Friday, 1 February 2008

Affordability and Microfinance

If a sanitation system costs x unc (units of national currency), where x is fairly large, equivalent to something like USD 200−400, then it’s unlikely poor/very poor households in either rural or urban areas will have this amount of cash to hand. So how do they proceed? Well, the sanitation programme or project that's “selling” them this sanitation system should really have thought about this and arranged some sort of microfinancing − small low-interest loans for poor households. There’s a lot of info. on microfinance, sometimes called microcredit (see here, for example). One of the earliest small loan schemes for urban sanitation was in Lesotho (details here, pdf pages 23−26): urban residents could apply to a commercial bank for a loan to construct a VIP latrine, but they had to pay an upfront deposit of 30−40% − quite a lot really given that the latrine cost around USD 400 (1993 $) (a cheaper version for about half this cost was also available). The loan was to be repaid over 24 months in 20 instalments (no payments to be made in December and January because of Christmas costs and paying school fees). Loan defaulters were “wealthier people who [thought] no-one [would] follow up on the debt” − in contrast poorer people repaid regularly. If we’re to give sanitation the push it needs in IYS2008, then we have to think seriously about affordability and microfinance − not to do so is, frankly, irresponsible.

Of course, simplified sewerage in urban areas has an important advantage: loans aren’t needed! The householders just pay for the service through a surcharge on their monthly water bill. Sewerage agencies (they’re commonly water and sewerage agencies) shouldn’t charge connection fees as these are too anti-poor. A pro-poor agency will understand this and in any case the fee can simply be recovered through the water and sewerage bill (e.g., by using a slightly higher surcharge rate).