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Developing microfinance for sanitation in Tanzania

Action-Research Preliminary Findings

SanFin-Tz Working Group Meeting

Dar Es Salaam

Goufrane Mansour

4th December 2014

Outline2

Why an action-research?

What were the main questions?

What has been done under SanFin?

What are the findings?

Overall lessons

Way forward

Why an action-research?

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Tanzanian context• One of the lowest improved sanitation coverage in East Africa

(12%)

• Households are responsible for investing in their own facilities

Previous research in 2011• Opportunities to develop microfinance for sanitation in Tanzania

• Housing microfinance was being developed with support from a working group, acting as a focal point for all efforts related to housing microfinance

2 initiatives as part of the action-research: • To form the SanFin Tz Working group, to develop a dialogue

between microfinance institutions and sanitation experts

• To train selected partners on providing financial services for sanitation Feedback from this training would be shared with SanFinTz WG

Key questions for the action-

research4

One assumption (based on research and experience) is that

access to finance is a key hurdle for HHs to access

sanitation and for faecal sludge emptiers to develop their

business

Are financial institutions (Fis) interested in

sanitation? Why are they not coming forward to

provide access to finance for sanitation? What

type of assistance do they need in order to

make the jump?

Where FIs are providing loans, how is that

helping to increase access to improved

sanitation? And for what type of “customers”?

What has been done? (1)5

Working group meetings:

December 2013: 15 institutions represented (international organisations, NGOs, MFIs and banks) from different regions in Tanzania (Arusha, Dodoma, Dar Es Salaam)

May 2014: similar attendance

December 2014

Attendance showed the interest of various institutions in this initiative, demonstrating there for such a learning and exchange platform

East Africa regional workshop (in coordination with WaterAid)

Examined regional and international experiences (Malawi, Kenya and Tanzania)

Brought NGOs’ perspective (e.g. water.org or Water for People): what actions can an NGO take to support the development of sanitation microfinance? What experiences exist in the region?

Brought MFIs’ perspective (e.g. Equity Bank): they showed readiness to commit and engage with sanitation microfinance, provided they’re given the right support

What has been done? (2)6

Training of SanFin partners

8 organisations received

TRAINING ON MARKET

RESEARCH for sanitation (4

MFIs: ECLOF, Tujijenge,

Yosefo, K-Finance and 4

NGOs: CCI, MAMADO,

SEDIT and Habitat for

Humanity)

What has been done? (2)7

Ongoing support to organisations who wished to

test microfinance for sanitation: through email,

telephone

Pilot-testing training (CCI, ECLOF, Tujijenge)

• Developed a pilot-testing plan

• Prepared a budget (including for staff deployed):

At ECLOF, 8 staff received training on pilot-testing

in total (including the ECLOF CEO)

What has been achieved?8

Financial services for sanitation have been provided

2 institutions already provided loans (CCI and Tujijenge):

CCI: 5 loans (5 toilets constructed) at 30% IR per annum

Tujijenge: 1 loan for pit emptying business (= TZS 8 million disbursed) and 5 loans for solid waste recycling business (= TZS 15 million)

ECLOF launched pilot-testing in Nov 2014, allocating TZS 40 million (USD 22,400) for pilot-testing – now at appraisal stage

ECLOF has included sanitation in its business plan for the year 2015-1016

The working group SanFin Tz for sanitation microfinance has been established and met 3 times

Lessons from the action-research (1)

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Are MFIs interested in providing financial services for

sanitation? Yes, but there are constraints

Some MFIs are interested in sanitation. Why?

• This is part of their mission: “Investing in Human

Dignity” (ECLOF), “Improve the quality of lives”

(Tujijenge)

• It gives them a “good image” towards their clients,

as well as their Board of Directors

• It makes them stand out, more competitive, as

most MFIs give standard business loans

Lessons from the action-research (2)

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MFIs are able to handle sanitation products, provided they are

appropriately trained

Credit officers know their clients

They are used to visiting them, to see their

living conditions

They are not afraid to travel far and in

difficult conditions

They are used to assess informal

businesses

Lessons from the action-research (3)

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NGOs like CCI need to shift their approach to financial services for sanitation, if they want to sustain these services

Rely on professional credit officers rather than volunteers for managing the loans

Hire trained and experienced credit officers, motivated to enforce repayments

Managing loans is expensive: there must be an appropriate level of IR (CCI hired a new staff for this and is providing transport costs)

NGOs can make this shift

Question for CCI: isn’t CCI shifting into full-on microfinance operations? Doesn’t this activity change its “NGO-only” status? (Experience in India where an MFI was created as an offshot of a sanitation NGO)

Lessons from the action-research (4)

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Despite MFIs’ engagement, some remain reluctant to

engage further:

• For some sanitation is still seen as part of Corporate Social

Responsibility (CSR) activities – it is NOT business as usual (at least

not yet)

• Financial services for sanitation is a risky business: what if people don’t

pay and say “come and take your toilets”?

• People who take the loan for sanitation (e.g. USAFI loan offered by

ECLOF) may not be able to renew their other standard (business)

loans, which are less risky (as they are income generating, unlike

sanitation)

It is a risk for MFIs to get commercial funds for testing new

products:

• ECLOF allocated TZS 40 million to sanitation for the next FY

• This represents under 1.33% of ECLOF’s total portfolio (TZS 3.5 billion)

MFIs are ready to seize the opportunity to do business with

Lessons from the action-research (5)

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Where FIs are providing loans, how is that helping to increase access to improved sanitation? There is demand for microfinance for sanitation

Some are ready to pay (a lot!) for appropriate facilities (e.g. TZS 190,000 monthly = 32% for someone earning TZS 600,000)

But:

Microfinance will not help people at the bottom of the pyramid

People coming forward are low income earners, but they get an income from various activities (cattle raising, sowing, agriculture) - Income ranges from TZS 600,000 up TZS2,000,000 (figures still need to be confirmed through research)

In supporting microfinance for sanitation, we have to be careful not to support mainly the higher income earners (looking to tile their toilets) and less the low income earners (who want to step up the sanitation ladder)

Overall lessons14

Properly trained MFIs and NGOs equipped to provide financial services can be partners in efforts to increase access to improved and sustainable sanitation schemes

Knowledge of their clients/communities

Familiar with unplanned urban areas

Have the motivation to get the repayment back

Able to track/record of their clients (their economic situation)

Open to new products, which bring them back to their mission, make them more attractive to their clients (and potentially funders)

Development of sanitation microfinance still at VERY early stage (only about 60 loans to be expected from SanFinpartners by mid-2015)

More effort is needed to develop it further

Way forward15

Learning should continue to be extracted on an ongoing basis from Tujijenge, ECLOF and CCI’s experiences

Will people repay? Has it been income-enhancing?

Where has this product been mostly popular (in rural /urban areas?)

Who is attracted to this product (what is their social and economic status?)

Will credit officers remain motivated to sell this product?

Has the institution as a whole accepted sanitation as a new product?

Is it a profitable business?

Will need to identify who is best placed to carry out such ongoing learning: the organisation in itself in association with research partners?

Conditions for learning to

continue16

MFI/NGO partners should strengthen the

monitoring and evaluation (M&E) of their

activities:

Monitor the impact of the loan on your client

Is it making him/her poorer or is it income-enhancing?

Has his health/well-being improved?

Strong M&E of your loans can put you in a much

stronger position to evaluate the impact of

sanitation microfinance and help with obtaining

funding from external funders

Funders are keen to assess the impact of their investments

on the intended beneficiaries

Identifying funds to scale-up17

Efforts are needed to deploy pilots supported by the project at scale: this will likely require additional funding Encourage commercial banks to lend and make capital available to

MFIs/NGOs at preferential rates for sanitation or other social services. This can be done through guarantees or lines of credit provided by funders (e.g. as done by Agence Française de Développement in Cambodia)

Funds to be ring-fenced for specific sectors (e.g. water/sanitation/solid waste?)

This would lower the IR for clients and enable reaching some of the poorest

Mobilise additional “smart subsidies” for ongoing training, learning and systems development

Trémolet Consulting’s will endeavor to help partner institutions access research grants or soft loans for sanitation-related activities

The government can play a role by adopting a regulatory environment that supports financial services for sanitation

• Enforce environmental regulation so that HHs are encouraged to build toilets

• Consider regulation that makes it mandatory for commercial banks to on-lend to MFIs for social investments (e.g. India)

Keeping SanFin Tz alive18

SanFin-Tz has so far been a meeting platform for two worlds who never met before!

It has been a learning platform for us, our partners and SanFin members to share experiences, ideas, doubts…

SanFin can act as a focal point for all parties (funders, FIs, NGOs, international organisations) seeking to develop sanitation microfinance

An institution has to take the lead to maintain this group alive (e.g. to organise regular events, keep a website or FB group alive, etc… )

Which institution can act as focal point?

Would other institutions be prepared to share the costs, through membership fees or meeting fees, or covering the costs of meetings in turn?

Thanks very much for your

interest! 19

goufrane@tremolet.com

sophie@tremolet.com