Microfinance for sanitation: how can public funders get involved?
-
Upload
tremolet-consulting -
Category
Economy & Finance
-
view
69 -
download
0
Transcript of Microfinance for sanitation: how can public funders get involved?
1
MICROFINANCE FOR SANITATION
WHY IS IT NEEDED? WHERE HAS IT WORKED?HOW CAN PUBLIC FUNDERS GET INVOLVED?
Mari
SOPHIE TREMOLET, DAR ES SALAAM, 16TH MAY 2014
2
Introduction
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
4
The sanitation crisis in numbers 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
sanitation USD 225 million a year to meet sanitation MDG (WSP CSO) 78% of investments expected to come from households
5
What is needed?
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
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
8
How microfinance can help?
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 http
://vimeo.com/58465787
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 SHARE
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 possible
to scale up and under what conditions?
11
Where has it worked?
12
Vietnam Sanitation Revolving Fund
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 Leveraged private funds: up to 25 times the public funds
provided initially Since been rolled out through Vietnam Bank for Social Policy
13
Leading market: 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
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) 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 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 (MAMADO with SDC support, CCI with funding from Homeless International)
16
Identified potential applications
17
Key players supporting MF
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 (CLIFF)
18
Benefits for funders: leveraging!
18
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
19
What role can public funders play?
Potentially substantial untapped demand but market remains small – public support/funding is justified
First priority: kick start a market response1. 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 funded by AFD)
3. Support overall reforms of the financial system
20
Identify adequate partners
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-dependent
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
Commercial Bank
NABARD
JLG
MFI
Commercial Bank
22
How to channel funding?
23 Further information [email protected]
Sanitation financing papers on: http://www.tremolet.com/focus-area/266
http://www.shareresearch.org/Page/Detail/markets