Can Microfinance Help Boost Sanitation Coverage?

Monday, August 17, 2015

The time when microfinance was seen as the miracle cure to lift people out of poverty is long gone. The funding crisis in India in 2010 and evidence of mixed impacts from microfinance have contributed to a greater understanding of both its strengths and weaknesses. While microfinance is usually associated with income generation, rather than taps and toilets, growing evidence shows that it could be a solution for funding sanitation facilities in developing countries.

To reach the millennium development goals, governments and donors expected households to pay the bulk of the cost of building and maintaining household latrines. But many households may not have access to financial services, let alone the means to fund a household toilet; in Tanzania, we found that the costs of building a latrine can represent around 112% of a poor household’s yearly income. Helping households to cover such costs, therefore, is important to boost an increase in sanitation coverage.

In the past, government-led attempts to encourage households to invest in sanitation have had mixed success. There is growing recognition that the effectiveness of approaches such as community-led total sanitation (CLTS) – which uses a community-wide “triggering” exercise based on shame and disgust to prompt people to invest in basic toilets – can be limited by inadequate access to finance. For example, with CLTS people tend to invest in poorly-constructed toilets that are prone to collapse and need to be rebuilt frequently. Finding the funds to invest in durable and improved sanitation remains a major hurdle.

Meanwhile, there has been fierce competition among microfinance services providers in recent years, pushing institutions towards reaching more remote customers and offering innovative products. The rise of mobile banking and digital finance has also lifted many poor people out of financial exclusion.

Over the past seven years, better documentation and interest in sanitation microfinance has grown. Organisations such as have played a leading role in this area, and sector practitioners have started debating the pros and cons of using microfinance to fund Wash (water, sanitation and hygiene) investments. In 2010, the Sanitation and Hygiene Applied Research for Equity (Share) consortium initiated a research programme on sanitation microfinance todocument and evaluate such growth.

In 2008, a study for the Gates Foundation estimated that about 125m households(pdf) would be interested in taking a loan for either water or sanitation, for a total value of $12 bn (£8bn) over the next 10 years. The study predicted that the highest demand would be for sanitation, with 70% of these potential borrowers looking for a sanitation loan in rural areas of South Asia. This was shown in rural India, where a growing number of women are willingly taking on loans to build toilets, even though repayment rates are high.

Source: The Guardian (link opens in a new window)

Health Care
microfinance, poverty alleviation, sanitation