A recent CGAP blog post highlights an often unrecognized role
microfinance can play in the lives of the poor: Enabling access to
critical infrastructure services like water and sanitation. As the post
explains, the idea is simple. By providing people with low cost loans,
microfinance institutions (MFIs) “grow water and sanitation assets and
infrastructure at the city, community and household levels.” The
approach works, notes the post, by “tackling one problem (access to safe
water and sanitation)” through “a related yet critical bottleneck
elsewhere (access to finance.)”
We view this work as vital, and we’ve supported efforts to link
microfinance with water and sanitation infrastructure in urban areas
across India. But our own experience in the field has taught us an
enormous amount not just about the potential of such projects to change
lives, but also about the non-financial and non-technical complexities
of successful implementation – and about the challenges of successfully
encouraging people to integrate new habits into their daily routines.
What we’ve found is that to advance this work, organizations must be
prepared to navigate and resolve at least three major baseline issues:
1. Lack of demand among community residents
From the outside, it’s easy to assume that communities that lack
access to water and sanitation must be clamoring for it. Ready access to
clean water would mean healthier kids and families, better attendance
at school, less time wasted waiting for water. But that assumption is
frequently incorrect. Even in urban areas where people are generally
more aware of the importance of water and sanitation, our experience
suggests that awareness does not necessarily (or easily) translate into
willingness to pay for access to facilities. Why? Because although
people who are not sick are able to work more (or, if they’re children)
attend school more often and earn more later, there is no obvious,
short-term income benefit connected to having clean water or a toilet.
And among the poor, who face a struggle to meet an endless number of
immediate needs, clean water and sanitation are often added to a long
list of nice-to-haves.
Even when access is in place, behavior change often remains elusive.
In fact “persuading the villagers to drink, and pay for, clean water,”
might be the biggest obstacle to change, as noted in one recent article
in the New York Times. The key to success of water and sanitation
efforts is thus working with communities to create real demand for the
services. Moreover, organizations must also monitor functionality and
usage after infrastructure is installed. Clearly, health and other
outcomes like productivity will only improve if people actually use the
facilities on a regular basis.
The good news is that, if the work of building community demand is
done up front, slum families are willing and able to make the up-front
capital investment -- especially if it is payable in easy installments
through loans from micro-finance institutions. Better yet, engaging
individual households in contributing to the costs of the infrastructure
helps build a sense of ownership, which, in turn, mitigates maintenance
issues.
2. Significant barriers to entry
Unlike traditional microloans, loans for water and sanitation must be
offered in conjunction with a much broader set of services. These
include not only demand creation, but also:
- Assisting communities with technical aspects of construction
- Liaising with the government for approval of household connections
- Ensuring appropriate end-use of the loan
- Monitoring functionality and usage of the infrastructure
Putting together a complete package to handle each of these elements
can be quite daunting even for the most socially oriented MFI. MFIs
seeking to offer water sanitation loans should actively seek out a model
that works within the constraints of their own operating environments.
They might opt to build the capabilities in house, actively collaborate
with community-based organizations or otherwise offload some of these
activities to a trusted partner. Grameen Financial Services Pvt. Ltd,
for instance, has established partner NGO entities to handle crucial, non-financial activities.
3. Government support and subsidy
If the goal is to provide 100 percent of households in a particular
slum with basic services, government programs that subsidize the costs
of household level infrastructure are critical. The Slum Networking Project in Ahmedabad,
which provided entire slums with a suite of basic services, is a case
in point. The project required households to contribute a subsidized
amount towards the infrastructure. The model depended on both household
contribution (a key factor in instilling a feeling of ownership and
responsibility for newly built toilets, taps and infrastructure) and
subsidies, which eased the financial burden and enabled the
participation of a large number of families.
Fifty percent reduction in water-related diseases
Given the complexities involved, is the effort to link microloans to
water and sanitation work worth pursuing? The answer is an unequivocal
yes. The cost of doing nothing is too high. Dirty water causes a host of
diseases, and kills thousands of children annually. And with deliberate
planning and a clear eye on managing through the intricacies at every
stage, success is possible. In Ahmedabad, customer satisfaction surveys
conducted by some of our partner organizations suggest that usage of
infrastructure continues to be high (more than 80 percent) a few years
after the facilities were constructed. An impact study (which included a
different sample set than the survey) showed that incidence of
water-related diseases, including typhoid, jaundice, diarrhea, cholera
and malaria and other stomach problems, had decreased by more than 50
percent in slums where households received both water and sewage
connections.
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