European Microfinance Week 2021

PRESENTATION

This session, opened by Alvaro MA, discussed a recent study of the e-MFP WASH Action Group. This Action Group was initiated a year ago to generate ideas and knowledge for stakeholders in the WASH sector to reduce uncertainties. With knowledge sharing as one of the main activities, a practical Handbook for WASH impact investors has been developed to understand the market of WASH better. The study covers Water and Sanitation, not Hygiene.

Alvaro MA introduced the research results and the Handbook following its 6 components:

1. Overview of WASH
2. Value chains of WASH
3. WASH SME’s (types and their roles in WASH, business models)
4. Global WASH market & challenges
5. WASH financing
6. Tackling the challenges in WASH

There is a dynamic interdependence between SDG 6 and almost all other SDGs. The interlinkage can materialize either directly or indirectly and an integrated approach must be implemented to facilitate the achievements of these goals. Access to safe drinking water & sanitation has long been an issue around the world and is mainly rooted in poverty, power, and inequality rather than physical availability. As an example, the school drop of girls was given due to lack of sanitation facilities and addressing SDGs 4-5-6, and 10.

The contribution of SMEs in the WASH sector is immense in developing countries where public sector infrastructure has not caught up with the demand for safely managed WASH services. SMEs provide products and services and they are important drivers of innovations in the sector. They complement the limited availability of public sector services. The study addresses different business models and provides a lot of case studies.

An important reason for the lack of finance mobilisation in the WASH sector is the absence of sector-specific information in the public domain. This has led to the circulation of various myths surrounding the sector such as that people don’t demand improved WASH services, that it is a business with poor profit margins serving a small market only, that the public sector is the only actor in WASH financing, that basic services should be free of costs etc.

The WASH ecosystem suffers from system’s blindness – focusing on the tangible infrastructure without attention to the more supporting systems including policies, monitoring, institutions, and people providing WASH services at local levels.

Private sector (finance) can act as a catalyst to attract more public finance for innovative solutions. To bridge the financing gap in WASH sector, private investments are needed to supplement public finance. One of the most innovative ways to finance the WASH sector is through blended finance. This financial structure makes strategic use of development finance to mobilise additional finance for sustainable development. The Handbook presents several solutions in this regard, such as float funds, alternative credit assessment, digital repayment, supporting small-scale operators, cross-subsidising, and innovative tariff systems.

DISCUSSION

The successive discussion evolved around challenges and opportunities regarding WASH investments. The biggest opportunities for financing are in the field of the installation of sanitation facilities including after-sales services. There are also examples where investors saw collaterals (in the case of sanitation facilities and B2B business models) as a business opportunity, although investment evaluation is still mostly focussed on operational aspects. Collateral is not always available in WASH SMEs. A field to explore further is combining the access to clean water and energy. Finally, it was also suggested to FI’s to make exclusive finance products for WASH SMEs which currently is not available.

On the other hand, challenges remain of which one is the absence of WASH-specific information before doing investments. Specifically, to enter a market as an investor, one needs market information including some macro-level information. This is simply not available. For example, it would be helpful to know the number of active SME players in a local WASH market or to have aggregated information on the number of SMEs active. Public private partnerships are very relevant for the WASH sector, with public authorities providing loans for investments or to act as an enabler with more regular funds.