Microfinance for Water Supply Services

This paper explores how microfinance can help the poor have access to water services. It states that:

• Historically, microfinance has not been available for financing water supply and sanitation activities, because they have not been perceived as sufficiently attractive,
• Some microfinance institutions argue that the core blockage to increased microfinance in the sector is awareness of the business case for water supply projects.

The paper presents examples from around the world of how microfinance is used to support water supply services - for households, communities, independent providers/small utilities and municipalities.

The author discusses:

• The limitations of microfinance in water supply: limited outreach, product diversification and financial sustainability,
• Recent trends: a move from charity to business, increased competition, attracting private finance, diversification and strategic partnerships to develop scalable solutions.

The paper concludes with the following comments:

• Microfinance has existed for some time as an add-on to water projects,
• Now, linked to cost recovery policies aiming to increase user’s contributions, microfinance is being used to help pay for capital costs and to cover operation and maintenance costs,
• Although microfinance cannot transform a poorly planned/managed project into a good one, it can help address some of the different types of constraints of access to finance by households, communities and municipalities.