A consolidated reply of experiences and examples shared by various members of the Solution Exchange Water Community
From Pon Ananth, Water.org, Tiruchirappalli
Posted 15 March 2010
I work with WaterCredit, an initiative of Water.org that puts microfinance tools to use in the Water and Sanitation (WatSan) sector. It is the first comprehensive program of its kind that connects the microfinance and WatSan communities to scale up access to credit and capital for individual and household-based WatSan needs with multiple models across multiple countries. WaterCredit partnership models and financing mechanisms serve to channel and redeploy financial resources more efficiently and effectively to help people meet their drinking water and sanitation needs. For more details, please visit: http://water.org/watercredit/
The amount of public and private financing currently available to finance the WatSan needs of the developing world falls way short of demand. It is estimated that WatSan sector investment must grow between $10 and $30 billion annually to halve the number of people without access to WatSan as defined by the Millennium Development Goals (MDGs). WatSan organizations with an access to credit are few and far between, as are microfinance institutions (MFIs) with dedicated WatSan loan portfolios or in-house WatSan expertise.
Historically, the use of public and development funds for WatSan programmes have not helped the poor, who pay more for unsafe water. Women and girls from poor families spend several hours a day to fetch water. This prevents them from earning extra income, which could occur if access to clean water was closer to home and WatSan services more reliable.
WaterCredit works on the premise that there are people in the developing world who can finance access to safe water and sanitation if they can pay for these services over time, as well as have a voice in their development and operation. Further, WaterCredit assumes that there are financial institutions that are interested in expanding their portfolio of products and services in scalable, sustainable ways.
Our experiences with few Indian MFIs has brought out clearly that micro loan borrowers have an adequate need for WatSan loan products. The repayment rates of these loans are on par with other loans like income generating loans. However, MFIs do not have enough interest to take up WatSan loan products and this is a major hindrance in scaling up of credit-based financial solutions to address water and sanitation issues. Given this backdrop, we would like to have the communities’ view on the following:
- What is the scope to roll out exclusive loan products for water and sanitation by MFIs? And the main bottle necks/constraints in rolling out exclusive WatSan loan products
- What are the key contributing factors for the success and sustainability of WatSan loan products?
- What strategies MFIs should adopt to make WatSan loan products as a priority borrowing area of their clients i.e. how to convert the latent demand into an active demand?
The inputs received from the members will be used in a national workshop scheduled in the last week of this month and the final output will be useful in developing a focused strategy as well as demand based watsan loan products.
Responses were received, with thanks, from
1. Abhishek Mendiratta, Jupiter Knowledge Management and Innovative Concepts Pvt. Ltd., New Delhi
2. Ashwin Kumar, SEED Trust, Kancheepuram
3. Satya Prakash Mehra, Rajputana Society of Natural History, Rajasthan
4. Bibhu Prasad Mohanty, BISWA, Danipali, Sambalpur
5. Malay Dewanji, LAMP, Bankura, West Bengal
6. Harish Chotani, Consultant (Livelihoods and Microfinance), Gurgaon *
*Offline Contribution
Further contributions are welcome!
The water and sanitation sector has largely been out of the purview of micro-finance, with few products and fewer takers. This is because most investment in drinking water and sanitation in rural areas has come from the government through the National rural drinking water programme and the Total Sanitation Campaign (TSC). However, despite these programmes, there is a large gap between demand and supply as well as need for behaviour change communication.
Water projects are capital intensive and have a long pay-back period. Therefore, their financial sustainability is a must. For this, it has become necessary to define goals in the sector in line with the available finance, rather than the other way round. In the drinking water, the government has created most of the infrastructure and is in the process of handing it over to user communities. For cities, the government has launched the Community Participation Fund under the Jawaharlal Nehru National Urban Mission. In Ivory Coast, household reimburse an NGO that has created a fund to pay for water connections.
Additional research shows in several states, it is training local people to maintain the infrastructure. This takes place through women’s collectives; these women get training on handpump maintenance and collectively look after their local resources. They collect money from user households to pay for the equipment required for maintaining the handpumps. The same women are either members of SHGs, or eventually form their own under guidance from pre-existing groups.
Farmers often find it hard to raise money for collective action to address their water needs for irrigation. Water micro-credit can be an important instrument here. Village development committees can facilitate the process of getting micro-loans for farmers as well as those living in tribal areas.
On the sanitation front, loans can help create the infrastructure, but to be truly effective, can include a component for behaviour change communication. This will help make the infrastructure that people construct using micro-finance more sustainable. It will also create a demand for further micro-finance products in the sector. In urban areas, Gramalaya has implemented a project in Tiruchirapally, Tamil Nadu, through self-help groups.
Another way to create demand is through the TSC’s village motivators. These people form a dedicated cadre at the village level to motivate people for building and using toilets. They are key in changing people’s behaviour in using toilets. Members said some micro-finance agencies have had an issue with the focus on Nirmal Gram Puruskar; panchayats persuade them to give sanitation-related loans with an eye on the NGP but do not followup on performance later. The Liberal Association for Movement of People has set up SHGs and advances them loans for making toilets in West Bengal.
To create demand, people can be provided a wider range of technical options for toilets. Most people feel the single-pit toilets promoted under TSC fill up quickly. They also feel investments in sanitation bring no returns as against investments in other income generating activities; this is despite studies that show that investments in sanitation actually pay back several times over. Along with creating demand, the authorities have to train local people to construct toilets and also pay attend to the quality of construction. Too often, beneficiaries use local masons who, while they are aware of the method, ignore quality aspects while constructing the soak pits and super-structure. This militates against the sustainability and further propagation of sanitation.
Women’s self-help groups in some states, especially Tamil Nadu, have been extremely successful in setting up centres to manufacture sanitary towels. A typical unit costs Rs. 30,000 and the STs it produces are sold for Rs 2-3 each. These are ideal for use in rural schools. These ventures serve several purposes: Raising awareness about menstrual hygiene, providing for an important sanitation need for adolescent girls and women and income generation. Thus, they are an important target for micro-finance institutions seeking to advance loans to the sanitation sector. In urban areas in Burkina Faso, for example, a women’s collective started a credit programme in a poor neighbourhood for sanitation.
In many instances, existing SHGs have extended their activities to the water and sanitation sector. They provide loans for domestic water connections or toilets and have reported a good demand, especially where the information and awareness programmes have been effective. Thus, community mobilization by TSC motivators is essential to create a demand for micro-finance loans in the water and sanitation sector.
National
Scaling up the Water and Sanitation Loan Products (from Malay Dewanji, LAMP, Bankura, West Bengal)
Liberal Association for Movement of People has formed SHGs and provides loans for sanitary latrines. The rate of interest charged under this loan product is 12%. For up scaling the initiatives, organization has planned to take bulk loan from bank and offer water and sanitation loan products in Eastern region of the country.
From Monika Khanna, Research Associate
WaterCredit for Urban Slum dwellers, Tiruchi
Gramalaya with WaterPartners had implemented a project for Urban Slum dwellers in Tiruchi City Corporation. As a first step, SHGs were assessed and rated. Accordingly micro-credit was provided to the SHGs for constructing household toilets and water connections from the piped water supply system. Through revolving loan fund, 319 loans for household toilet construction and 171 loans for individual water connections were provided.
Community Participation Fund (CPF) for Safe Drinking Water
CPF was initiated under Jawaharlal Nehru Urban Renewal Mission to catalyse community participation by supporting the building of community assets. Under this the community has to contribute 10 percent of the total cost of the project. There is provision for about 1000 community projects under CPF, with Rs.90 crores already approved. Projects on safe drinking water facility and group water distribution project for slums are also eligible under this scheme.
International
From Monika Khanna, Research Associate
Financing Urban Sanitation, Wogodogo
LAGEMYAM a women’s association had initiated a credit programme for improved sanitation in low income neighbourhood. It provided the initial 70% needed to start up the credit system. The interest rate was kept at 5% and covered mainly the administrative costs. In first phase 28 households have benefited and constructed 35 excreta and waste water infrastructures. The rate of reimbursement is more than 80 percent.
Community financing for water connections
To allow households to be connected to water supplied services, CREPA Côte d’Ivoire created a fund required for the connection fees. To reimburse the funds, a box was set in the households in which 100 CFA had to be put everyday. At the end of the month, the household connected paid the bill. The left over money was used to reimburse the credit contracted for the connection. Every month the process is repeated till the 20.000 CFA are paid back. Read more
From Monika Khanna, Research Associate
Financing Small Water Supply and Sanitation Service Providers - Exploring the Microfinance Option in Sub-Saharan Africa
Paper; by Meera Mehta and Kameel Virjee; Water and Sanitation Program of UNDP and the World Bank; December 2003
Available at http://www.microfinancegateway.org/gm/document-1.9.28364/21838_WSP.pdf (PDF; File Size: 716 KB)
Paper discusses the possible role of microfinance in financing small water supply and sanitation (WSS) service providers
Microfinance for Water and Sanitation in West Africa
Paper; by Evariste Kouassi-Komlan, Catarina Fonseca, Burkina Faso ; Centre Régional pour l’Eau Potable et l’Assainissement à faible coût (CREPA); Burkina Faso; 2004
Available at http://www.microfinancegateway.org/gm/document-1.9.24330/40261_file_11.pdf (PDF; Size: 97.4 KB)
Paper focuses on the challenge of financing the expansion and maintenance of water and sanitation services in poor rural areas
Microfinance for Water, Sanitation and Hygiene: An Introduction
Paper; by Catarina Fonseca, Marieke Adank, Deirdre Casella, Martine Jeths, Peter van der Linde, Bianca Dijkshoorn; Netherlands Water Partnership (NWP) and International Water and Sanitation Centre (IRC); Netherlands; October 2007
Available at http://www.microfinancegateway.org/gm/document-1.9.25071/99.pdf (PDF; Size: 809 KB)
Shares business case for financing water supply and sanitation projects through microfinance
Recommended Organizations and Programmes
Liberal Association for Movement of People, West Bengal (from Malay Dewanji)
Pratapbagan, Bankura - 722101; Tel: 91-3242-250685; dishari@vsnl.net; http://www.lamp-ngo-india.org/
Voluntary organisation running sanitary marts and programmes on safe drinking water, also provides loans to SHGs for sanitary latrines
Abhishek Mendiratta, Jupiter Knowledge Management and Innovative Concepts Pvt. Ltd., New Delhi
Financial issues are particularly relevant for the water sector because of the high capital intensity and long repayment periods for investments. Without financial sustainability the sector will not be able to deliver on its important goals, including contribution to economic growth. There is a need to know what has happened, what progress has been made on the topic of financing and to what extent the MDG agenda has leveraged additional funds for the sector. Moreover, there are new issues on the financing water agenda, chiefly the issue of climate change adaptation.
Financial sustainability requires closing the financing gap by acting on the demand and supply sides of finance. The need for finance is potentially boundless, so sector goals should be defined according to realistic financial envelopes. The ultimate sources of finance are limited to user charges, tax-payers (budgetary resources) and international solidarity. Credible and sustainable financing strategies would identify realistic cost recovery levels and realistic subsidy flows.
In addition to questions asked by Mr. Ananth, I want to put some more questions for discussion so that we can reach concrete conclusions at the end of the discussions.
Financial Sustainability – What is the role of pricing policies in contributing to the financial sustainability of water service provision? How is this seen from the perspective of the service provider (revenue sufficiency) Vs. the local/national government responsible for infrastructure (means to attract investment) Vs. the regulator (way to avoid monopoly rents and ensure affordability)? What is sustainable cost recovery and how can it be achieved over time? What is the link between pricing and efficiency of service provision (what are appropriate costs to be recovered, capital and operational expenditure)? What is the current experience with cost-recovery? What are the specific challenges for urban water supply and sanitation, rural water supply and sanitation and the provision of irrigation service?
Social sustainability – Is there a real conflict between financial sustainability and social sustainability of pricing strategies? Are tariffs an appropriate vehicle to deliver social policy objectives or should other instruments be used? When separate policy instruments cannot be implemented, how can tariff structures be designed to ensure affordability for vulnerable groups, while avoiding to discourage increased access? And who should pay for the extension of access? And beyond cross-subsidization among customers of the same provider, what is the role of cross-subsidization between urban and rural users?
Economic Sustainability – Efficiency in allocation: What is the role of pricing in allocating scarce water resources across competing sectors? What is the role of pricing mechanisms (and other economic instruments) in addressing the mounting water scarcity – particularly in the context of climate change – and dealing with droughts? Reallocation has “winners” and “losers”: is there a conflict between economic efficiency objectives and social sustainability objectives? If so, is keeping the price of the resources low the appropriate answer? Or are there better mechanisms to address the income redistribution impacts of water re-allocation and to protect livelihoods in negatively affected regions?
Efficiency in use - How effective are volumetric water tariffs in inducing efficient water use?
Volumetric tariffs and metering – What are the pros and cons of metering and who should pay for them? Can there be trade-offs between economic efficiency and financial sustainability (e.g. when a system with over-capacity already exists)?
Environmental sustainability – What is the role of pricing mechanisms in ensuring the preservation of basic ecological functions of the water resource base for current and future generations?
Ashwin Kumar, SEED Trust, Kancheepuram
The following is largely based on our experience in implementing loan products for sanitation; I will try my best to respond to all the three questions posed here in the forum:
What is the scope to roll out exclusive loan products for water and sanitation by MFIs? And the main bottle necks/constraints in rolling out exclusive WatSan loan products
The scope is immense. There is a very large gap in the availability of sanitation facilities and the desired (100%) level of sanitation targeted. This is largely true for water supply installations as well, though the gap is not so large.
But with sanitation, the issue is not about the scope, but about attitude and behaviour. It is quite possible that we might be able to create a good loan product and market it as well, thereby creating a huge infrastructure of household/domestic/public sanitation facilities. However, unless the attitude towards sanitation and behaviour changes, the purpose of the loan product will not be achieved. So, the most important component of a WatSan micro-finance product is behaviour change communication and the training component. Without this component, the loan product is bound to face more challenges.
Another operational aspect is competition with other microfinance loan products. While we have been able to generate demand to some extent and promote sanitation loan products, the loans are often redeployed for other consumption or strengthening income generating activities. There is also the problem of overburdening the as we cannot give this loan to people who are already indebted with other MF loans.
Another challenge faced is with regard to utility - while the IGP/micro-enterprise loans yield returns, sanitation loan is seen only as expenditure and that too a dead expenditure since people who construct anyway do not use the facilities.
Subsidisation by Govt under TSC - this is both a boon as well as a challenge. We are able to convince some beneficiaries that they will be eligible for the TSC subsidy. But we have to ensure that the TSC coordinators fall on track. There have been cases when TSC coordinators have refused to cooperate or have practiced other non favourable behaviour, or colluded with the Panchayats presidents.
The panchayat presidents in many cases do not cooperate. Initiall they show a lot of interest since they are aware of the cash award component of NGP. They coax us into giving loans guaranteeing their proper usage and return. But once NGP is awarded, their interest wanes.
Technology/product variations are also a challenge. For eg water seal single leach pit works well in most of the places, but not in all. Some people fear that the single leach pit will fill in faster. There are many such concerns.
Another very important challenge is the construction. Though most of the masons are aware of basic construction technology, they are either not very well versed with constructing an appropriate toilet or sometimes carry out instructions just for the sake of constructing a structure. Sometimes they look to cut corners and save some money. Sensitising them and orienting them is very important.
What are the key contributing factors for the success and sustainability of WatSan loan products?
The key contributing factors would be
- Loan product accompanied by Behaviour Change Communication (BCC) and Training
- Optimal stakeholder participation especially TSC Management, Panchayat and local masons
- Varied products/technologies to suit the varied needs of borrowers.
What strategies MFIs should adopt to make WatSan loan products as a priority borrowing area of their clients i.e. how to convert the latent demand into an active demand?
The BCC is one way, but the right targeting is more important. While we cannot target those who hardly have a decent livelihood and are very poor we could target those that have already crossed the barrier from very poor to economically active poor. Health and quality of life needs arise only after survival/basic needs are fulfilled. The other method, which I have seen UNICEF adapt to some extent successfully, is to target the children in schools. Strengthen the behaviour and practice in schools, especially the girls they will subsequently motivate their parents to construct a toilet.
While much of what has been given above relates to sanitation, I hope it is still useful.
Satya Prakash Mehra, Rajputana Society of Natural History, Rajasthan
It is great to learn about such work. I would like to know about the target areas (for e.g. rural or urban), about the target community/ population (poor urban dwellers, poor rural, agriculturists etc).
The issue of microfinancing depends on many factors. As per our experience in the rural areas of Rajasthan, it is hard for the agriculturists to generate funds for solving water problems collectively. Although few of them may have developed alternative sources but those are not sustainable. In such cases water credits may be one of the important solutions. Further, is the solution sustainable or short lived? If it is sustainable than the users could definitely be motivated and encouraged to get involved in such solutions. If water credit is helpful in financing sustainable solutions than definitely it would be successful in long run.
Target groups especially from the tribal belts (as in case of southern Rajasthan) may still doubt water credits but by the formation of Village Development Committees (VDCs) and raising awareness of alternative crops solutions can be found, like we have discovered based on our experimental work on water solutions in rural areas.
Bibhu Prasad Mohanty, BISWA, Danipali, Sambalpur
Thanks for opening the water dimension in microfinance forum. I equally agree with you that women suffer most because of lack of safe water. It may be drinking water or water for livestock or water for sanitation or irrigation; for each of these a women face drudgery and unhealthy challenges.
Among all the troubles in my opinion, menstrual sanitation is very important for women. But this matter is always neglected, avoided and traditionally wrongly managed at the societal level. A large number of girls in rural areas usually get dropped out from schools because of lack of education in menstrual hygiene. A girl becomes more cautious, slow and fearful than before. It is our wrong social education which is responsible for this. But water plays a major role here, cleaning self in a healthy manner and keeping self healthy during menstrual period becomes a major concern for all the women where water scarcity is high. It is a challenging to avoid the situation. Attempts may be made to teach women to produce and promote the use of menstrual napkins or pads in those areas. It requires a cost of maximum Rs.30,000/- to start with such venture and at least help women to have biodegradable low cost pads and help themselves and the community. Such venture should be started by WSHGs in villages without much investment too. Similarly easy availability of pads in schools at Rs.2.00 or Rs.3.00 per pad can be made available through automatic or semi automatic vending machines through women entrepreneurs. Thus by using science and technology, appropriate application and promotion of innovative approaches we can definitely reduce the drudgery to a high degree and make the life of women dignified and save their lives.
Malay Dewanji, LAMP, Bankura, West Bengal
Ours is a national level organisation called "Liberal Association for Movement of People(LAMP) working in 8 states of India , since 1978. In the course of our involvement, we have been successfully running two Sanitary Marts in two different blocks of Bankura and Purulia districts and also safe drinking water programmes in the states of West Bengal , Orissa and Jharkhand. As part of our Micro Finance programme through Self-Help Groups, (at present we have 90,000 + women self-help group members), we have been providing loans to have sanitary latrines in each household, and tube-wells. The rate of interest is 12%. We also provide training to the interested women and men for preliminary repairing of tube-wells in order to be self-dependent up to a point. We have now planned to submit applications to some International Banks/Foundations for providing us a loan of at least EURO 2-3 Million for undertaking the sanitation and safe drinking water loan products in a large scale in the eastern Indian states. I would appreciate if anyone can give some relevant information to help us in this regard?
Harish Chotani, Consultant (Livelihoods and Microfinance), Gurgaon *
It is good to hold a discussion on this very important subject.
- Watsan is a very important subject for living healthy for a child to get quality education and for an adult to be having productive livelihood.
- SHGs can be the leaders in promoting safe and hygienic latrines so that they are used by many in the village especially women who in the absence of secured place suffer/likely to suffer from a number of diseases. A combination of credit and subsidy from government would be good to move forward with. Opportunity of NREGA can be also used if Government is persuaded in this direction (material as credit component and labour as NREGA contribution).
- On the subject of safe water with no drudgery component for women in fetching water, the need for such essential commodity is a "Right" to preserve healthy life. Under the social security program, government must take appropriate measure to give this a priority. Whilst innovating a micro credit product to ensure access to safe and accessible water may be a solution, but the question remains critical for advocacy that is to create awareness among the SHG members to demand for safe water without the drudgery component. The facilitating agencies working with the SHGs/JLG/Mahila mandals/Federations should develop a clear strategy for advocating on this essential commodity.
I believe that innovating credit product for water is actually relieving appropriate authorities of their responsibilities.
* Offline Contribution
Many thanks to all who contributed to this query!
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