A new project named, “Catalysing WASH from Possible to Profitable” (P2P) is about to change the lifes of people seeking funding for sanitation and environmental businesses. It is an innovative access to finance project for water, sanitation and hygiene (WASH) under the Ghana Netherlands WASH Programme (GNWP).
SNV the development agency is providing funding with very low interest to prospective clients worth more than 6 million Euros.
These funds will be accessible from Microfinance Institutions.
With my knowledge and experience in financing environmental projects, I wrote this piece as a guideline to Microfinance Institutions and individuals seeking access to the funds.
A GUIDE TO AN MFI “WASH” LOAN PRODUCTS
1.0 EXECUTIVE SUMMARY
This guideline is aimed at providing information on access to water, sanitation and hygiene loan products offered by Microfinance Company Limited. These guiding principles should be strongly aligned with water.org’s credit models[i] and the credit policy manual. It is not a policy document but a resource to credit officers, Independent “WASH” service providers and individuals applying for WASH loans.
1.1 INTRODUCTION
An estimated 87 percent of Ghana’s 25 million inhabitants lack access to proper sanitary facilities and diarrhea remains one of the leading causes of death among children under five in Ghana[ii]. As rural populace face lack of access to safe drinking water, urban migration has contributed to poor sanitary and unhygienic conditions in the cities of Ghana.
In towns such as Nima, Madina, Mallata and Newtown in Accra, the majority of the people living in urban areas reside in compound (shared) houses, most commonly using shared toilets or with no toilet facilities of any kind. Households living in Madina, Adenta are forced to rely on secondary and tertiary water vendors who sell water from tankers whilst an increasing number of Ghanaians are also relying on sachet water for drinking. Access to WASH products is a basic human right according to the United Nations (UN Millennium Development Goal 7).Poor households are willing to pay for subsequent WASH products but may not afford the upfront investment. Appropriately designed loans can help households finance upfront costs including materials, labour etc. and repay over time.
1.2 MODEL/WORKFLOW
All applications for WASH loans shall be categorized under core themes as:
- WATER– for the purposes of bore hole drilling, borehole mechanization, pipe connection, household plumbing works and protected hand dug well etc.
- SANITATION– for the purposes of construction of septic tank, household improved latrine, desludging of liquid waste and purchase of waste bin etc.
- HYGIENE- for the purposes of construction of household bath, soak away, hand washing facility, pest control and fumigation etc.
All WASH loan applications should undergo similar reviews and assessment procedures similar to an enterprise loan application following the MFI credit policy manual
Purpose: The “WASH” loan product is designed to help low income households to finance their water, sanitation and hygiene needs. Applicant(s) for “WASH” loan should be able to show a clear purpose and use of the credit. The design should be clear, simple and be able to answer the following:
- What does the improvement look like?
- How much does it cost?
- What types of materials and labor is needed to build it?
- How long will it take to build?
- Will this improvement work for the clients’ home (i.e. what space/existing infrastructure is required)?
The applicant(s) should be able to demonstrate ability to pay back loan amount and interest.
Amount: The loan amount requested/granted will depend on the estimated cost of the “WASH” product needed by applicant(s).The amount should be able to complete the project for immediate use by the client. For example, a loan request for water connection should include upfront connection cost fees, plumbing materials and labour expenses. The client will need to provide a proof of the amount by an invoice from a supplier, a contractor or Ghana Water Company Limited. For Independent Water, Sanitation and Hygiene Providers, the loan amount and structure will fairly depend on their business size and cashflow.
Pricing: The interest rate for “WASH” product financing shall be 17% interest rate per annum.A one-time 5% charge on the amount requested shall be charged for purposes of loan processing and insurance fees. All default loans may be charged a 10% penalty charge on principal amount.
Term: The duration for final repayment shall be a maximum six (6) months up to on twelve (12) months. This shall be considered after discussion and agreement between the applicant(s) and the Microfinance Limited.
Lending methodology: In order to ensure effective repayment of loans, several methods of guarantee such as collateral security (individual), joint liability guarantee (households) and personal guarantor will be sought from applicants. In most cases, the applicant(s) will be required to deposit 20% of the cost of project as deposit security. The client identifies the “WASH” product supplier (or contractor) and provides a cost estimate to the MFI with their loan application. The MFI conducts the loan appraisal, approves the loan, and issues the client a cheque for the loan amount in the name of the supplier. The supplier delivers the product directly to the client, or the client may arrange for their own transportation. Jireh microfinance verifies the delivery and installation. The client then repays the loan directly to the MFI.
In order to ensure quality and timely delivery of materials and work by the supplier or contractor, a contract agreement between the client and the supplier may be requested before disbursement of cheque.
Eligibility: Existing clients of the MFI will be preferable. Applicants who demonstrate ability and willingness to pay will also be considered for the “WASH” loans.
1.3 MARKETING APPROACH
Having access to proper water and/or sanitation facilities can be lower on the list of a customer’s priorities when compared to things like medical costs, food and education, we cannot expect the “WASH” financial products to create demand by itself, no matter how well designed it is. They need to be promoted with a thorough selling and marketing strategy. Awareness for the “WASH” loan products shall be carried out by creating awareness of needs of basic water, sanitary and hygienic environment to healthy living. Targeted clients shall be households without a piped water connection, water shortage areas, and households without a flush water closets etc.[i]. The awareness and education shall be carried in partnership with local community residents and leaders, Independent “WASH” providers and suppliers, Public utility companies, government agencies and ministries.
If you have any interest in accessing this loan facility. Please contact 0543438766.
Thank you
[i] ISF-UTS (2014), Financing Sanitation for Cities and Towns: Learning Paper. Prepared for SNV Netherlands Development Organisation by Institute for Sustainable Futures, University of Technology Sydney
[i] Watercredit.org(WASH Tool kit )
[ii] World Water Council (2011). Water for Growth and Development in Africa. WWC, Paris