Microfinance as an enabler of sustainable household sanitation and business development

By Valentin Post, CEO FINISH Mondial

To meet the SDG 6 target for safely managed sanitation, a capital investment of US$ 46 billion per year is needed as well as US$ 21 billion annually for operational expenses (UNICEF 2022). Not only are these amounts staggering, but it is also extremely unclear who will foot these bills. A significant part of the expenses relates to the construction of safely managed household systems. This begs the question: what if households who can afford to pay for toilets, also pay for them?

Low-income households are more than willing to take out loans to build a toilet

The sanitation sector still relies heavily on subsidies, which is unsustainable in the long term: the more toilets you build, the more subsidies you need. People also tend to be more negligent with products or services they have not paid for. Our approach at FINISH Mondial (FM) is to find more sustainable financial models and having people pay for their toilets is part of the solution. In the markets we are operating, a large part of the population has no €200 – 300 left in their pockets, however.

This is where microfinance comes in. Paying this amount in small installments attuned to the expected income of the household makes safely managed sanitation available to many more people. At first, people in the sanitation sector doubted whether low-income households would be willing to take out a loan to pay for a toilet. In reality, this is not the case, quite the contrary. We have been working in this field for well over one decade and what we observed is that people are more than willing to invest in a safe sanitation system once they see its benefits of it (this is why sanitation marketing is so important!).

Kick-starting small businesses with microfinance

We take a holistic approach at FINISH Mondial. Our aim is to stimulate not only the demand side of sanitation but also the supply side. That means we also provide microfinance to small businesses, such as masons whom we train in the construction of safe sanitation systems (above and most-of-all below the ground where the faecal sludge accumulates, and health risks emerge). We also support them with business training and capacity development – to construct a high quality safely managed sanitation system at low prices we need a well-educated and trained workforce. The initial loan needs of these types of businesses are quite small (typically below €1000), which creates a further market segment for Micro Finance Institutions (MFIs).

Sanitation micro-loans: a multi-million annual business

We are currently collaborating with 25 MFIs. In the beginning, we had to work hard to convince them that sanitation loans are not consumption loans, but a longer-term investment for households. Working with microfinance institutions in developing sanitation loan products suitable to the market and developing the capabilities of the staff (so they can market the sanitation WASH products) also requires buy-in from senior management. Not all microfinance institutions are convinced of the market potential of sanitation loans. Those who are convinced, however, do find that repayment rates are excellent, often better than in their other portfolios.

And the market is growing and growing: to give some figures, the FINISH Mondial consortium alone (comprising WASTE, Amref, and Aqua for All) supports the construction of one sanitation system valued at about € 250 every second minute on a 24 / 7 basis. This indeed is a multi-million annual business exceeding € 50 million. The sanitation loans have become so popular that some of our MFI partners are running out of liquidities. Now we are looking into those with the deepest pockets to step in. FINISH Mondial has now set its sights on attracting institutional financing (pension funds, insurance companies) to support the same. We are working with an impact investor, ACTIAM, to set up a sanitation impact fund whereby the investors will be institutional in nature.

Valentin Post is CEO of FINISH Mondial and has worked in the sanitation and waste sectors for over 25 years. He will be at the Stockholm World Water Week, speaking about microfinance and market segmentation for sanitation financing. Join the Talk show “Sanitation Financing: Creating market segments for more efficiency” on the 30th of August at 16:00 CEST, on-site or online, where he will be one of the panelists, together with Jacqueline Barendse of Take-a-Stake Fund.  

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