Smart Subsidies
Water.org provides a variety of catalytic capacity-building grants – “smart subsidies” – for different purposes. This financing is “smart” because, unlike traditional grants, smart subsidies are provided in a targeted manner to correct market distortions and create new markets. Market distortions exist due to the historically inefficient nature of WASH financing for development. New markets can be created where access to capital can facilitate access to water and sanitation in a sustainable way. Therefore, a smart subsidy is provided with the intent of attracting additional philanthropic, social, commercial and civic capital to the table and enabling the development of financial products that will not require additional grants over time.
The types of WaterCredit activities for which smart subsidies are provided to partner MFIs include:
- Organizational-level market assessments
- Client-level demand surveys
- Loan and savings product development and roll-out costs
- Hygiene education and related community-based outreach
- Loan tracking technology for WASH products
Credit Enhancement
Water.org recognizes the important role that credit enhancement can play to attract additional investor interest to the WSH sector. Water.org provides various types of credit enhancement to its MFI partners to help mobilize additional capital for WaterCredit programs and bring them to scale more quickly. Water.org also actively seeks third parties to provide such funding, as Water.org is not a “water bank.” Rather, Water.org’s unique value-add stems from its WASH expertise, program implementation skills, and capacity to facilitate WASH investments with MFIs.
Examples of credit enhancements provided for WaterCredit include first loan loss guarantees, standby letters of credit, and foreign exchange mitigation instruments. Water.org considers these arrangements on a case-by-case basis, taking into account local law and related requirements; participation of additional and/or third-party investors; the MFI’s projected growth, financial soundness, and overall ability to structure and manage these tools; and local economic conditions.
Strategic WASH & Microfinance Advisory Services
In addition to developing dedicated WaterCredit programs with its partner MFIs and the global Water.org network, the Water.org team can advise external stakeholders such as development banks, microfinance associations and networks, and public- and private-sector organizations about the viability of WaterCredit initiatives throughout the developing world. Water.org is uniquely positioned in this regard because it has in-house WASH and microfinance experts that actively collaborate, structure cross-sector programs and build best practices together. This enables the organization to share information effectively and efficiently, both internally and with external partners. It also serves as a strategic building block to explore new geographies and partners for WaterCredit expansion.
