Microfinance for Water, Sanitation, and Hygiene: An Introduction

This paper discusses the business case for microfinance in the water and sanitation sector. It also describes Dutch innovations with microfinance in this sector. It states that microfinance has been used for some time as an add-on to water projects. But more recently microfinance is also being used to help pay for capital costs and to cover operation and maintenance costs. Water and sanitation sector would benefit from partnerships between MFIs and institutions in the water sector, such as NGOs, which can become financial intermediaries between MFIs and households or Community Based Organisations (CBOs). These institutions offer complementary skills to reach new markets and their support can result in lower running costs for the MFIs. Larger or regional NGOs are able to promote different finance mechanisms at the rural level, increasing the potential outreach of MFIs through networks and associations of CBOs. Specific challenges faced by microfinance in the water and sanitation sector include:

• Limited outreach;
• Financial sustainability of MFIs;
• Finding scalable solutions by linking financial allocation with activities such as training, counselling, and sensitization.