Microfinance is increasingly being recognised as a sustainable development mechanism supporting entrepreneurship, alleviating poverty and reducing gender inequality. Small loans (typically less than half a million USD) are provided to the poor to fund small projects. Many organisations are using Microfinance to improve water access, sanitation and hygiene (WASH), particularly in Sub-Saharan Africa.
Water.org began it’s WaterCredit initiative in 2003, with their first African project in Kenya in 2005. They work on the premise that ‘many people in the developing world can, and want to, finance safe water and sanitation if they are able to pay for these services over time, as well as have a voice in their development and operation’ (Water.org). Water.org provides initial financing and technical expertise to Financial Institutions (FIs), connects them with WASH NGOs and helps them build small loan portfolios. By September 2014 they had disbursed 17,533 water and sanitation loans, serving 91,091 people, with an average loan recovery of 96% (Water.org).
There are numerous benefits to this scheme. Water access and sanitation needs are met whilst empowering local people, particularly females, by putting them in control of their own businesses. Easy access to water and sanitation subsequently means previous time spent fetching water can be spent on other activities, increasing the productivity of those with WaterCredit. Families working with the scheme can also grow their income by saving the money not being spent on the local vended water price.
However, in my mind there are still a few issues with microfinancing the WASH sector in developing countries. It is questionable as to whether Microcredits actually alleviate poverty or just lead borrowers into a debt trap. Microfinance schemes are offered to the poor for almost everything so many people may find they are bound to repaying large numbers of loans in order to have a range of many basic services. Behavioural change is also required in several areas; creating water services does not necessarily lead to demand, and encouragement may be needed for people to actually use the new services.
Further, providing the funding to enable the creation of WASH services needs to be accompanied by additional changes ensuring the success and maintenance of each project. In a report by the Bill & Melinda Gates Foundation they recognise the need to put appropriate policies in place to create space for the use of Microfinance in the WASH sector (Gates Foundation). Country-level assessments are needed examining local governments and banking systems for successful Microfinance projects.
Microfinance, particularly through WaterCredit, is an important step in improving WASH services in Africa. As a response to failed aid schemes, it goes someway to assisting communities but is still not fully sustainable and may appear as neo-colonialism. Lenders need to ensure their loans are appropriate in the context of the countries’ policies, their funds will lead to successful schemes and not further debt.
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