PAPER WRAP-UP: Microfinance for Water, Sanitation and Hygiene: An Introduction

This document was produced by the Netherlands Water Partnership (NWP) with contributing editors Catarina Fonseca, Marieke Adank, Deirdre Casella and Martine Jeths, in cooperation with the International Water and Sanitation Center (IRC) and contributing editors Peter van der Linde and Bianca Dijkshoorn. Originally published in October 2007, this 33-page document is available here.

This paper was published as an introduction to the use of microfinance services in developing sustainable infrastructure to provide drinking water, sanitation and hygiene services to poor communities in developing countries. Water supply and sanitation activities are not traditionally targeted by microfinance institutions because they are not seen as income-generating businesses. Recently, more and more microfinance institutions argue that sustainable businesses can be established in water supply and sanitation projects.

Currently, microfinance institutions have low levels of awareness and information about how to develop the water, hygiene and sanitation sectors. This paper stresses the importance of the non-financial services required to up-start the water, hygiene and sanitation sector such as training, counseling, and sensitization, and other forms of social marketing. Still, a major barrier to the market for water, hygiene and sanitation is the connection costs that often must be paid in one lump-sum.

Centre Régional pour l’Eau Potable et l’Assainissement à faible coût (CREPA) reported in 2005 that their Côte d’Ivoire branch partnered with La Société de Distribution d’eau de Côte d’Ivoire (SODECI), the country’s public water utility, to provide microfinance services in the form of a USD 10,800 loan to pay for connection to drinking water for 300 households (USD 36 per household) in the capital city of Abidjan. This group loan was coupled with a capacity building program provided by CREPA aimed at mobilizing household savings to pay back the loan and ongoing water bills. The connection fee loan was paid back by the 300 households within 17 months. CREPA is introducing this group-lending scheme to other West African countries, currently piloting a program in Burkina Faso.

In the West African country of Togo, the microfinance market for the water sector started in 2001. Currently, microfinance is successfully being used to install household water points using shallow boreholes (USD 3,000 each) and rainwater tanks (USD 1,000 each). There is an interest rate of 21 percent plus a 2 percent charge for administrative services. Despite the seemingly high costs, households have demonstrated the ability to repay the loans within a short timeframe. Seventy percent of the loans were repaid within six months using revenue accumulated from selling the drinking water within the community. As of 2007, over 1,200 households in Togo’s capital city of Lomé have their own water points. The area’s microfinance/water sector involves six microfinance institutions, five private drilling companies, NGOs, the Centre Régional pour l’Eau Potable et l’Assainissement à faible coût (CREPA) and the Water Ministry.

In India, Lesotho, Vietnam, Bangladesh, Pakistan and Burkina Faso, microfinance has been used for sanitation-related services including construction of public toilets, manual latrine-cleaning services, and suction truckers used to empty pit latrines.

A major obstacle for the sanitation sector is the prevalence of highly subsidized pilot projects that are unable to make the transition into self-sustaining entities.

In a low-income neighborhood in Burkina Faso, a savings-credit initiative was set up for the household management of domestic waste. At first, the payback rate was very low with only 5 out of 28 families making payments due to lack awareness for the need of sustained sanitation services. After an awareness campaign from CREPA and NGO EAST, beneficiaries developed a more solid commitment to the program and repayment rates are currently at 80 percent and anticipated to increase to a profit-making level.

With village shared sanitation facilities, supply-chain micro-businesses can also be set up providing soap, toilet parts, sewage management and construction.

By Melissa Duscha

Additional Resources:

Centre Régional pour l’Eau Potable et l’Assainissement à faible coût (CREPA)

International Water and Sanitation Center (IRC)

Netherlands Water Partnership (NWP)

La Société de Distribution d’eau de Côte d’Ivoire (SODECI)

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