WaterCredit: Pilot Results Revealed

For several years, there has been more dialogue about using microfinance institution networks for water and sanitation loans. “WaterCredit,” as it is called, has been pioneered by Water.org (formerly Water Partners). On Friday, in Chennai, WaterCredit experts, users, and facilitators came together to discuss where the WaterCredit space stands, the progress made to date, and the scope for WaterCredit provision in the future.

The Need
There is no doubt about the need. Around the world, 900 million people lack access to clean water; 2.6 billion lack access to sanitation. In India, 130 million people are without clean water and 840 million people lack access to proper sanitation.  Of the total, 90% of the Watsan burden is borne by women. Not to mention, the poor pay an unbelievable 12 times what the rich pay for a single liter of water. Why? The poor often don’t see the benefits of infrastructure improvements, which is where most of the subsidies go.

Piloting the Concept
Several MFIs have been trying out a new product in the hopes of meeting their clients water and sanitation needs. BASIX entered into a partnership with Water Partners several years ago in an effort to gain insight into the technical and financial feasibility of microcredit products to promote access to water and sanitation facilities among the poor.

It’s a hard sell at first, because many potential recipients believe that the government should be providing these services. “Why should we have to pay for clean water?,” they ask. BASIX decided to test the product in three different environments: urban, tier 2 city (Indore, Madya Pradesh);  urban, tier 1 city (Delhi); and rural (Ganjam, Orissa) for 12-18 months. In Ganjam and Delhi, BASIX already had operations. In Indore, BASIX lended funds to an intermediary NGO who in turn, lended to groups/people.

Demand was high. Eighty-one percent expressed a need for WatSan loans in Ganjam, the rural area. Seventy-eight percent expressed a need for a toilet in Indore. And 31% said there was a need in Delhi. Most people were aware of the relationship between open defecation and ill health. In addition, people expressed a willingness to pay for the product and to pay annual interest rates up to 24% (2% a month). Most preferred monthly repayment.

How does it work?
The loan product (INR8,000-9,000) was designed for members of joint liability groups (JLGs) and offered with a 16% declining interest rate (24% in the case of Ganjam). Each person who wanted to take a loan first had to demonstrate a savings habit, by saving INR125 a week for 8 weeks. Then, at the start of the loan, the customer had to pay INR170 in registration, collection, processing, and technical charges, and INR20 for insurance each month.  They paid off their loan in monthly installments over 12-18 months.

Demand: Rural vs. Urban
There was a great deal of demand in Indore (986 customers; 100% repayment rate) and Ganjam (274 customers/91 of which were for toilets; 94% repayment rate). The demand in Delhi was not as high (42 customers; 89% repayment rate), as there was a sense that someone else (i.e., government) would come and take care of the watsan woes eventually.  Indore customers were extremely doubtful that they would ever get a toilet within the next 5 years, hence the high demand.

Interestingly, Hyderabad was under consideration for the pilot, but the Hyderabad government woke up to the fact that they should be providing these services and did it themselves.  Now BASIX is working across states to disburse INR3.6 crore in WaterCredit across India.

The Future
At the end of the WaterCredit Forum, small groups of discussants got together to determine what we had learned and the way forward. Our group spoke about the need for more MFIs to create new products for the establishment of water connections and for the construction or improvement of toilets.  However, the product development should be demand driven, and not something that is forced upon borrowers. Lastly, there was agreement that there is not a particular need for a separate organization to deliver WaterCredit (such as the organization Guardian, which does only credit for water products). The products are better delivered through an MFI which has an established and trust-worthy relationship with the client.