A Microfinance Solution for Water, Sanitation, and Health in Peri-Urban and Rural Areas

Presented at the Fifth World Water Forum Dr. Richard E. ThorstenIstanbul, Turkey Director of International ProgramsMarch 19, 2009 WaterPartners

The Watsan Finance ChallengeEstimated that between $10 and $30 billion in

annual additional resources needed to meet global water and sanitation coverage objectives.

Traditional subsidy-based watsan financingOften directed toward higher-income consumptionNot responsive to demand for improvements or ability

to finance improvements among underprivilegedIncapable of handling future repairs and expansionsDiscourages people from developing own solutions

WaterPartners and WaterCreditWhat is WaterPartners?

Non-profit organization founded in 1990 to address water and sanitation crisis

Active in South Asia, East and West Africa, and Central America

Work with local implementing partners to execute effective, sustainable programs

Offer mix of financing models, including WaterCreditWhat is WaterCredit?

WaterCredit enables households and communities to gain access to credit to access water and sanitation.

First projects began in 2004 Current programs in Bangladesh, India, & Kenya. Other

countries under consideration for expansion Invested $1.6 million in programs thus far. Partners have

doubled investment from other capital sources. Over 133,000 people have benefited directly from our

watsan loan programs to date.

Multiple WaterCredit ModelsGrants to support “software” aspects of watsan

programsGrants to develop revolving loan fundsDirect lending to non-governmental organizations

(NGOs) and microfinance institutions (MFIs)Support to NGOs and communities for technical

and financial capacity developmentSmart subsidies for MFIs to enter watsan sectorLoan guarantees for commercial creditorsPartnerships among NGOs, MFIs, private sector,

and governmentsEstablishment of new MFIs

WaterPartners

MFINGOs

Self Help Groupsor CBO

acting as aMicroutility

($) To Subsidize

-

Start Up Costs &

Credit Enhancement

Fees

CapitalMarkets

$ Fees forCredit E

nhanceme

nt

Example Construct of WaterCredit 20.

Loans @MarketRates

TechnicalAssistance

Beneficiaries

Connection Fees

Water

Water Fees

Donor Grant $

$ For Providing Technical Assistance,

&Mobilizing Communities

Loans at Com

mercialRates

Credit E

nhanceme

nt

Community Mobilization

& Training

RepayLoans

Attribute Gramalaya BASIX GUARDIANYear Began 2004 2007 2008

Customers Women formed self-help group federation

Joint lending groups, NGOs

Women formed self-help groups

WP Capital $500,000 $332,000 $380,000

Other Capital $390,000 TBD $1,200,000

Loan Size (household)

$91 $100 - $300 Rural: $100

Urban: $200

Interest & Repayments

12-18% interest

12-24 month period

16% JLG, 24% NGO

12-18 month period

15-18% interest

12-24 month period

Customers 31,982 (direct)

24,000 (additional)

6,106 20,000 (estimated)

Repayment % 78% (98% since ’06) 95% TBD

Sample Program Information

WaterCredit InnovationsSocial capital as substitute for individual financial

collateralRecycling and leveraging end user paymentsSmart subsidies for microfinance institutionsPartnerships among organizations that enable them to

reach more people by doing what they do bestWaterPartners: Program design & management, capacity

developmentNGOs: Community mobilization and developmentMFIs: Financial training, investment, and managementPrivate sector: Construction and repair servicesPublic sector: Service provision, regulation

Secondary spin-offs, including creation of new economic opportunities and clientele for deposits and other loan programs

Some ChallengesCommunity-based models have not fared as well as self-

help group modelsPartner capacity to execute pilot WaterCredit models

NGOs: Financial managementMFIs: Limited water/sanitation exposure

Seasonal income flows require advance plans for repayments

Political involvement in decisions regarding system connections and management

Resistance among groups controlling existing services (i.e. “water mafias”)

Sanitation program involves both demand assessment and demand generation.

Perception of water as free gift or right that must be subsidized

Some Lessons Learned to DateWatsan loan programs differ from traditional

income-generating loan products.Appreciate demand and supply sides of marketWork in areas with microfinance track recordDevelop partnerships with effective, appropriate

institutions (NGOs, MFIs, govt., private sector, etc.)

Set terms according to what market will bear, not solely on prior experiences

Ensure groups are sufficiently trained to manage loans and new services

Prepare to subsidize non-financial program aspects, at least in the short run

ConclusionsEvidence that substantial numbers of poor

households are willing to take out and repay loans to receive water connections and toilets

Micro-credit programs can work effectively in the water and sanitation sector.

WaterCredit has improved people’s health, economic livelihoods, and overall well-being.

WaterCredit has also empowered women by enabling them to access loan capital and improve their dignity.

WaterCredit will benefit more people by recycling loan repayments and leveraging commercial capital.

Thank You!