1

MICROFINANCE FOR SANITATION
WHY IS IT NEEDED? WHERE HAS IT WORKED?
WHAT ARE THE LESSONS?
Mari

SOPHIE TREMOLET, DAR ES ...
Sanitation microfinance
2

Why is it needed?
The sanitation crisis
3
The sanitation crisis in numbers
4


Sanitation MDG is seriously off-track





This “sanitation crisis” is a signific...
How can microfinance help?


Growing interest in sanitation microfinance






Strong demand from national and local g...
6

Microfinance in the “sanitation
mix”


Governments and WASH sector
practitioners are working on closing the
“sanitatio...
Defining a financing strategy
Public
investments

Targeted
subsidies
Sanitation
marketing
Microfinance
Behaviour
change
So...
Sanitation microfinance
8

Where has it worked?
Case study research: India
9

Microfinance is a rapidly expanding sector in India,
including for sanitation
 In 2011, we ...
10

Case study: Guardian (as of
2011)









First “water and sanitation-focused” MFI (spun-off from an NGO,
Gram...
Case study research: Tanzania
11



Microfinance for sanitation is underdeveloped
mainly because:
MFIs have a very limite...
Identified potential applications
12
What are potential benefits?
13
Benefits for subscribers
14



Households
Spreads the cost of investment over manageable period
 Enables construction of...
Benefits for financial institutions
15






Large untapped market at present: needs are
only likely to grow with urban...
Benefits to public: leveraging!
16

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Leverage ratio

Sanitation financing
mode...
17

Vietnam Sanitation Revolving
Fund


SRF component in WB-financed sanitation project



Loans to low-income household...
Previous research: conclusions
18

 Potentially

substantial untapped demand but
market remains small – public support mi...
19

What type of support is
needed?
How to channel public funding?
20
Key outstanding questions
21











What are key constraints that prevent households
from investing in sanitation...
22

Team

sophie@tremolet.com
goufrane@tremolet.com
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Microfinance for water and sanitation: why the need for it and how can it help?

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Presentation given by Sophie Trémolet in Dar Es Salaam at WaterAid offices. It makes the case for microfinance for sanitation, paricularly in the context of Tanzania where households have the responsibility to invest in their own on-site facilities,

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  • However, the research also helped identify a number of factors constraining such demand. A point that was repeatedly stressed was the importance of coordinating sanitation microfinance promotion with hygiene awareness campaigns: in villages where no such campaign had been conducted, demand for sanitation loans appeared to be lower. The market for sanitation loan products is also limited to a certain population group which includes the poor but not the ultra-poor.
  • Pilot programmes have mostly been introduced by water and sanitation NGOs, with only limited outreach in isolated locations in the country and close to no prior microfinance experience. MFIs have a very limited appreciation of the financing needs of sanitation sector actors (including household-level investment needs and at the level of sanitation entrepreneurs
  • There is potential however to th
  • Training financial institutions holds greater promises than NGOs with no microfinance experienceTraining in partnership with sector organisations (such as NGOs conducting behaviour change campaigns) Training financial institutions is better than training NGOs to provide financial products
  • There remains however grey areas that the current proposed project should help clarify/understand
  • Microfinance for water and sanitation: why the need for it and how can it help?

    1. 1. 1 MICROFINANCE FOR SANITATION WHY IS IT NEEDED? WHERE HAS IT WORKED? WHAT ARE THE LESSONS? Mari SOPHIE TREMOLET, DAR ES SALAAM, 3RD DECEMBER 2013
    2. 2. Sanitation microfinance 2 Why is it needed?
    3. 3. The sanitation crisis 3
    4. 4. The sanitation crisis in numbers 4  Sanitation MDG is seriously off-track    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 Estimated investment needs in Tanzania      2.6 billion without improved sanitation worldwide In Tanzania: 26mn use unsanitary or shared latrines and 5.4mn have no latrine at all and defecate in the open USD 225 million a year to meet sanitation MDG (WB CSO) 78% of investments expected to come from households More investment will be needed to deliver sustainable services (including downstream parts of the sanitation value chain) Sanitation is a cost-effective intervention: approximately 9 USD return for 1 USD of investment (WHO, 2007) How can households mobilise such sums?
    5. 5. How can microfinance help?  Growing interest in sanitation microfinance    Strong demand from national and local governments and international donors active in the sanitation sector for a greater understanding of how to use microfinance instruments Several MFIs/Banks/NGOs offering sanitation microfinance products; or apply existing products for sanitation Gap in knowledge re. role of microfinance   Limited documented evidence but solid WSP study in Indonesia shows that low access to finance was key factor limiting investment Work undertaken with SHARE support:      Scoping study (including literature review) Case studies in India, Tanzania and Kenya “Small-scale finance report” on how to channel donor funding to stimulate microfinance for water and sanitation In India: Research looked into existing experience in microfinance for sanitation In Tanzania: Research assessed the potential for the development of microfinance for sanitation
    6. 6. 6 Microfinance in the “sanitation mix”  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. 7. Defining a financing strategy Public investments Targeted subsidies Sanitation marketing Microfinance Behaviour change Software support Communities with: • • Low hygiene awareness High open defecation OD F Improved sanitation Partial coverage Sustainable sanitation Improved sanitation Full coverage
    8. 8. Sanitation microfinance 8 Where has it worked?
    9. 9. Case study research: India 9 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  Many organisations started off as NGOs, but have set up separate microfinance organisations or are in the process of doing so  Repayment rates have consistently been very high (above 98% and frequently at 100%) 
    10. 10. 10 Case study: 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)
    11. 11. Case study research: Tanzania 11  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
    12. 12. Identified potential applications 12
    13. 13. What are potential benefits? 13
    14. 14. Benefits for subscribers 14  Households Spreads the cost of investment over manageable period  Enables construction of more durable latrines: likely to be much cheaper over time  Not income generating per se but income-enhancing   Small businesses Invest in equipment (e.g. gulper) and mobilize working capital  Income-generating, which can potentially be very substantial  See: “these guys are extremely liquid!” on http://vimeo.com/58465787 
    15. 15. Benefits for financial institutions 15    Large untapped market at present: needs are only likely to grow with urbanisation and rising living standard expectations Aligned with national policy objectives Examples around the world show very high repayment rates – if implemented by professional organisations
    16. 16. Benefits to public: leveraging! 16 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Leverage ratio Sanitation financing model $ private money invested/ $ public funds spent 25 20 15 10 5 0 Average household investment per solution Hardware subsidy per solution Software support per solution Sanitation revolving fund Source: Trémolet, Kolsky & Perez (2010) for WSP 16
    17. 17. 17 Vietnam Sanitation Revolving Fund  SRF component in WB-financed sanitation project  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; 100% repayment rate Leveraged private funds: up to 25 times the public funds
    18. 18. Previous research: conclusions 18  Potentially substantial untapped demand but market remains small – public support might be justified  How to kick start a market response?  Preferable to provide software support to financial institutions, including MFIs, commercial banks or NGOs with strong microfinance experience  Existing financial institutions already have a number of key elements in place to roll out sanitation microfinance products and collect repayments: network of branches, 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
    19. 19. 19 What type of support is needed?
    20. 20. How to channel public funding? 20
    21. 21. Key outstanding questions 21      What are key constraints that prevent households from investing in sanitation equipment and facilities? Is access to finance a critical factor or are there others? What type of microfinance products could help them overcome these constraints: savings products, micro-credit, a combination of both? What is the potential for combining sanitation financing with housing finance? How can public programmes be most effective in supporting the development of sanitation microfinance and incorporating microfinance into their own programmes? How can public funds be best channelled to trigger
    22. 22. 22 Team sophie@tremolet.com goufrane@tremolet.com

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