apex Bank in Ghana would receive funding from EIB/BMGF under SAWiSTRA programme also
  20. Identify adequate partners 20  Preferable to work with established financial institutions, including MFIs, commercial banks or NGOs with strong microfinance experience  Do they have a number of key elements in place?  Branch networks & a trained “sales force”,  Existing customers who have already formed groups for borrowing and could take on a sanitation loan,  Systems to assess credit history and track repayment  What they need:  Support for market research, product development for water and sanitation  Establish partnerships with institutions providing other elements of the “sanitation support” approach (e.g. demand promotion)  Access to credit at favourable terms to help them prioritise sanitation and water lending
  21. Assistance to MFIs is context- dependent21  NGOs (e.g. water.org) can rely on “smart subsidies” when overall financial infrastructure provide adequate support to finance “social sectors” Example: different financial models in India SHG Bank Linkage Programme (SBLP) Priority lending for Commercial banks SHG NGO Commercia l Bank NABARD JLG MFI Commercial Bank
  22. How to channel funding? 22
  23. Further information sophie@tremolet.com Sanitation financing papers on: http://www.tremolet.com/focus-area/266 23 http://www.shareresearch.org/Page/Detail/markets

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