Investments aligned with this strategic goal aim to improve access to water and sanitation by financing the construction of household facilities to allow low-income families to access toilets, water connections, wells, water filters, and other products that improve the quantity and quality of their water and sanitation access.

The sections below include an overview of the strategy for achieving desired goals, supporting evidence, a starter kit of metrics that help measure performance toward goals, and a curated list of resources to support collecting, reporting on, and using data for decision-making.

What

Dimensions of Impact: WHAT

Investors interested in deploying this strategy should consider the scale of the addressable problem, what positive outcomes might be, and how important the change would be to the people (or planet) experiencing it.

Key questions in this dimension include:

What problem does the investment aim to address? For the target stakeholders experiencing the problem, how important is this change?

Investments aligned with this strategic goal aim to improve access to basic water and basic sanitation by financing household facilities. Inadequate access to safe water and sanitation underpins many of the challenges related to health and education faced by households in poverty. Moreover, families in the bottom income quintiles often spend more than 20% of their income on water, further exacerbating the cycle of poverty (1,2). Limited access to clean water and sanitation costs households worldwide USD 323 billion in coping costs, including time lost fetching water and finding sanitation facilities, water purchased from vendors, and the costs of additional health issues caused by unsafe water (3).

Through affordable household financing, low-income families can access toilets, water connections, wells, water filters, and other products that improve the quality and quantity of their water and sanitation. Low-income households, excluding those living in extreme poverty, are often limited by financial liquidity rather than the cost of these products. For this reason, access to credit for these products appears to encourage household investments in water and sanitation. In Vietnam, India, Bangladesh, Mozambique, Ecuador, and Senegal, where an innovative approach was tested in pilot districts, systematic introduction of products on credit led to stronger demand for sanitation (4).

Investments aligned with this strategic goal may:

  • finance microloans for households to build new toilets, install new water connections, or purchase water filters; and
  • finance microloans for households to improve their existing water and sanitation infrastructure.

What is the scale of the problem?

According to the 2017 Joint Monitoring Reports from the World Health Organization (WHO) and United Nations Children's Fund (UNICEF), 785 million people lack access to basic water, and two billion people lack access to basic sanitation (5,6). The financing required to meet their needs is similarly lacking: to meet Sustainable Development Goal 6, the World Bank estimates that capital investments in water and sanitation infrastructure needed total USD 114 billion annually from 2016 to 2030. The capital investments required to achieve SDG 6.1 and 6.2 alone are triple the current estimated investment of USD 28.4 billion (7).

With such great capital need, solutions must extend beyond traditional philanthropy and official development assistance. A 2008 study estimated demand at USD 12 billion for microloans to finance improvements to water and sanitation among underserved communities, concentrated in India, Indonesia, and the Philippines where, collectively, 200 million people lack access to safe water and 280 million lack access to basic sanitation (8). A 2019 estimate, considering an additional 95 countries, revised this total demand to USD 18 billion (9).

Who

Dimensions of Impact: WHO

Investors interested in deploying this strategy should consider whom they want to target, as almost every strategy has a host of potential beneficiaries. While some investors may target women of color living in a particular rural area, others may set targets more broadly, e.g., women. Investors interested in targeting particular populations should focus on strategies that have been shown to benefit those populations.

Key questions in this dimension include:

Who (people, planet, or both) is helped through investments aligned with this Strategic Goal?

Low-income households: Many households earning between USD 1.90 and 5.50 per day have enough income on average to repay an affordable loan for water and sanitation investments but lack savings to pay for facilities and services upfront. When these households are offered affordable financing, they often opt for long-term investments over short-term/daily and expensive solutions for their water and sanitation needs (2). According to the World Bank, 46% of the global population lives on less than USD 5.50 per day. The 10% of the global population in extreme poverty—living on less than USD 1.90 per day—cannot meet their water and sanitation needs through financing strategies and should be served through traditional philanthropic approaches (10).

Women and girls: Giving households access to safe water and sanitation can save women and girls time and increase their personal safety and dignity. Women and girls overwhelmingly bear primary responsibility for collecting water, doing so for 80% of all households worldwide with water off-premises (11). Altogether, women and girls spend 200 million hours every day collecting water, with an average roundtrip collection time greater than 30 minutes (12). Meanwhile, more than a third of women worldwide lack access to safe sanitation; as a result, 526 million of them practice open defecation. Every day, women and girls living without a toilet spend 266 million hours finding a place to go (13). Time spent collecting water or finding a toilet is time spent away from school, income-generating activities, caretaking, rest, or play.

Besides the time required, inadequate access to indoor sanitation and the need to travel to outdoor toilet facilities are major risk factors for gender-based violence (14). In fact, women who practice open defecation are twice as likely to experience non-partner sexual violence as women with a household toilet (15).

Children: Access to safe water and sanitation contributes to positive outcomes in children’s health and education. Investments can prevent childhood deaths due to diarrheal disease—one of the top three causes of childhood death—when they target areas where people have little access to basic water and sanitation, as most cases are linked to a lack of these services (16, 17). Diarrhea related to lack of water and sanitation is also linked to stunting and chronic malnutrition, which affect more than 160 million children worldwide (18). In terms of education, having a sanitation solution at home is associated with higher cognitive test scores, especially for girls and controlling for socioeconomic data and family size (19). Access to improved water at age one was associated with higher language scores at age five in a study of more than 7,000 children in Ethiopia, India, Peru, and Vietnam (20).

What are the geographic attributes of those who are affected?

Investments with this strategic goal can impact not a specific geographic area but rather a specific income demographic: low-income households.

According to a 2019 study conducted by WaterEquity, demand for microfinance for water and sanitation totals approximately USD 18 billion, with the highest demand in sub-Saharan Africa and East Asia & the Pacific (9).

Contribution

Dimensions of Impact: CONTRIBUTION

Investors considering investing in a company or portfolio aligned with this strategy should consider whether the effect they want to have compares to what is likely to happen anyway. Is the investment's contribution ‘likely better’ or ‘likely worse’ than what is likely to occur anyway across What, How much and Who?

Key questions in this dimension include:

How can investments in line with this Strategic Goal contribute to outcomes, and are these investments’ effects likely better, worse, or neutral than what would happen otherwise

Organizations investing in projects that improve access to WASH through affordable household financing can contribute toward solutions by:

  • Signalling that impact matters. By investing in projects targeting positive WASH outcomes, investors can signal that impact matters within their portfolios. By investing in water supply and sanitation financing, investors signal that they want to influence financial markets to incorporate lending for WSS as a mainstream activity.
  • Engaging actively. Investors can use expertise and networks to improve performance of businesses related to WASH outcomes. Engagement can include a variety of approaches ranging from dialogue with investees to hands-on management support. For further details, see A Guide to Classifying the Impact of an Investment.
  • Growing new or undersupplied capital markets. Water and sanitation receives relatively little investment compared to other infrastructure. Extending basic water and sanitation services will cost USD 28.4 billion per year from 2015 to 2030 (7). Investments aligned with this strategic goal can help close this gap in financing.
  • Providing flexible capital. Financing water and sanitation directly at the household level can increase levels of service and overall access. When households have greater choice in their water and sanitation improvements, they can sometimes attain higher levels of service and access than they would otherwise. In Cambodia, iDE found that offering microfinance loans for latrines increased their uptake fourfold at market price (23). Meanwhile, bridge financing for water and sanitation can improve access for end stakeholders of subsidy programs. For beneficiaries of India’s Swachh Bharat subsidy program for toilets, for example, the Government of India does not disburse subsidies to households ahead of their purchase and construction (24). Without affordable and available household financing, these households would purchase lower levels of service or gain no access due to lack of capital.

How Much

Dimensions of Impact: HOW MUCH

Investors deploying capital into investments aligned with this strategy should think about how significant the investment's effect might be. What is likely to be the change's breadth, depth, and duration?

Key questions in this dimension include:

How many target stakeholders can experience the outcome through investments aligned with this Strategic Goal?

Currently, 785 million people around the world lack access to basic water, and two billion lack access to basic sanitation (5,6).

How much change can target stakeholders experience through investments aligned with this Strategic Goal?

The lack of proper sanitation costs an estimated USD 223 billion every year (3). Across the global economy, every dollar spent on water and sanitation returns at least four (21). Universal access to adequate water and sanitation would yield an estimated USD 18.5 billion in economic benefits per year as a result of deaths avoided, not counting other sources of potential economic benefit (21). In one example of impact from a project associated with this strategic goal, households in Bangladesh that took loans to improve their water facilities increased their household income by 10% compared to non-borrowers (22).

Risk

Dimensions of Impact: RISK

Key questions in this dimension include:

What impact risks do investments aligned with this Strategic Goal run? How can investments mitigate them?

Impact risk factors identified by experts as material for this Strategic Goal include:

  • External Risk: Unexpected changes in currency exchange rates, high interest rates, and inflation could all disrupt the expected impact. Investors can mitigate this risk by ensuring that the financing and lending environment of the investee’s country is stable and favorable.

  • Evidence Risk: Potential market demand for water and sanitation loans and services could be under- or overestimated, and investors might have difficulty ensuring that household investments were indeed made to improve access, availability, or the sustainable service delivery of water and sanitation. To mitigate these risks, investors should carefully study market demand in regions in which they have interest, and investees’ loan staff should conduct follow-up visits with borrowers to ensure that loans were properly spent. This may require the development of a management information system (MIS).

  • Stakeholder Participation Risk: Terms offered by investees and accepted by a large share of those without access to water and sanitation may be misaligned. Investors and enterprises should engage with target stakeholders to ensure the products offered are aligned with the needs and preferences of the target audience, including accessible and appropriate pricing.

What are likely consequences of these impact risk factors?

These risks could reduce the operational sustainability of invested financial institutions’ credit offerings for water and sanitation, decreasing their chances of continuing to offer household financing over time. Simply put, these risks may lead to organizations not reaching their intended impact objective.

Illustrative Investment

MBK Ventura is a microfinance institution (MFI) regulated by the Indonesian Financial Services Authority (FSA), and licensed as a non-bank finance company. Using the Grameen Bank methodology, MBK provides working capital to low-income women in Java, Indonesia, to give them access to formal and cost-effective financial services and to reduce their vulnerability. Since launching its operations in 2003, MBK has now become one of the largest Grameen-style microfinance institutions in Indonesia, now serving more than 1.2 million unbanked women. To date, MBK Ventura has disbursed more than 33,000 loans for water and sanitation, reaching more than 147,000 people. MBK Ventura provides financing for household water and sanitation facilities. In 2019, WaterEquity invested in MBK Ventura to support the scale-up of its water and sanitation lending, while Water.org continued to provide technical support for the design of the water and sanitation programme and extensive capacity building of MBK Ventura staff in head office and the field.

Annapurna Finance Pvt. Ltd is a microfinance institution in India established in 2009 to serve the economically weaker sections of society, bringing them into the mainstream by providing need-based financial services at their doorstep. Annapurna offers households the SWASTH loan, sized between USD 140 and 350, for safe water and sanitation. To date, Annapurna has disbursed more than USD 12 million in water and sanitation loans, resulting in 48,000 water and sanitation improvements and reaching more than 227,500 people. Annapurna is currently supported by investments facilitated through WaterEquity and was previously supported by subsidies provided by Water.org.

Have an investment the GIIN should consider including here? Let us know! 

Draw on Evidence

This mapped evidence shows what outcomes and impacts this strategy can have, based on academic and field research.

NESTA: 4
Microfinance in the Water Supply and Sanitation Sector in Kenya

Cook, Joseph, and Joseph Onjala. “Microfinance in the Water Supply and Sanitation Sector in Kenya.” Microfinance in the Water Supply and Sanitation Sector in Kenya, 2009.

NESTA: 3
Labelled Loans, Credit Constraints and Sanitation Investments

Smets, Susanna, Bansi Malde, Sara Giunti, Bet Caeyers, and Britta Augsburg. “Labelled Loans, Credit Constraints and Sanitation Investments,” July 2019. https://doi.org/10.1920/wp.ifs.2019.0919.

NESTA: 3
Borrowing Requirements, Credit Access, and Adverse Selection: Evidence from Kenya

Jack, William, Michael Kremer, Joost De Laat, and Tavneet Suri. “Borrowing Requirements, Credit Access, and Adverse Selection: Evidence from Kenya,” 2016. https://doi.org/10.3386/w22686.

NESTA: 3
Can Micro-Credit Support Public Health Subsidy Programs?

Augsburg, Britta, Bet Caeyers, and Bansi Khimji Malde. “ Can Micro-Credit Support Public Health Subsidy Programs ?” Can Micro-Credit Support Public Health Subsidy Programs ? Washington, DC: World Bank Group, n.d.

NESTA: 3
Towards Sustainable Sanitation Management: Establishing the Costs and Willingness to Pay for Emptying and Transporting Sludge in Rural Districts with High Rates of Access to Latrines

Balasubramanya, Soumya, Barbara Evans, Richard Hardy, Rizwan Ahmed, Ahasan Habib, N. S. M. Asad, Mominur Rahman, et al. “Towards Sustainable Sanitation Management: Establishing the Costs and Willingness to Pay for Emptying and Transporting Sludge in Rural Districts with High Rates of Access to Latrines.” Plos One 12, no. 3 (2017). https://doi.org/10.1371/journal.pone.0171735.

NESTA: 3
Microcredit and Willingness to Pay for Environmental Quality: Evidence from a Randomized-Controlled Trial of Finance for Sanitation in Rural Cambodia

Yishay, Ariel Ben, Andrew Fraker, Raymond Guiteras, Giordano Palloni, Neil Buddy Shah, Stuart Shirrell, and Paul Wang. “Microcredit and Willingness to Pay for Environmental Quality: Evidence from a Randomized-Controlled Trial of Finance for Sanitation in Rural Cambodia.” Journal of Environmental Economics and Management 86 (2017): 121–40. https://doi.org/10.1016/j.jeem.2016.11.004." Journal of Environmental Economics and Management.

NESTA: 3
Using Microfinance to Facilitate Household Investment in Sanitation in Rural Cambodia

Geissler, Kimberley H, Jeffrey Goldberg, and Sheila Leatherman. “Using Microfinance to Facilitate Household Investment in Sanitation in Rural Cambodia.” Health Policy and Planning 31, no. 9 (2016): 1193–99. https://doi.org/10.1093/heapol/czw051.

NESTA: 2
Moving up the Sanitation Ladder with the Help of Microfinance in Urban Malawi

Chunga, Richard, M. W. Jenkins, Jeroen Ensink, and Joe Brown. “Moving up the Sanitation Ladder with the Help of Microfinance in Urban Malawi.” Journal of Water, Sanitation and Hygiene for Development 8, no. 1 (August 2017): 100–112. https://doi.org/10.2166/washdev.2017.186.

NESTA: 2
Credit Constraints, Firm Investment and Growth: Evidence from Survey Data

Garcia-Posada, Miguel. “Credit Constraints, Firm Investment and Growth: Evidence from Survey Data.” SSRN Electronic Journal, 2017. https://doi.org/10.2139/ssrn.2978017.

NESTA: 2
Expanding the Frontiers of Microfinance in the Service of the Poor: Experiment with Water and Sanitation

Afrane, Samuel K., and Bernard Adjei- Poku. “Expanding the Frontiers of Microfinance in the Service of the Poor: Experiment with Water and Sanitation.” International Journal of Academic Research in Business and Social Sciences 3, no. 8 (2013). https://doi.org/10.6007/ijarbss/v3-i8/124.

NESTA: 2
Microfinance for Water and Sanitation in West Africa

Kouassi-Komlan, E. and C. Fonseca (2004). Microfinance for water and sanitation in West Africa. 30th WEDC International Conference. Vientiane, Lao PDR.

NESTA: 2
Liquidity Constraints and Willingness to Pay for Solar Lamps and Water Filters in Jakarta

Lensink, Robert, Tom Raster, and Angelique Timmer. “Liquidity Constraints and Willingness to Pay for Solar Lamps and Water Filters in Jakarta.” The European Journal of Development Research 30, no. 4 (October 2017): 577–87. https://doi.org/10.1057/s41287-017-0078-3.

NESTA: 2
Willingness to Pay for Improved Water Supply: A Policy Implications for Future Water Security

Rahman, M. M. “Willingness to Pay for Improved Water Supply: A Policy Implications for Future Water Security.” American Journal of Environmental and Resource Economics 2, no. 4 (2017): 116–22.

NESTA: 2
Evaluating the Potential of Microfinance for Sanitation in India

Tremolet, S. Kuar, T.V.S.R. (2013): Evaluating the Potential of Microfinance for Sanitation in India. London: Sanitation and Hygiene Applied Research for Equity (SHARE)

NESTA: 1
Local Financing Mechanisms for Water Supply

Agbenorheri, M. and C. Fonesca (2005). “Local financing mechanisms for water supply.” Background paper for WELL.

NESTA: 1
Improving Access to Water Supply and Sanitation in Urban India: Microfinance for Water and Sanitation Infrastructure Development

Davis, Jenna, Gary White, Said Damodaron, and Rich Thorsten. “Improving Access to Water Supply and Sanitation in Urban India: Microfinance for Water and Sanitation Infrastructure Development.” Water Science and Technology 58, no. 4 (2008): 887–91. https://doi.org/10.2166/wst.2008.671.

Each resource is assigned a rating of rigor according to the NESTA Standards of Evidence.

Define Metrics

Core Metrics

This starter set of core metrics — chosen from the IRIS catalog with the input of impact investors who work in this area — indicate performance toward objectives within this strategy. They can help with setting targets, tracking performance, and managing toward success.

Additional Metrics

While the above core metrics provide a starter set of measurements that can show outcomes of a portfolio targeted toward this goal, the additional metrics below — or others from the IRIS catalog — can provide more nuance and depth to understanding your impact.