Microfinance for Sanitation - and report on sanitation lending experiences in seven countries (Bolivia, India, Malawi, Peru, Uganda etc) (Water for People)
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TOPIC: Microfinance for Sanitation - and report on sanitation lending experiences in seven countries (Bolivia, India, Malawi, Peru, Uganda etc) (Water for People)

Microfinance for Sanitation - and report on sanitation lending experiences in seven countries (Bolivia, India, Malawi, Peru, Uganda etc) (Water for People) 16 Jun 2013 06:57 #4733

  • F H Mughal
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Microfinance for sanitation has been termed as an effective way for increasing access to sanitation in developing countries. It has also immense benefits for the overall poverty alleviation aspect. The concept of advancing small loans to the very poor was first reported in Bangladesh in 1976, when the Grameen Bank was created by the Nobel Laureate, Muhammad Yunus.

There is also a Yunus Center at the Asian Institute of Technology (AIT), Bangkok, formally launched on 19 August 2009, the first of its kind outside of Bangladesh. While the microfinance finance market has grown over the years (see attached report by SHARE for India), there seems to be limited success elsewhere (see attached report of SHARE for Tanzania).

In Pakistan, while there are some microfinance institutions, none are specifically directed towards sanitation sector (or, at least advertized for sanitation). There seems to be no gains of microfinance in the sanitation sector in the Sindh province of Pakistan. I’m looking for solutions how can this be done to help sanitation sector in rural Sindh. The impact of microfinance in sanitation sector in Bangladesh, where it all started, is not known to me. Perhaps some colleagues from Bangladesh, or others having specific knowledge (Bangladesh, or elsewhere), can share their experience.

As usual, I’m attaching some publications (Ms. Elisabeth might be thinking of labeling me as publications-provider!!!!!!! – Please check for copyrights issues - Thanks).

Cheers,

F H Mughal


Note by moderator (EvM): I checked the publications, no problem. In general, it is only the academic journal articles or books where copyright means that one cannot share it freely on the internet.
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F H Mughal (Mr.)
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Last Edit: 18 Jun 2013 20:29 by muench.

Re: Catalyzing Sanitation as a Business 16 Dec 2013 12:59 #6728

  • smunyana
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The SAAB program has just concluded a study on the role of Microfinance as a potential catalyst for improved sanitation: A synthesis of Water For People’s sanitation lending experiences in seven countries (Bolivia, Guatemala, India, Malawi, Peru, Rwanda, Uganda).

Drawing on experience from working through sanitation microfinance to catalyze sanitation businesses, the study captures highlights illustrating that sanitation microfinance has the potential to sustainably improve sanitation access in developing countries and summarizes key lessons learnt in the process for implementers, partners and donors.

We would love to hear your thoughts on this multi-country sanitation microfinance experience on among others, how to identify a strong microfinance partner, how best donor funds should be targeted to support sanitation microfinance, and what kind of lending schemes work best in different situations.

More information about this SAAB program is available here on the forum:
forum.susana.org/forum/categories/97-ena...bolivia-peru-ecuador

Water For People works in 10 countries but initially SAAB focused on 7 countries with the exception of our three countries in Central America (i.e. Guatemala, Nicaragua and Honduras). However, we do have SAAB operations in all the 10 now and Guatemala featured in this report because they do have some experience with sanitation microfinance under SAAB.
I hope that makes it clearer. SAAB work is currently ongoing in all 10.
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Last Edit: 19 Dec 2013 10:21 by muench.
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Re: Microfinance for Sanitation 18 Dec 2013 13:57 #6742

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Hello Sherina,
thanks for that fairly extensive study, I did not get through yet. I just read the part about Peru and some of the general conclusions. We had about the same interest rate calculated when we tried to set up a microfinancing program with a local Peruvian Private Bank. 33% interest p. year is really high and means in a financing time of 18-36 month that the people will pay 25% - 50% on top of the costs. But yes we as well came to the conclusion it is not possible to do it cheaper, especially as the managing of the loan is a headache. We dropped the idea as too expensive for the people and therefore not attractive.
Our conclusion was that this kind of task should be by the service provider - he has set up a whole system to get the money back, bringing down the costs significantly by this. Best would be connected to a water provision which could be cut in the case of missing payment.

Just an additional observation. You put that Peru is on track for the MDG. This is a again a problem of the MDG – The MDG do not relate to real treatment. I do not agree with the fact that the MDG are fulfilled if you have an irrigation of eatable crops in scale by raw domestic wastewater. I think a comment in regard to this is missing in your report when you say Peru is on track for the MDG.

Yours
Christoph
Last Edit: 18 Dec 2013 14:01 by christoph.

Re: Microfinance for Sanitation 18 Dec 2013 15:00 #6745

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christoph wrote:
We had about the same interest rate calculated when we tried to set up a microfinancing program with a local Peruvian Private Bank. 33% interest p. year is really high and means in a financing time of 18-36 month that the people will pay 25% - 50% on top of the costs. But yes we as well came to the conclusion it is not possible to do it cheaper, especially as the managing of the loan is a headache. We dropped the idea as too expensive for the people and therefore not attractive.


Hi Christoph,

I am not an expert in this, but as far as I know, such interest rates are rather typical, if not even quite low, for microcredits. Reasons are higher management costs and higher risks of not paying back compared to conventional loans. Still it works well with these interest rates in many situations, because those interest rates are usually still much better than those offered by private loan sharks (usually the only source for loans available to poorer people), and even high interest credits still solve the problem of people not having cash at hand to do needed small investments.

Not knowing more about your idea for a credit scheme, this is just a general remark.

Best, Florian
Florian Klingel
Water and Sanitation Specialist at Skat Consulting Ltd.

Re: Microfinance for Sanitation 19 Dec 2013 14:27 #6752

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Dear Christoph,
Thanks for your feedback on this. We are always excited to hear thoughts from others’ experiences in the sector. We do agree with what you say about the MDGs being misleading. In section 10.1, we write "Sanitation coverage in the seven countries ranges from 35% in Uganda and India to an estimated 80% in Guatemala (Table 10-1). However, the reality is often considerably worse as these values do not necessarily reflect functionality or use." as an attempt to clarify this we tried not to say Peru is on-track to have sanitation access for everyone, etc. with the thought that the MDG limitations are known in the sector and these are mainly just to give an idea across the countries and a basis for the cost calculations which WHO used to estimate the cost needed to meet the MDGs. These cost estimates are limited as well and were mainly just to show that we don't have those resources available and need to leverage investment from other areas, such as the higher income households themselves and private sector. We’re happy to see discussion of the MDG limitations and others' experiences with sanitation (and water) microfinance emerging from the conversation.

We will be happy to hear more thoughts once you've gone through it all.
Sherina This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Re: Microfinance for Sanitation 19 Dec 2013 15:18 #6753

  • JKMakowka
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I also have some general remarks:

There are some interesting innovations in micro finance to lower the overhead costs. For example: en.wikipedia.org/wiki/Mifos

As an external donor one can also simply provide an "insurance" fund to make commercial loans available to the poor, and it is not uncommon to include a back-insurance into microfinace products.

Last but not least 30%/a interest rate sounds much, but often you have 10% (or more) inflation the same time, which has to be subtracted to get the real interest rate.
Krischan Makowka
Technical Adviser at the Uganda Water and Sanitation NGO Network (UWASNET)
www.uwasnet.org
Last Edit: 19 Dec 2013 15:22 by JKMakowka.

Re: Microfinance for Sanitation 20 Dec 2013 09:28 #6758

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Hi JK

Thanks for these insights. Certainly very helpful.
Additionally such software as MIFOS would certainly be very useful to help entities such as local savings cooperatives with loan management.
The interest rates remain a real challenge particularly as all this is aimed at making the products more affordable for households.

Best
Sherina
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Re: Microfinance for Sanitation 20 Dec 2013 11:34 #6759

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Dear All,

I found this on the topic:
"WaterSHED’s Hands-Off philosophy leads it to promote solutions that minimize the role of outside donors and NGOs with the dual goals of increased sustainability and replicability."



"Instead of subsidizing the MFI, WaterSHED encouraged VisionFund to charge a loan origination fee in the form of an interchange fee. The fee is similar to the interchange fee paid by merchants around the world who accept payment cards such as VISA or Mastercard, and is typically around 2 percent of the purchase price. Also following the payment card model, VisionFund pays the toilet seller directly instead of disbursing the loan to the consumer."

Link: www.watershedasia.org/microfinance-boosts-latrines/

2% seems to me very promising, even I do not understand all points fully

Maybe still some hidden costs involved!? The difference from surprisingly 2% to the mentioned "usual" 25% - 50% makes me wounder.

All the best
Detlef SCHWAGER
www.aqua-verde.de
Sanitation-Solutions without external energy
Low-Tech Solutions with High-Tech Effects
"Inspired by Circular Economy"
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Re: Microfinance for Sanitation 20 Dec 2013 12:04 #6760

  • JKMakowka
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I am quite sure that there is still an interest rate on the monthly payments which the article seems to omit on purpose. In general this seems to be a scheme to make interest rates appear lower to the purchaser, as the latrine supplier will certainly add those banking fees to the final price of the latrine.

Reminds me a bit of those 0% financing of a new TV in your favorite large brand electronics store that just has inflated prices to compensate for it.
Krischan Makowka
Technical Adviser at the Uganda Water and Sanitation NGO Network (UWASNET)
www.uwasnet.org

Re: Microfinance for Sanitation 20 Dec 2013 14:18 #6763

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I asked the colleagues for more clarification:
www.watershedasia.org/microfinance-boost...trines/#comment-8782
lets see how transparent they will be
www.aqua-verde.de
Sanitation-Solutions without external energy
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www.flickr.com/photos/aqua-verde/

Re: Microfinance for Sanitation 20 Dec 2013 17:12 #6764

  • christoph
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@Detlef -
Step 5 contains for sure the interest (which will be in the normal range), maybe that there is a slight reduction due to the fee of 2 % but the fee has absolutely nothing to do with the monthly interest rates.

@ Florian -
I am aware that 30% interest is a “normal” thing for this kind of credit. I don´t have another idea on how to be able to transfer the toilets on cheaper rates – the idea of a beforehand 10% savings seems a way. Another way could be to be a considerable amount at the end of a credit. But I am sure there are much “better” - more professional – people who are thinking about the models.

@Sherina –
Only now I realized that your numbers are somewhat low, besides those of India where the loans have been VERY small. Did you compare your experiences with other models and other groups and are you able to comment if your described experiences are representative for the specific country?

@all -
Does anybody have experiences with a water service provider providing a loan, being paid in connection to the water tariff?

Yours
Christoph

Re: Microfinance for Sanitation 31 Dec 2013 06:18 #6858

  • Marijn Zandee
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Dear all,

In these somewhat lost days between Christmas and New Year.

Why do we not try to reverse the microcredit logic? And try a "toilet savings scheme", deposit X amount per month and after 24 months you can have your toilet build. In order to make the idea attractive we may have to look at somewhat old marketing materials from banks out of the times that they still encouraged people to save instead of to have maximum lines of credit. This way interest rates would actually help people instead of making the toilet more expensive (interest given should cover inflation + a small bonus).

One obvious challenge is that these sort of financial institutions would have to somehow invest the deposited money to be able to cover interest, otherwise it will just end up being a ponzi-scheme.

Kind regards

Marijn
Marijn Zandee
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