Microcredit for water supply and sanitation

Microcredit for water supply and sanitation is the application of microcredit to provide loans to small enterprises and households in order to increase access to an improved water source and sanitation in developing countries. While most investments in water supply and sanitation infrastructure are financed by the public sector, current investment levels are insufficient to achieve universal access. Commercial credit to public utilities is limited by low tariffs and insufficient cost recovery. Microcredits are a complementary or alternative approach to allow the poor to gain access to water supply and sanitation Funding is either provided to small-scale independent water providers who generate an income stream from selling water or to households in order to finance house connections, plumbing installations in their houses, or various forms of on-site sanitation such as latrines. Many microfinance institutions still have only limited experience with financing investments in water supply and sanitation. While there have been many pilot projects in both urban and rural areas, just a small number have been scaled up. Individual credits are repaid in part through cost-savings as a result of having a water connection which can significantly lower a family’s average water expenditures, if it previously had to rely on much more expensive water sold by water vendors. Water credits can also generate additional income by spending time for productive purposes that was previously spent fetching water. Investments in sanitation provide health benefits that can also translate into more time available for productive work.

There are three broad types of microcredit products in the water sector in urban and rural areas:

Microcredits can be targeted specifically at water and sanitation, or general purpose microcredits are simply used for water and sanitation. In both cases, microcredits are typically used to finance household water and sewerage connections, bathrooms, toilets, latrines, rainwater harvesting tanks or water purifiers. They range from 30 to 250 USD with a tenure of generally less than three years.

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