wsp: microfinance within sanitation marketing

Sanitation Business; What we have learnt.

Private Sector Development, WSP

CONTENTS

The Problem 5 myths of the Sanitation Business

• Demand Side• Supply Side

Microfinance

NA

SSA

LAC

EA

SAR

ME 128

22

333

Oceania

13

35

599

31

1,005

170

E. Asia

484

SE. Asia

184

Source: JMP, 2012

1317

35

35118

333

333

599

31 2231

1,005

170

128 484

184

71

4

Water supply Sanitation

SE.ASIA

4

A Market Out of Exclusion2.5 billion people lack access to improved sanitation780 million people lack access to water supply

5 MYTHS ABOUT THE BUSINESS OF SANITATION

SUPPLY SIDE MYTHS

Myth #1 The Sanitation Market is SmallFirms catering to poor households are mostly micro-firms because

the market is small

• Market estimate is $300 m/year• Potential market: $2.6 b

Rural areas: $ 1.9 b Market below poverty line:

$700 m

$155 M$240 MPERU

TANZANIA$450M

BANGLADESH

$1,700 MINDONESIA

The sanitation market is largepotential could double the market

Myth #2 Sanitation is a Low Margin BusinessMargins in sanitation are so small, micro-firms find it hard to add value

and expand

To manufacture & installation of toilet facilitiesFrom manufacture & sale of rings and slabs

Typical Unit Margin per Product or Service Delivered

0% 20% 40% 60%

Tanzania masons

Bangladesh installers

Indonesia construction firms

Indonesia pit emptiers

Margin levels are like in other constructionfirms are increasing margins with value adding

Myth #3 Policies Promoting Sanitation Stimulate Private Investments

Policies that promote sanitation motivate the private sector to invest

• Nearly all firms in Bangladesh said they did not know about sanitation standards and rules

• 55% of firms in Peru said rules were not clear

• 50% of firms in Tanzania also said rules were not clear

• Asked about whether promotion programs were well publicized, same types of responses were obtained

The impact of current policies is limitedneither hindered nor helped private initiative

• Nearly all firms in Bangladesh said they did not know about sanitation standards and rules

• 55% of firms in Peru said rules were not clear

• 50% of firms in Tanzania also said rules were not clear

• Asked about whether promotion programs were well publicized, same types of responses were obtained

The impact of current policies is limitedneither hindered nor helped private initiative

DEMAND SIDE MYTHS

Myth #4 People Without Sanitation Can’t Afford itLow interest in sanitation is driven by the lack of money

65% of those without improved sanitation are non-poor

29% of Indonesians defecating in the open are non-poor

85% of rural non-poor Tanzanians do not have improved sanitation

• Investment in available solutions are only 3-4%* of annual incomes of the poor

• The poor spend as much on mobile phone use a year as it would to purchase improved sanitation

*Except in Peru, where it is 7%

Even when money is not an issuesanitation is a low expenditure priority

Myth #5 People Want ‘Improved’ SanitationPeople recognize the benefits of having basic sanitation that meets the

standards

PERU BANGLADESH TANZANIA INDONESIA

Price Quoted for Ideal Solution

$78

Price Quoted for Ideal Solution

$12

Price Quoted for Ideal Solution

$41

Price Quoted for Ideal Solution$100

Wanted: bathroom

Give me finance & a

platform.

A lid and a door would

be ideal

Mmm…septic tank… but so

expensive!

The poor will pay for their ideal solutionbut they do not find anything worth buying

Sanitation supply chains are not presently geared to deliver innovations for the poor

Research and development of products

for the poor

Overcoming initial barriers: market intelligence

Reinforcing customer recognition of quality

Mass manufacture, distribution & installation

Partnership models between industry &

government to create ‘dealflow’

Financing options for the poor

Areas where work can be intensified to bring in the right kinds of investment in sanitation

The 4 Phase Approach

MICROFINANCE

Financing

FACTS

• Latrine improvements will be financed from savings, selling

produce, cash from work

• Households do not have bank accounts; prefer to save with

Chamas, to access soft loans

• They are hesitant to take loans for fear of defaulting

• Some suggested they would like to purchase on installments or

get a loan for a slab through cooperative groups

• FINANCING IS ABOUT RELATIONSHIPS…WHERE IS THE

RELATIONSHIP?

• MICROFINANCE v MICROCREDIT?

Financing

Cost Implications of Distribution Channel

Chama Hard ware (4 tier) Sacco/ MFI Hardware (3 tier)

Manufacturer Kes 2,690 + 16%

Manufacturer Kes 2,690 + 16%

Manufacturer Kes 2,690 + 16%

Manufacturer Kes 2,690 + 16%

Wholesaler + 15% margin

Distributor + 15% Sacco / MFI + 20% Wholesaler + 15%

Chama + 10% Margin Wholesaler + 15% HH = KES 3,744 Retailer + 15%

HH =Kes 3,947 Retailer + 15%  

HH= KES 4,126

  HH = Kes 4,745  

Based on Plastic Slab in Kenya

If financing is about relationships;

• Where is the relationship for the rural household?

• Microfinance v Micro credit?

• What role can local retail outlets play in financing

sanitation?

• Have we exploited other channels of financing

sanitation at the BoP?

Financing

http://www.wsp.org

For more of the things we’ve learnedDownload from our website

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