ALEXANDRIA, Virginia — Microfinance has long been a popular economic strategy for developing countries looking to provide poor communities with access to financial services. Because microloans often end up trapping loan recipients in cycles of indebtedness, thus exacerbating the problems they are supposed to remedy, development organizations have moved away from them in favor of initiatives like agriculture insurance. But growing evidence has shown that small-scale microloans can be a viable option for funding sanitation facilities in poor communities.
According to UNICEF subsidiary organization WASH (Water, Sanitation and Hygiene), 32 percent of the world’s population – 2.4 billion people – lack access to high-quality sanitation facilities, and 663 million use “unimproved drinking water sources”. According to WASH, a lack of access to safe water and sanitation services “kills and sickens thousands of children every day, and leads to impoverishment and diminished opportunities for thousands more.” Additional consequences include decreased productivity in industries such as agriculture and time spent (mostly by women) fetching water from faraway water sources.
One phase of the millennium development goals (MDGs) was aimed at increasing the ubiquity of household latrines, which many governments and donors expected poor households to pay for themselves. However, many people in those communities lack access to financial services, and funding a household toilet can be surprisingly expensive. A 2013 study by Trémolet Consulting, an organization that focuses on water and sanitation economics, found that in Tanzania, the cost of building a single latrine can account for 112 percent of a household’s annual income.
While a lack of financial access remains a major hurdle for developing regions, the increase in competition among microfinance services providers as well as mobile banking and online finance have decreased “financial exclusion” among poor people living in rural and remote regions. In 2008, the Gates Foundation estimated that 125 million households would be interested in taking out a loan for either water or sanitation purposes, leaving a total potential value of $12 billion for investors looking to fill the gap.
As water and sanitation economist Sophie Trémolet wrote in an article for The Guardian, microloans are not income-generating, and repayment rates can often be artificially high. But clean water and sanitation can help households realize a number of essential benefits, including reduced medical expenses, fewer days lost to illness, and generally increased productivity.
While microloans can offer poor communities quick access to financial services, it’s important to remember that those high-rate loans can’t combat poverty without the help of governments and development organizations. “Microfinance cannot be the only answer to increasing finance for sanitation and there are still many questions as to how and where it should be used,” wrote Trémolet. “But it is a plausible solution to help households in developing countries; provided that the factors influencing demand are better understood.”
There are certain prerequisites for developing countries hoping to lift their people out of extreme poverty and achieve higher levels of economic development. These include infrastructure developments, such as roads and schools, and access to certain social programs.
However, access to basic necessities like food and sanitation services allow people to work without worrying about their households succumbing to preventable diseases like cholera. Until governments supplement the efforts of poor communities in establishing universal access to basic necessities like sanitation, they will continue to live in a state of subsistence and vulnerability.
– Zach VeShancey
Sources: The Guardian, Tremolet, UNICEF