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,

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. Sanitation microfinance
2
Why is it needed?

3. The sanitation crisis
3

4. The sanitation crisis in numbers
4

Sanitation MDG is seriously off-track
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This “sanitation crisis” is a significant burden on the economy
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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
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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. How can microfinance help?

Growing interest in sanitation microfinance
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
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:
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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

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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. 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. Sanitation microfinance
8
Where has it worked?

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%)


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Case study: Guardian (as of
2011)
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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. 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. Identified potential applications
12

13. What are potential benefits?
13

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. Benefits for financial institutions
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
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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. Benefits to public: leveraging!
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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

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Vietnam Sanitation Revolving
Fund

SRF component in WB-financed sanitation project
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Loans to low-income households to build
sanitation facilities in urban areas
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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
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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. Previous research: conclusions
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 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

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What type of support is
needed?

20. How to channel public funding?
20

21. Key outstanding questions
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
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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

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Team
sophie@tremolet.com
goufrane@tremolet.com