What is WaterCredit?
WaterPartners’ WaterCredit Initiative represents the creation of a new space at the intersection of water, sanitation and micro-finance. WaterCredit brings together the water, sanitation and micro-credit sectors to better serve the needs of the world’s poor. By creating access to credit for water and sanitation improvements for individuals and communities in developing countries, WaterCredit empowers people to address their own water and sanitation needs.

WaterCredit’s role is to accelerate natural market processes. This means providing funding for “smart subsidies” to WaterPartners’ network of partner organizations 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.
Why WaterCredit?
Current financing models that dominate the water supply and sanitation sector are not scalable because they rely almost exclusively on philanthropy and subsidies. Simply advocating for increased aid is not enough. 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.

System sustainability is another benefit of WaterCredit. When end users pay for their own services, they develop a sense of ownership that enhances long term maintenance and care for the system. Payment for services also further ensures the services are truly demand driven, further ensuring system sustainability.

WaterCredit promotes development of sustainable business models. These models not only cost significantly less (because they leverage end-user payments), but they also leverage market forces which enable them to scale. Rather than making repeated one-time investments that each help just a single family or village, WaterCredit allows a single initial sustainable investment to have a multiplier effect that touches many times more lives.
What is WaterPartners’ role in WaterCredit?
WaterPartners provides funding for “smart subsidies” to its network of certified partner organizations 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.

WaterPartners works through its network of local partner organizations to develop and implement credit-based water and sanitation products tailored to the local circumstances. As of 2009, WaterPartners had invested $1.2 million in development of its WaterCredit program. This included grants to partners to pilot revolving loan funds, direct loans to partners, “smart subsidies” to partners to start up credit programs, and credit enhancements/guarantees for commercial borrowing by partners. Since many of our partners are piloting WaterCredit projects for the first time, they do not have the track record to obtain commercial capital independently. WaterPartners has been able to allow its WaterCredit partners to leverage capital from commercial lending institutions by providing these partners with credit enhancements. WaterPartners’ network of WaterCredit partners ultimately provides loans for water and sanitation improvements directly to end borrowers.

What have been WaterPartners’ experiences with WaterCredit?
As of 2009, WaterPartners’ WaterCredit portfolio has included work in Kenya, Bangladesh and India, with nearly $1.6 million in WaterCredit loans disbursed to end borrowers utilizing a wide variety of strategies and models. Loans for water and sanitation have gone to an assortment of borrowers including households, community based organizations (CBOs), self help groups (SHGs) and joint liability groups (JLGs). Loans have been made to end borrowers in some cases directly by water and sanitation NGOs, though increasingly have been made by credit-based institutions. The average household loan size has been $100 - $300, while loans to larger groups such as CBOs have been as large as $22,000. Interest rates (including service fees) for end borrowers have ranged from 10 to 24 percent, with repayment periods from 12 to 24 months. Approximately 90 percent of all borrowers are women. WaterCredit programs started between 2007 and 2009 have realized repayment rates of between 95 and 98 percent (as of early 2009).
Who is a typical WaterCredit client?
Loans for water and sanitation have gone to an assortment of borrowers including households, community based organizations (CBOs), self help groups (SHGs) and joint liability groups (JLGs). Borrowers have come from both rural and urban areas. The average household loan size has been $100 - $300, while loans to larger groups such as CBOs have been as large as $22,000. Approximately 90 percent of all borrowers are women and are generally low income.
How is a poor person able to repay a water/sanitation loan that does not provide any income?
Many micro-credit lenders are hesitant to offer loan products for non-incoming generating activities. However, what is often not recognized is that the urban and rural poor are already paying a high price to access water supplies and sanitation services. They pay in the form of cash as well as the time spent walking and waiting in line to collect water. Urban slum dwellers have been found to be paying 12 times more for a liter of water than those connected to municipal water supply systems. While privileged classes in the same urban vicinity enjoy subsidized municipal water supply systems, the poorest are compelled to buy water from private vendors, sometimes described as “Water Mafia” who usually sell at significantly higher prices.
With a loan to spread out the high upfront costs needed to access water and sanitation, WaterCredit allows the poor to gain access to these vital resources in a way they can afford.
Experiences to date with the WaterCredit Initiative have shown that poor families are able to pay their loans and even some have reported improved household economic conditions.
Borrowers have reported:
Reduction in time walking to collect water – allowing more time dedicated to income generating activities.
Reduction in household medical expenses, as rates of water and sanitation related diseases decrease with access to safe water and safe disposal of fecal matter (toilets).
Increase in family income through by selling excess water to neighbors.
Outside of economic benefits, borrowers have reported high rates of user-satisfaction from the water and sanitation improvements, which improved daily living conditions in the household and encouraged high rates of repayments on the loans.
Will WaterCredit work for everyone?
Credit alone will not be able to achieve universal access to water and sanitation. Credit will only be appropriate for those whose total income is capable of covering the cost of the water/sanitation project over all other necessities, but who have not been able to carry out the project due to a lack of liquidity or motivation of some members of the household. Appropriate solutions for some communities and individuals will simply be too expensive to be self-financed. Credit-based work for those who can afford it can free up subsidized resources for the neediest communities.
While credit will not be a solution for all those in need of safe water and sanitation, it can help leverage limited financial resources to reach millions of people in need of safe water and sanitation improvements. Catalyzing the start of this credit market appears to be a powerful tool for increasing access to water and sanitation and improving health outcomes globally.
What are “smart subsidies”?
WaterPartners International applies its grant money strategically in the form of “smart subsidies” to support its certified WaterCredit partners to undertake activities not typically supported by the market such as market research, WaterCredit product development, capacity building for staff, demand creation for WaterCredit loans, hygiene education, and technical construction assistance.