An alternative market based approach to sanitation : microfinance

The previous blog looked at a market based approach to sanitation in urban settlements, whereas in this blog I will look at a potential option for sanitation in rural settlements. However this scheme is not restricted to only rural areas but it is likely to be more successful in rural areas as opposed to urban settlements.

Microfinance is a scheme employed globally which looks to offer small loans for marginalised and poor people to promote entrepreneurism and therefore help alleviate poverty through a markets approach. The schemes have had lots of success and therefore there is need to apply these scheme across other sectors, especially in health.

Water.org is a company who supply microfinance to people who are in great need of improved water and sanitation. They employ a scheme called Water Credit, which offers a financial solution to sanitation issues. The scheme allows people to borrow small loans directed at improving water and the health of populations. Water credit looks to ensure whole communities a safe and private place to go to the toilet, which is essential in relation to gender and sanitation. Loans are provided by the company and invested in providing and building private toilets for a family. Once the money is requited, a new loan can be issued to another family within the community.

The Water Credit scheme is having great success over parts of Africa, where in Ethiopia it serves over 32,000 people across a number of schools and communities.

Microfinance gives marginalised populations the opportunity to obtain a safe and healthy place to go to the toilet. Finance schemes can be provided to suit the financial capabilities of the beneficiary, allowing communities and families to obtain sanitation through their own means and not rely on poorly funded state, top down approaches. This is especially important in rural areas where these schemes are more likely to be employed.

There has been increased attention applied to microfinance and its potential to aid development. A number of academic studies have looked at the potential of microfinance. White, Damodaron and Thorsten (2008), found that the majority of people interviewed were willing to take on a microfinance loan to secure their health through a private, safe toilet, finding that most of the participants were dissatisfied with their current water and sanitation facilities and the majority of people were humiliated by having to go the toilet outside in unsafe and unclean conditions.

Microfinance has the ability to be successful, however this is likely only to be the case in rural settlements as urban settlements lack the space to implement this infrastructure. It has the power to be successful as it helps families bear the burden of the costs of sanitation. Microfinance can support poor communities and advise them wisely on sanitation and appropriate technology, but its key lies in the repayment system. The loans allow communities or families to repay the investment in instalments to reduce the burden of investment (Tremolet, Mansour and Muruka, 2015). Reducing this burden is likely to encourage more people in rural areas to take on these microfinance loans.

For countries to meet the sustainable development goals and achieve sanitation targets, the emphasis has to be been placed upon households and communities. It is evident that the costs of implementing sanitation infrastructure is not going to be covered by governments and local municipalities. Microfinance can be used to support families and whole communities, creating demand for sanitation which will benefit them much more than the burden of the cost of implementing this infrastructure.

Microfinance can be applied in urban areas, except its real potential is based in rural areas. However, as previously mentioned, the company Sanergy is also another good example of the use of microfinance. Donators from around the world can provide interest free loans to business owners in informal settlements, therefore helping them develop their own business to achieve better health and economic growth, implying there is still some scope for microfinance to be successful in urban areas.