Financing Water: Taking Microloans Beyond Business
An innovative model for helping the poor access clean water to live healthier and more productive lives.
Published in partnership with News Deeply
For a long time, microloans for household water and sanitation (WASH) investment did not seem fundable. They’re not like microbusiness loans, which have an obvious income stream to be generated. Water.org changed that assumption with the launch of WaterCredit, proving that these kinds of loans do improve household finances – and enable families and communities to participate more fully in inclusive growth.
At an average just $178 each, WaterCredit microloans have helped more than 3 million people gain access to clean water and toilets in their homes, schools and neighborhoods – essential tools for healthy and productive lives.
“Water and access to sanitation are such basic fundamental needs,” says Jennifer Schorsch, president of Water.org. “No one should be locked into a cycle of poverty simply due to the fact that they were born into a situation of poverty.”
Water.org brings together the finance and WASH sectors in unique collaboration. Its 54 partners to date have lent more than $150 million to individuals in nine countries so far. Water.org is not a “water bank for the world”; rather, its partners so far have been experienced microlenders, and the loan is typically not the first a borrower takes out. WaterCredit has proven to be more no more risky than microloans for income-generating purposes: Even though more than 80 percent of borrowers live on less than $2 per day, WaterCredit loans have a 99 percent repayment rate.
Schorsch explains how to create transformational cross-sector collaboration.
Q: Both microfinance and the importance of clean water are well known. Combined, how do they set the stage for inclusive growth?
Jennifer Schorsch: On so many levels, access to water and sanitation is the ultimate link to economic empowerment. I think one of the beauties of the WaterCredit model is that it has shown that people living in poverty can solve the daily crisis they live in, if they have the financing to do it. These individuals are bankable, and water and sanitation can produce a return.
Families get ill less often, and no longer have to use so much of their income for healthcare expenses. In Haiti, we had a woman who had been going to an emergency clinic twice a week because her kids got sick so frequently from diarrhea. With a clean water pump, they now have that time and money back – not to mention their ability to go to school.
At school, girls can stay in class if there’s a gender-specific toilet. At home, they’re no longer walking or waiting for water with their moms: they’re studying and dreaming and playing, and pursuing an educational path that would be otherwise closed to them.
These loans even spark entrepreneurship: You see some people taking out the loan, getting a rainwater harvesting tank and starting a business that sells clean, affordable water to their neighbors.
Moms, kids, families and communities keep the resources that got wasted before – time, money, health – which enables them to improve their lives and livelihoods. Ultimately, that leads to communities that can look to a future and realize their potential.
Q: Did you have any bumps in the road rolling out this type of financing – especially lending via partners?
Schorsch: There was an “Aha!” moment for Gary [White, co-founder of Water.org] back in 2003 when he observed a woman in a slum in India exchanging money with an informal lender. When he asked her about it, he learned that she was taking out a loan for water for her family at 125 percent interest. Gary realized that not only did this woman highly value water, she was spending an inordinate percentage of her household’s income to obtain it. Our organization realized that there’s got to be a better way we can do this.
Our first iteration was not the most successful; I think we had a default rate of almost 50 percent. We asked ourselves, what are we good at? What are the banks and the microfinance institutions good at?
We hit on the WaterCredit model when we realized collaboration is powerful. We provide funding and technical insight into water and sanitation best practices, and rely upon financial institutions’ deep expertise in lending – they’re in the best situation to assess borrower creditworthiness because that’s the core of what they do. That’s when WaterCredit really took off.
Q: What makes partnership and collaboration especially effective in a household infrastructure and finance context?
Schorsch: What has worked really well is to structure the subsidy in such a way that our partner can get as much insight into the local market demand as possible, and offer a product that is relevant to that market.
We very much believe that WaterCredit should be a market-driven solution. People should have the ability to determine what they feel is right for their situation and their needs, whether that’s a toilet at their home or a water tap, for example, or if they prefer a water filtration system to a rainwater-harvesting tank. We host visits from new programs to established ones – Bangladesh to India, for example – so partners can learn from each other’s experiences adapting our product offering or delivery channel or mechanism to local geographies.
On the ground, one of the really neat elements of WaterCredit is the community collaboration that often accompanies these loans. Groups of women will come together in self-help groups and they will take out loans together, so if my family has a health issue one month and I can’t make my payment, my neighbor might cover for me and I would do the same for her.
Q: Over the past five years, you’ve actively invested in innovation, from your New Ventures Fund to WaterCapital, the social impact investment fund within Water.org. What have you learned?
Schorsch: As we built long-term relationships with partner organizations, we began to ask them, “What is your biggest obstacle?” For many, they said access to affordable capital – that’s available all year, not just at certain times.
WaterCapital is our next iteration of thinking about solutions to address the obstacle of capital. With this fund, we’re expanding from philanthropic grants to offering different types of capital that extend the reach of every dollar that we receive, whether it’s from a donor or investor. We recently closed our first debt fund, and we’re piloting that with a subset of our partners in India to offer concessionary lending.
We’ve also learned to explore new delivery channels. Expanding WaterCredit through microfinance institutions is the approach we’ve taken so far, but we know we need to be successful outside that sphere. We’re looking at things like digital finance, housing finance corporations and other mechanisms whereby we might tap into and build a portfolio in water and sanitation. The New Ventures Fund allows us the flexibility to pilot and learn, which then gives us the chance to go to a potential donor or investor and say, “This is ready to go.”
Q: What are you most excited about looking ahead?
Schorsch: We see our role as being a catalyst for action. In the case of WaterCredit, for example, we catalyze that action by offering philanthropic funds and building capacity. What excites me most, though, is the ingenuity, the creativity and the persistence of the individuals living in need who really transform their own lives.