Why bring microfinance into the water and sanitation sector?
Financing for the water and sanitation sector in developing countries has primarily been generated through overseas development assistance and public sector budgets. Public investment in the form of grants and other subsidies is justified under most conditions. However, grants and subsidies alone cannot address the water and sanitation crisis. The United Nations’ 2006 Human Development Report estimates the total economic benefits of meeting the water and sanitation targets in the Millennium Development Goals (MDGs) – halving the proportion of people without access to safe water and sanitation by 2015 – would be approximately $38 billion annually.
Current financing models that dominate the water and sanitation sector are not scalable because they rely on philanthropy and subsidies, rather than working within the slipstream of market forces. WaterCredit models not only cost less (because they leverage end-user payments), but they also leverage market forces, which enable the models to naturally scale through local resources. Users with a financial stake in their water supply solutions also have a greater incentive to ensure proper operations and maintenance. Generating investments from within local economies will be a key element in allowing developing countries to reverse the dependence on external aid that has shown only mixed success in meeting long-term water and sanitation needs.
The WaterCredit initiative was designed to create solutions to these problems. WaterCredit starts from the premise that there are some people in the developing world who can finance their own access to safe water and sanitation if they can pay for these services over time. Beneficiaries become clients during the process and participate actively in the projects. The programs provide loans for eligible clients that are designed to match their willingness and ability to pay for the services. In turn, the loan funds both recycle end user payments and use them as leverage to attract commercial investment. These downstream and upstream investments expand both the amount of capital in the sector and the number of people who benefit from improved services.