Post on 30-Nov-2014
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MICROFINANCE FOR SANITATION
WHY IS IT NEEDED? WHERE HAS IT WORKED?WHAT ARE THE LESSONS?
Mari
SOPHIE TREMOLET, DAR ES SALAAM, 3RD DECEMBER 2013
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Why is it needed?
Sanitation microfinance
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The sanitation crisis
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The sanitation crisis in numbers Sanitation MDG is seriously off-track
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
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 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?
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
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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
Defining a financing strategy
Communities with:
• Low hygiene awareness
• High open defecation
ODF
Behaviour change Software support
Sanitation marketing
Microfinance Improved sanitationPartial coverage
Targeted subsidies
Improved sanitationFull coverage
Public investments Sustainable
sanitation
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Where has it worked?
Sanitation microfinance
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Case study research: India
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) 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)
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Case study research: Tanzania 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
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Identified potential applications
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What are potential benefits?
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Benefits for subscribers
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
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Benefits for financial institutions
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
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Benefits to public: leveraging!
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Vietnam
Mah
arash
tra
Moza
mbiq
ue
Banglad
esh
Ecuad
or
Seneg
al0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Average household investment per solution Hardware subsidy per solutionSoftware support per solution
Sanitation financing model
Vietnam
Mahara
shtra
Bangladesh
Moza
mbique
Ecuador
Senega
l0
5
10
15
20
25
Leverage ratio $ private money invested/
$ public funds spent
Source: Trémolet, Kolsky & Perez (2010) for WSPSanitation revolving fund
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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 provided initially
Extreme poor excluded but alternative solutions considered
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Previous research: conclusions
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
Sanitation sector should build on these existing experiences and networks
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What type of support is needed?
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How to channel public funding?
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Key outstanding questions
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 a market response at scale?
22 Team
sophie@tremolet.comgoufrane@tremolet.com