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Sustainability Through Creative Financing: The Connection of Water and Micro-finance Programs
Category: Water | By Editor, 6-Jun-2011 | Viewed 5792  Comments 0

WASRAG/WWSIV Breakout Session

WASRAG/WWSIV Breakout Session World Water Summit 2011

The World Water Summit (WWS) on 20th of May 2011, in New Orleans, LA was sponsored by the Water and Sanitation Rotarian Action Group (WASRAG). During the breakout session dealing with the connection of water and micro-financed programs there was an extensive exchange of ideas and identification of practical advice for those planning water related projects.

Hosting the event just prior to the start of the Rotary International Convention provided an opportunity for the attending 19,000 Rotarians from around the world, to participate in WWS lectures, study sessions and workshops. Hundreds attended the plenary sessions and approximately 50 attended the breakout session which featured the combined involvement of Microcredit, Rotary and Water/Sanitation (MRW/S). Interestingly, each is powerful in its own right but there is a paucity of examples of the three working together. Some of the reasons were identified as the group discussion leaders reported back to the general audience at the end of the workshop.

Ron Denham - WASRAG/WWSIV Breakout Session World Water Summit 2011
To begin, the theme, sustainable, affordable, safe water and sanitation projects were discussed briefly by each of the three panel speakers. An underlying fact was that on average 50% of the water projects are not operating on their 5th anniversary. Then an interesting group discussion followed.

Phil Canning, NA Projects Leader, GE Power & Water emphasized the need for sustainability of a water related project and by way of several examples explained what worked and frankly, what didn't work. In South Africa for instance GE has partnered with a small municipality of approximately 5,000 people and potentially 26 surrounding villages to provide water at the rate of up to 140,000 Gallons per Day. Rotary provided on-the-ground logistical resources and training. The municipalities are to ensure the longevity of the program and retire the associated construction and maintain operating expenses. In another example of creating economic viability, known as Habihut, a layering technique was used to group several revenue sources such as cell phone charging with water sales. Habihut - Busineswire.com

Kurt Soderlund, President, Safe Water Network explained that they have undertaken comprehensive efforts in Ghana, India & Kenya to establish a water Kiosk service model that processes and sells affordable, purified water in partnership with local committees. A village Water Committee (or local entrepreneur) oversees the operations and uses revenues collected from water sales to cover operating expenses (e.g., electricity, maintenance, operator salaries, chemicals, and demand generation activities — marketing) and retire the construction costs. Safe Water Network: http://www.safewaternetwork.org/.

Steve Rickard, President of the Rotarian Action Group for Microcredit (RAGM) highlighted microcredit's strengths, including a 97% repayment rate, and he used as a three fold example of MRW/S, Biosand filters in the Dominican Republic. A local NGO, Fundación Agrega Tu Luz, finances the purchase of filters from a local entrepreneur, allowing a flexible repayment schedule, usually from 10-12 months. Canadian Rotary Clubs and NGOs donated the initial capital for loans (ie. donations, not investments). The interest on the loans supports the operating costs of the local NGO. All loans must be guaranteed by the recipient's local women's group. Self-sufficiency, donations and timing are inter-related — the larger the up-front donations the sooner the project becomes self sufficient. Microcredit Task Force Rotary District 5360: http://mtf5360.rotaryglobal.net/.

Referencing MRW/S the discussion groups were asked to review four points 1) their personal experiences, 2) their general knowledge, 3) critical issues to avoid & 4) suggestions on how Rotary might best become more involved. Cautioning the groups that their discussions and reporting must include reference to the economic viability of water / sanitation programs they set to their tasks. Given the reluctance of the participants to stop talking at the termination of the session plus the high caliber of the reporting back to the audience it is not an overstatement to say the workshop was a success. 

As the group leaders, which had been drawn from the RAGM Board of Directors, reported back they indicated the following findings from their discussions:

World Water Summit IV - New Orleans
It must be productive to purchase water; carefully select the operators; municipal systems require greater sophistication; parties must be committed to the program; education cannot be underestimated; check in with your heart to see what is sustainable; be progressive — do this to get that; use the Grameen model of one hour per week of diversified training; for faster growth develop a centralized data base of water related projects; microcredit for a water-well is not recommended; urban density is needed for successful water sales; centralize for greater efficiency; be flexible — if that is what they want . . .; municipal-size systems need government involvement; success rates of microcredit vs. water projects is an issue; Rotary has a role to play bridging the gap between the local demand and instituting a sustainable solution; etc.

Criteria for successful water / microcredit projects

Drawing on the combined expertise of the groups, the criteria for success of microcredit financed water / sanitation related ("water") projects included several key points:

Micro Finance Institutions (MFIs) compete for their source funding in a market where a return of capital with interest, in a timely fashion is on average 97%. Building supplementary income into the cash flow of water projects in order to obtain industry standard MFI rates is an effective way to package water and microcredit projects.

MFIs are accustomed to a controlled group of likeminded participants. They effectively use techniques such as peer pressure and loan cascading. The former occurs when each participant cross-guarantees the repayment of other participants. The latter occurs when graduating borrowers moving to commercial funding institutions make personal recommendations about who should receive their now repaid loan capital. The net effect is that moral is bolstered, a sense of community develops and amongst the worlds poorest repayment rates reach as high as 100%.

Harnessing the economic engine of microcredit for water projects requires a level of education and ruthless adherence to agreed principles amongst the water recipients. Early in the water project planning stages it is prudent to recognize that several different local interest groups and NGOs need to be on board so that required local expertise is identified, vetted and engaged to achieve local support. 

Both grass roots and higher level decision makers must cooperate in planning and execution to understand and shape community practices, to be aware of how things get done by whom in the community and how problems get fixed.  This is often best achieved by engaging local community centres of power such as tribal elders, religious leaders/clergy, political leaders (mayor), police chief etc. and by empowering local women. 

Flexibility is required, in designing the water project to accommodate both the MFI's requirements and service delivery models such that local economic conditions are satisfied.  Custom adaptation of water projects will be required in rural, urban and the near urban or what is referred to as bi-urban. Nomadic people will need solutions different from those for more fixed populations.

Since not all MFIs have reached sustainability and or may have engaged on already aggressive expansion plans, a close scrutiny of their capacity to proceed is required. An additional oversight committee is recommended in water projects, in part due to the diversity of the participant's goals and objectives. It is one thing to ensure that the microcredit's policies remain fair and equitable (i.e., profitable but no profiteering) and another to deal at a community level with devious practices or out right theft of the project's water products.

Fortunately ongoing education is traditionally built into the practices of MFIs where the topics like inflation and maternal health can be expanded to emphasize the advantage of accessing the goods and services provided by the water project - rather than defaulting in difficult times to old behavior patterns.

One of the significant benefits of integrating microcredit into other anti-poverty initiatives like water projects is that an inbuilt mechanism exists which quickly generates a pool of capital. This is centralized in the microcredit bank from both earnings and savings and is available for investment in other community building activities including enhancement of the water project.

Perhaps it goes without saying that all water projects must fit within government rules, regulations, laws and policies and be prepared to pay applicable fees and taxes.

Simplicity is its own reward.  Excessive innovation and creativity can lead to possible abandonment of the project when problems occur or the trained personnel are not available.

While this partial list of water / microcredit related concerns may seem daunting at first, there is every reason to be realistic at the outset. People don't plan to fail they too often however, fail to plan.
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