Can Microfinance Boost Sanitation Businesses in East Africa?
On the 16th May, SHARE and WaterAid convened representatives from international organisations, NGOs and financial institutions to a regional learning workshop on sanitation microfinance in Dar Es Salaam. Under the title “Embedding microfinance into sanitation programmes”, the workshop objectives were to capitalise on current experiences, evaluate what has been done in this area in the East Africa region and identify what type of support financial institutions operating in the region are likely to need to enter the market.
Here, Goufrane Mansour of Trémolet Consulting provides a description of the workshop:
The workshop gathered a unique set of organisations and NGO staff operating in the East Africa region, including in Tanzania, Kenya, Uganda, Ethiopia and Rwanda. Organised jointly by Trémolet Consulting and WaterAid, it had a special focus on the situation and experiences in the region, whilst also taking lessons from global experience.
The workshop was opened by Lydia Zigomo, Head of WaterAid East Africa region, who stressed the importance of the event for WaterAid. The organisation is increasingly working with the private sector and seeing microfinance as a crucial component of its strategy for sanitation, from collection to sanitation businesses. Sophie Trémolet gave a presentation about the role of microfinance within an overall strategy to support access to sanitation services and the role of public intervention. Sophie stressed that microfinance is a tool that should be seen as an integral part of a sanitation intervention package, comprising software interventions, hardware subsidies for the neediest or publicly-funded infrastructure investments. Microfinance can be a critical tool to help households spread the costs of investing in improved sanitation or to enable businesses to acquire critical equipment.
Several sanitation microfinance experiences were then presented from an NGO perspective as well as from a lender perspective.
Gordon Mumbo shared the Water for People experience in Malawi, where the NGO implemented a comprehensive microfinance programme in Blantyre as part of a Bill and Melinda Gates-funded Sanitation as Business (SaaB) Initiative. The programme was built on a thorough market analysis to identify the size of the sanitation market. Water for People partnered with Opportunity Bank, which agreed to provide loans on the basis of a USD 20,000 guarantee deposited by Water for People. The NGO conducted demand creation activities for sanitation and loans to construct latrines. Although Water for People has managed to trigger some lending for sanitation, the programme did not to scale-up: between 2011 and 2012, only 210 loans were disbursed. The repayment rate is good but the NGO had to put much effort and resources into collection, as Opportunity Bank did not wish to carry out these activities without the NGO’s support. WfP is now considering an alternative model for facilitating access to finance for sanitation, including through reducing the cost of latrines, providing different financial packages to suit different situations and choosing alternative lending partners.
Vijay Athreye, co-founder of the FINISH (Financial Inclusion for Sanitation and Hygiene) society - based in India - presented the FINISH model for delivering sanitation services. FINISH is an innovative partnership between international NGOs and institutions (including WASTE from the Netherlands), local NGOs and microfinance institutions. FINISH offers a catalogue of products to suit households’ preferences and provides different financial services to suit different needs. According to Vijay Athreye, 300,000 toilets have been built under the FINISH project, and toilets are now being built at the rate of one toilet every 3 minutes. FINISH is now extending the model to Kenya, via FINISH INK.
Patrick Alubbe gave an overview of the WaterCredit programme of Water.org, one of the key players supporting access to finance for water and sanitation. Water.org currently provides “smart subsidies”, i.e. training on sanitation issues and financing for market research to several MFIs in Kenya so that they mobilise their staff and deliver loans for WASH. The model works very well for water-related products, such as loans for water tanks. However, sanitation loans are not performing as well as expected. For example, Equity Bank, one of the largest financial institutions in Kenya, is delivering WASH loans under a scheme supported by Water.org. According to Stephen Mwaniki from Equity Bank who also delivered a presentation at the workshop, 93% of the loans disbursed are water-related loans (“Maji loans”, with an average loan size of KES 30,000 or USD 353). Sanitation loans (“Jamii safi”) represent only 7% of total loans disbursed. Sanitation loans are larger, with an average of KES 40,000 (USD 470).
The workshop has not clearly established why sanitation loans were “underperforming”. Financial institutions that were present indicated, however, their interest in entering into partnerships with international (and local) organizations to support facilitating access to finance for sanitation.
George Muruka from MicroSave provided the audience with an overall picture of the microfinance context in the East Africa region: including who are the key players (including network institutions such as TAMFi, the organization of microfinance institutions in Tanzania) in each countries, how big (or small) the financial sector is, and what the current policies in relation to financial inclusion are – policies that could be built upon in a sanitation strategy.
The workshop also convened a representative from WSP, Michael Momanyn, who presented the main features of the WSP/IFC “Selling Sanitation Initiative”, with a key objective of promoting sanitation as a business. The underlying assumptions of this initiative are that sanitation is a large untapped market, that people are able to pay and that the choice of technology matters: technology has to be affordable and match people’s (different) expectations.
The workshop also provided a platform for presenting the progress of SHARE-research on sanitation microfinance, as the three research partners, the NGO CCI and the two MFIs ECLOF-Tanzania and Tujijenge Tanzania presented their activities under the action-research. All three institutions are currently receiving support from the SHARE programme to refine financial products for sanitation.
All slide presentations for the workshop are available here.
You can also view a report produced for WaterAid by Tremolet Consulting for the workshop entitled 'Embedding Access to Finance in Sanitation Programmes'.