A recent CGAP blog post highlights an often unrecognized role microfinance can play in the lives of the poor: Enabling access to critical infrastructure services like water and sanitation. As the post explains, the idea is simple. By providing people with low cost loans, microfinance institutions (MFIs) “grow water and sanitation assets and infrastructure at the city, community and household levels.” The approach works, notes the post, by “tackling one problem (access to safe water and sanitation)” through “a related yet critical bottleneck elsewhere (access to finance.)”
We view this work as vital, and we’ve supported efforts to link microfinance with water and sanitation infrastructure in urban areas across India. But our own experience in the field has taught us an enormous amount not just about the potential of such projects to change lives, but also about the non-financial and non-technical complexities of successful implementation – and about the challenges of successfully encouraging people to integrate new habits into their daily routines.
What we’ve found is that to advance this work, organizations must be prepared to navigate and resolve at least three major baseline issues:
1. Lack of demand among community residents
From the outside, it’s easy to assume that communities that lack access to water and sanitation must be clamoring for it. Ready access to clean water would mean healthier kids and families, better attendance at school, less time wasted waiting for water. But that assumption is frequently incorrect. Even in urban areas where people are generally more aware of the importance of water and sanitation, our experience suggests that awareness does not necessarily (or easily) translate into willingness to pay for access to facilities. Why? Because although people who are not sick are able to work more (or, if they’re children) attend school more often and earn more later, there is no obvious, short-term income benefit connected to having clean water or a toilet. And among the poor, who face a struggle to meet an endless number of immediate needs, clean water and sanitation are often added to a long list of nice-to-haves.
Even when access is in place, behavior change often remains elusive. In fact “persuading the villagers to drink, and pay for, clean water,” might be the biggest obstacle to change, as noted in one recent article in the New York Times. The key to success of water and sanitation efforts is thus working with communities to create real demand for the services. Moreover, organizations must also monitor functionality and usage after infrastructure is installed. Clearly, health and other outcomes like productivity will only improve if people actually use the facilities on a regular basis.
The good news is that, if the work of building community demand is done up front, slum families are willing and able to make the up-front capital investment — especially if it is payable in easy installments through loans from micro-finance institutions. Better yet, engaging individual households in contributing to the costs of the infrastructure helps build a sense of ownership, which, in turn, mitigates maintenance issues.
2. Significant barriers to entry
Unlike traditional microloans, loans for water and sanitation must be offered in conjunction with a much broader set of services. These include not only demand creation, but also:
- Assisting communities with technical aspects of construction
- Liaising with the government for approval of household connections
- Ensuring appropriate end-use of the loan
- Monitoring functionality and usage of the infrastructure
Putting together a complete package to handle each of these elements can be quite daunting even for the most socially oriented MFI. MFIs seeking to offer water sanitation loans should actively seek out a model that works within the constraints of their own operating environments. They might opt to build the capabilities in house, actively collaborate with community-based organizations or otherwise offload some of these activities to a trusted partner. Grameen Financial Services Pvt. Ltd, for instance, has established partner NGO entities to handle crucial, non-financial activities.
3. Government support and subsidy
If the goal is to provide 100 percent of households in a particular slum with basic services, government programs that subsidize the costs of household level infrastructure are critical. The Slum Networking Project in Ahmedabad, which provided entire slums with a suite of basic services, is a case in point. The project required households to contribute a subsidized amount towards the infrastructure. The model depended on both household contribution (a key factor in instilling a feeling of ownership and responsibility for newly built toilets, taps and infrastructure) and subsidies, which eased the financial burden and enabled the participation of a large number of families.
Fifty percent reduction in water-related diseases
Given the complexities involved, is the effort to link microloans to water and sanitation work worth pursuing? The answer is an unequivocal yes. The cost of doing nothing is too high. Dirty water causes a host of diseases, and kills thousands of children annually. And with deliberate planning and a clear eye on managing through the intricacies at every stage, success is possible. In Ahmedabad, customer satisfaction surveys conducted by some of our partner organizations suggest that usage of infrastructure continues to be high (more than 80 percent) a few years after the facilities were constructed. An impact study (which included a different sample set than the survey) showed that incidence of water-related diseases, including typhoid, jaundice, diarrhea, cholera and malaria and other stomach problems, had decreased by more than 50 percent in slums where households received both water and sewage connections.
Read the CGAP blog post that sparked this post ‘Microfinance for water and sanitation: An example of client-focused innovation.’
Learn more about our work in water and sanitation.