Tools for Developing Water and Sanitation Microfinance Products

> Posted by Jenn Beard, Global Learning Manager,

Nearly 800 million people lack access to safe water, and 2.5 billion people lack access to improved sanitation. As many NGOs and microfinance institutions are now discovering, the way forward will include lending to individuals for their water and sanitation (WASH) needs. WASH microfinance is making it possible for the poor to take control in instances where access is difficult. However, most providers in the position to meet this financing opportunity are not yet offering these services. One thing standing in the way is the tools to get institutions started.

The business case for financial institutions to add WASH financial products to their portfolios is significant. A study sponsored by the Bill and Melinda Gates Foundation estimated global demand for microfinance for water and sanitation at over US$12 billion between 2004 and 2015. After all, the poor are already spending money in these areas—both directly (purchasing water from vendors/kiosks or paying to use a community toilet) and indirectly (higher healthcare costs and/or lost time and wages while looking for or collecting water). Microfinance providers have highly relevant goals, experience, processes, and outreach activities to play a key role in increasing access to WASH facilities. As financial institutions broaden their services beyond business lending and develop products to more fully address their clients’ diverse financial service needs, WASH financing emerges as a clear opportunity.

In an effort to continue to solve the global water crisis, and MicroSave are jointly developing a series of toolkits to provide information, principles, and practices for the successful development of financial products for water and sanitation investments. The toolkits are designed to be applicable across a variety of markets, lending methodologies, and business models.

The content covered in the toolkits includes the opportunities that exist in WASH microfinance for financial institutions and clients; how to develop, roll out, and market WASH financial products; and overall portfolio management. The toolkits are intended to walk financial institutions through the fundamental differences between WASH microfinance products and more traditional products (like income-generating loans) and navigate critical issues like demand creation, deciding what types of WASH interventions to consider financing, partnerships that may be necessary to cultivate, and how to train staff to effectively promote the new products to potential customers.

From the outset, the successful integration of WASH financial products into an existing loan portfolio requires a willingness by institutions to gather new data that reflects the target market’s conditions and needs of clients—which includes the ability to approach sensitive topics with potential clients, especially in relation to sanitation practices. The appropriate sanitation technology and loan product will depend on many factors, such as population density, current WASH access, the availability of government services and potential partners, geology, the availability of space, the financial institution’s methodology, and clients’ unique needs. Detailed market research can shed light on drivers of product demand. Users of existing facilities may want better ones, while people who still practice open defecation may face a reduction in open space. Demand can be increased through awareness-building by government or NGOs. Lenders must also understand the role of masons, available technology, and technical requirements for constructing water and sanitation improvements. Market research should include the collection of information from households, water and sewer utilities, government agencies and ministries, and private sector providers.

WASH microfinance products generally fall into one of three categories: loans for home-improvements; loans for WASH-related microbusinesses; and small and medium enterprise (SME) loans for community-managed or small private service providers.

In some cases, loans are disbursed directly to the WASH-product manufacturer, which decreases the risk of loan misuse, can incentivize bulk discounts, and helps ensure product quality for the client. A traditional model positions the client to receive the loan disbursement from the financial institution and in turn manage their relationship and transactions with the product manufacturer. Strategic marketing is all the more important because many people who would benefit from WASH finance are unfamiliar with formal financial services. Frontline staff need to be adequately trained and convinced of the product benefits if they are to convince prospective clients. One potential marketing strategy approach is behavior change communication, which, after close listening, tailors communication to the knowledge, attitudes, and practices of their community.

The first three toolkits in the series are available to download at The remaining two – WASH Process Mapping, Pricing and Cash-Flow Based Lending; WASH Portfolio Management – are scheduled for release over the next 12 months.

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