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