BY ADRIAN TOVALIN, ATINUKE ADIGUN, ELISE GREEN, AND RAYZA OBLITAS
Adrian Tovalin, Atinuke Adigun, Elise Green, and Rayza Oblitas are second-year students in SAIS’s MA of International Economics program. For their International Development Practicum, they worked with Water.org, a non-profit seeking to advance the use of microfinance loans for water, sanitation, and hygiene purposes.
Microfinance loans for water, sanitation, and hygiene (WASH) purposes are promising tools for addressing the global water crisis. Currently, 1 in 9 people lack access to safe water at home, and 1 in 3 people around the world lack access to a toilet. These statistics disproportionally affect low-income people in developing countries. Moreover, clean water has been proven to have immense positive impacts on several development indicators, such as reducing infant mortality rates and freeing up time for education and income-generating opportunities. These impacts are especially profound for women and girls in developing countries, since they tend to be in charge of water collection for their homes. One of the main constraints that households encounter to access WASH services is the lack of funding. WASH lending addresses this problem by providing group and individual borrowers with the financial means to install WASH products, such as water connections and sanitary toilets.
We supported Water.org’s work in strengthening the sustainability of WASH lending. Water.org is a non-profit that provides grants and technical assistance for various global microfinance institutions to begin or scale up WASH lending. Although Water.org’s partnerships with microfinance institutions have achieved immense impact – empowering more than 33 million people with access to safe water or sanitation – Water.org has not yet determined how to ensure that WASH loans will continue once its partnerships conclude. Our team interviewed representatives of 16 microfinance institutions in Indonesia, the Philippines, Bangladesh and Peru, to distill best practices about WASH lending and Water.org’s partnership model. Although COVID-19 impeded our travel plans in favor of late-night Zoom interviews, we were able to extract the following key lessons regarding WASH lending and Water.org’s business model:
Achieve buy-in from leadership: Some of the partners´ field-level loan officers were resistant to WASH credit adoption; in those cases, securing the executive level buy-in of the product was key for the successful implementation. To achieve this, we recommended to raise awareness, provide incentives and reinforce WASH training to field-level loan officers, branch managers, and the executive management. This helps to facilitate the adoption of the model and guarantees a mission alignment.
Conduct market analysis and regular monitoring of operations: A quick and thorough market survey is the first step for WASH project implementation, providing a general trend on clients' needs. Regular monitoring of operations ensures good quality of the product while reducing the need for post-graduation monitoring. This is especially important to manage shocks, such as COVID-19, and better respond to clients' economic and financial challenges while guaranteeing them access to basic sanitary conditions.
Establish partnerships with other local entities: These partnerships are important for increasing WASH awareness and service adoption. For example, in the Philippines, one microfinance institution found it difficult to scale WASH loans due to the low levels of customer awareness. Thus, in the third year of its partnership and with support from Water.org, the firm partnered with municipal offices of the Department of Social Welfare and Development to carry out WASH education and WASH loan marketing during the government-sponsored cash transfer program.
Offer WASH loans at competitive interest rates: For some of the partners interviewed, concessionary interest rates were offered during initial phases in order to generate demand, however, these institutions quickly realized that concessionary rates made it more difficult to achieve financial sustainability of WASH lending. To resolve the challenge, Water.org suggested charging a more cost-reflective interest rate for WASH loans. For example, another financial institution in the Philippines applied this method and was able to recover costs, earn a return from WASH lending, and maintain an attractive rate for its customers.
Overall, we were impressed by the strong partnerships Water.org has built and hope that the microfinance institutions we interviewed can not only continue with WASH lending, but also serve as role models for other microfinance institutions in their regions. While WASH lending may not be a panacea for solving the water crisis, it plays an important role in creating opportunities for impoverished individuals.
PHOTO CREDIT: danpalmer, licensed under CC BY-ND 2.0