Microloans Aren’t Just for Businesses Anymore: Increasingly they’re helping the poor meet basic needs
Microloans can be used for more than business investments: They can help families gain better access to safe water and sanitation.
Since their start, traditional microloans have been linked to microenterprises, tiny businesses that get large benefits from borrowing small bits of capital. But while the world’s poor are mostly informally self-employed, the majority are not entrepreneurial, i.e. they do not own businesses. Because the microloan industry targets businesses, a huge swath of the poor who lack basic needs like clean water are being left underbanked.
A more universal and basic approach for microloans to assist the more than 3 billion people who live on less than $2.50 a day is providing small loans to break up payments for large purchases. In a March 2013 article, Foreign Policy explains:
Recent studies of microcredit from sites as diverse as Mongolia, Peru, Indonesia, and Bangladesh show that in a substantial proportion of cases, microloans are being used to meet goals other than business investment — health care, school fees, housing improvements, or simply keeping food on the table in periods of financial drought. And while those of us in the banked half of the world take this sort of thing for granted, the lack of reasonably-priced services to smooth out volatile and uncertain household cash flows represents a huge problem for poor households.
One program that has used microfinance in a way not normally associated with the term is WaterCredit, an initiative of Water.org.
WaterCredit, which operates in India, Bangladesh, Kenya, and Uganda, is the first program of its type to loan money to people in developing countries that need clean water and toilets. And toilets are clearly needed: more people own a mobile phone than have a toilet. The need is so large that public and charitable funding can’t hope to meet it: the money must come from the beneficiaries themselves.
That’s why WaterCredit has made more than $17.4 million in loans since its start in 2007.
Many lower-income households often pay five to 10 times more for vended water than those in the same area who already have some sort of water system in place. These same individuals are often cut off from traditional financial services due to a lack of assets. Making matters worse, the time they spend getting water could be spent working to bring in more income.
WaterCredit understands that they are able to pay for safe water and sanitation, but only in small increments over time. By using microfinance, clean water can reach more people who need it. WaterCredit has directly benefited 597,000 people, with 89 percent of those clients being women.
Two of those loan recipients are Annakka Ujinikoppa and her elderly mother-in-law, who live half a mile from the nearest toilet, which is in a public community sanitation center. A Watercredit loan to the family – the program’s average loan size is $166 – let them build a septic tank and toilet room at home.
With a 99 percent repayment rate, WaterCredit’s microloans stand up to the successes of other microfinance institutions that focus their efforts on entrepreneurs. Exploring less traditional methods in which microloans can help the poor reach goals other than business investments would be beneficial to both microfinance institutions and their clients.