Tuesday, July 10, 2012

Kiva Innovations: Tapping into clean water financing

Water is life and sanitation is dignity. 

That’s a catch-phrase thrown around a lot in global development circles. Most often, it’s used by NGOs to galvanize support from the international community to recognize access to water and sanitation as a legally-entrenched human right. So far so good. In 2011, the United Nations, by a vote of 122-0, declared that access to safe and clean drinking water is essential to the enjoyment of life and all other human rights

Okay good. So now what?

The elegance of the phrase lies in its simplicity. But water and sanitation are anything if not complex. In fact, the two make for uncomfortable bedfellows. Water efforts are all about access, while sanitation is about usage. Marrying the two has allowed clean water efforts to prosper, but caused sanitation to fall through the cracks (pun intended). 

As a result, I have decided to dedicate my next two blog posts to detangling these issues. By looking at the financial challenges facing water and sanitation in their own light, hopefully we can forge inclusive solutions to both.

This week we’ll discuss financing for clean water, next week financing for sanitation.

So, how do people in developing countries access water, you ask? Good question. The answer is any way they can. 

In larger towns and cities, most people have water piped directly to their homes. Families have meters and pay set fees based on the volume of water they use. Often, this water is low quality and sometimes doesn’t arrive for days at a time. For example, one of my colleagues in Kathmandu, Nepal has water every four days for a limited number of hours. And he still needs to boil and filter this water before drinking it. 

Those without piped water use public standpipes or buy water from trucks where it’s sold by the jerrycan (a 20 liter or 5 gallon bucket). For the privilege of walking and carrying 40 to 50 pounds (18 to 22 kilograms) of water, a family must pay the highest volumetric tariff, reserved for industrial users. This usually means that lower income households are paying double or triple for water

In rural areas, people use a mixture of water sources that are usually free but often contaminated. Surface water is diverted into trenches, and rainwater is stored for later use by humans and animals. Some wells and boreholes are fully subsidized by non-profits that then leave their maintenance and operation to untrained locals. Suffice it to say, all options are infinitely more complex than choosing between tap or sparkling at your local eatery.

Financial interventions in the sector have had trouble accounting for this diversity of water access options.

Major international donors have traditionally supported governments to extend piped services to outlying urban areas, leaving non-profits to deliver water to poorer urban and rural communities. These efforts have suffered mightily in the face of dwindling national budgets, restrictive regulations and poor coordination among multiple actors. 

On top of those obstacles, lack of land titles for marginalized groups prevents them from accessing government projects and subsidies. Ironically, it’s this same hurdle that excludes many from financial services. Loans for individual water projects -- like a well or pump -- are hard to come by, because banks view those lacking water as too risky or too poor to finance. To change this picture, Kiva is collaborating with nonprofit Water.org to develop specific loan products with our Field Partners to help families finance water improvements. 

Still, most rural areas have no hope of receiving piped water in the near future. And lack of easy access to water continues to be a significant barrier for rural development. I wrote about this extensively in my last blog on the subject of clean water. The current trend of relying on non-profits to subsidize the construction of water access points with grants is not a panacea. In several places, Rwanda in particular, full subsidies have even undermined the sense of community ownership that is essential to the maintenance and upkeep of water resources.

In some cases, local non-profits are developing their own programs to fill this gap. A few have encouraged village savings and loan groups to organize a water-specific fund for the safeguarding of access points. Others have encouraged whole villages to purchase water tanks to store water to sell to neighbors during droughts or shortages. In this way, access to water can also become a source of income. 

Flexibility in water financing is the name of the game, as most of those who lack access to water are poorer than your average microfinance customer. Yet it’s these types of flexible solutions that are needed to tackle complex problems. Local companies and non-profits have the tools at their disposal to make nuanced decisions about community water needs. What’s missing from the equation is low-cost capital.

At Kiva, we are searching high and low for innovative partners to meet household demands for safer and cheaper water. We’ll keep you posted.

Ian Matthews is an intern on Kiva’s Strategic Initiatives team, looking for new partners and loan products to extend opportunities and access to even more people around the world. Ian has an MSc in Global Politics from the London School of Economics and Political Science and has previously done field work in Honduras. Send him your feedback on this blog series at blog@kiva.org.

This is part of a larger series on Kiva’s strategic initiatives and innovative loan products, which are designed to expand opportunities for more borrowers. Kiva is excited to partner with companies and organizations innovating to help poor and low-income families access clean water.