Current grant-driven financing models to address the world water crisis are insufficient. The number of communities demanding water projects far outstrips the aid available. Communities in need are forced to enter into the “grant lottery” and hope someone will eventually come to their aid. This support can take years or decades to arrive. Meanwhile, they’re getting sick and dying from the unsafe water they’re drinking—not to mention the hours they have to spend every day collecting it.

Many lower income groups have been unable to access water connections and build toilets because they simply do not have the upfront capital to make the needed investments. Because credit for water and sanitation improvements have been historically seen as too risky and have not been viewed as income generating, commercial banks and MFIs have not responded to this market with debt financing.

WaterCredit’s role is to accelerate natural market processes. This means providing funding for “smart subsidies” to catalyze a market for micro-finance for water and sanitation products. For the model to be sustainable, WaterCredit must ultimately engage global capital markets to respond with funding for water supply and sanitation projects. WaterPartners recognizes that this type of financing will be feasible after philanthropic-driven “smart subsidies” lead the way.

Use of “smart subsidies” for WaterCredit projects in countries including India, Kenya and Bangladesh, has already generated interest from commercial finance institutions and even in some cases direct commercial lending. As of 2009, there had been nearly $1.6 million in WaterCredit loans disbursed to end borrowers, and nearly $750,000 of those funds came from commercial capital sources. WaterPartners continues to work to refine and expand its WaterCredit InitiativeTM to further accelerate the market for micro-finance for water and sanitation.