Urban environment advise organization WASTE, Triodos-Facet and ICCO commissioned a feasibility study into this question, financially supported by Partners for Water.
The concrete research question was more specific; based on experiences of the organizations and on established needs for further financial investment in the sector, we researched the economic feasibility for an ‘African Finance Facility for Water and Sanitation’.
How we did it
With the Water & Sanitation (Watsan) experience of WASTE and the business economic experience of Fair & Sustainable Advisory Services (FSAS) and Triodos/Facet, the study was carried out in a ‘multidisciplinary’ way. The study was practical; we researched a number of ‘real time’ business cases of Watsan entrepeneurs in four African countries: Uganda, Kenya, Ghana and Benin. For service clusters like water kiosks, public toilets, toilet construction and mini-grids the need for finance was researched. Furthermore we investigated the existing financing activities of African banks and other financial institutions with regards to Watsan and identified how and under what conditions such access to finance could be made successful.
Watsan business cases proved to be numerous and profitable, but underserved by the financial sector. Underservice mainly caused by two reasons; 1) the Watsan sector has not yet been discovered by the financial sector and is perceived as a not so ‘sexy’ sector, 2) the lack of valuable collateral within the Watsan businesses. Even though the Watsan businesses may own assets with a high purchase value, the collateral value is perceived as low, because of the perceived difficulty of selling the collateral used for sanitation activities in case of default. For instance who would want to buy a used pit-emptying-truck? It’s a small and specific market. This led us to the suggestion that a guarantee facility can bridge the gap between the financial service providers and the Watsan sector. Supplying a partial guarantee to established local banks and MFI’s will encourage them to discover the Watsan sector as an interesting and feasible sector for their financial services. The economic risk will be made manageable for financing institutions through the guarantee facility, therewith lowering the threshold of entering and discovering the Watsan sector.
In order to further concretize the advice, a business model for the -to be created- Guarantee Facility was built. The guarantee facility is to be accompanied by a risk rating mechanism and Business Development Services which will assist the Watsan entrepreneurs in further developing adequate Watsan business cases. WASTE will use this to start the facility ‘in house’ or as an independent fund or enterprise.
A Learning Experience
It was quite encouraging to see that by generating (models for) more concrete knowledge of the risks for finance providers, and by taking specific measures such as a guarantee facility and business development support, it seems feasible to commercially finance and operate services in the Watsan domain.
For me it was positive to experience that our business development knowledge and expertise is well applicable on service provision as well. The Watsan sector being new to me, it positively surprised me that there is serious potential for stimulating access to Water & Sanitation in a commercially viable way. Developing access to water & sanitation through market mechanism needs to be seriously stimulated and promoted, since it offers a sustainable solution.
It was through the intermediary role of ICCO between WASTE and FSAS that Watsan expertise and Finance & Business expertise was effectively brought together. I realized that collaborating in a multidisciplinary team is of great advantage when researching economic issues (potential, constraints, conditions, etc.) in a specific sector. The exact composition of such a team is of importance for a consultant; a mix of people that strengthen each other but are not too ‘similar’ is the best. It again proved of importance to agree on task division and coordination, certainly when consultants work separate and/or far away from each other.