Attempting the Production of Public Goods through Microfinance: The Case of Water and Sanitation

This paper evaluates attempts to create public goods through microfinance loans.

The paper states that using microfinance loans in the production of public goods signifies an emergent micro privatization. It studies cases from India and Vietnam of production of water and sanitation resources through microfinance loans. The paper presents theoretical and empirical evidence that microfinance is an insufficient and potentially ineffective tool for providing public goods. Study findings indicate that:

• These projects are based on individualism and cost recovery;
• They ignore important collective action aspects and distribution problems;
• Microfinance funded approaches do not address larger regulatory and institutional failures, such as population, climate, water contamination and politics;
• Microfinance for water and sanitation tackles symptoms, not causes, of the under provision of water and sanitation to the poor.

The paper concludes that using microfinance for production of public goods leads to insufficient provision for the poor and also alienates them from publicly accountable modes of governance and their human right to water.