Microfinance can play a role in mitigating the WASH financing gap but with informed governance

Published on: 26/09/2024

This blog was co-authored by Ruchika Shiva and reviewed by Shiny Saha

Financial constraints remain a significant barrier to achieving Sustainable Development Goal (SDG) 6 in many low- and middle-income countries, and Bangladesh is no exception. Specifically, the investment gap to achieve SDG targets 6.1 and 6.2 has been a concern since the beginning of the SDG era. However, solid data to understand the WASH (water, sanitation and hygiene) investment and expenditure scenario in Bangladesh is lacking. In 2020, the Bangladesh Bureau of Statistics (BBS), with technical support from WaterAid Bangladesh, launched the National WASH Accounts. The 2020 report was published in 2023. BRAC, IRCWASH and WaterAid Bangladesh took the opportunity to share key findings and broaden the discussion on WASH finance with WASH professionals at the Stockholm World Water Week (SWWW) 2024. The aim was to critically examine the findings related to the investment gap, assess the role of microfinance in bridging this gap, identify challenges in utilising microfinance for water and sanitation infrastructure and explore other potential sources of funding.

The workshop titled Financing for WASH in Bangladesh: Macro to micro perspective was one of the first events at SWWW 2024. The session was a mix of presentations, group work and discussions.

Key findings from the 2020 WASH accounts shared by Partha Hefaz Shaikh from WaterAid included:

• Bangladesh is a delta country with high climate vulnerability.
• 59% of its population have access to safely managed water services, for sanitation and hygiene, the percentage is 39% and 58% respectively.
• WASH sector expenditure in 2020 was BDT 598 billion (approximately USD 6 billion), 2.18% of the country's total gross domestic product (GDP).
• Households have spent an average of BDT 11,574 annually on WASH. This was equivalent to 4.3% of the average annual household income.
• While this indicates a willingness to pay for WASH services, data analysis shows that the poorest section of the population spends three times more than the richest section on WASH.

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Moving on to alternative sources of finance, the presentation shifted focus to the micro-perspective of WASH expenditure, highlighting the role of microfinance in supporting households to build water and sanitation infrastructure. This section began with a Mentimeter survey to engage the audience.

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In this session, Hossain Ishrath Adib from BRAC explained the microfinance landscape in Bangladesh and the WASH loan initiatives led by key microfinance actors. The key points are:

• The WASH accounts data show that 81% of the total WASH expenditure is on self-supply, 80.5% of the total WASH investment is coming from households.
• A major share of this household investment is coming from microfinance sources (see figure 3).
• However, this investment does not always ensure proper installation and use of the infrastructure due to the issue of fungibility.
• Loans taken out for WASH infrastructure are often used for other purposes.
• Additionally, households often show less interest in investing in facilities that provide safely managed services. 

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Figure 3: Investments in water & sanitation infrastructure by three key microfinance actors of Bangladesh

The presentation was followed by a group exercise where the audience was divided into three groups. The groups addressed the following questions:

1. What should be the role of the government in financing universal access to safe water, sanitation and hygiene?
2. How to ensure adequate WASH financing to reaching the last mile.
3. In light of the increasing need for WASH financing, what other sources or mechanisms could be explored?

Two key recommendations emerged for low- and middle-income countries (LMIC) facing a public finance gap in WASH:

• Even if LMIC governments cannot fully bridge the financing gap, they should play a crucial role in sector governance. This includes acting as planners, regulators and negotiators to attract external finance.
• In the absence of donors, development partners or microfinance institutes, government could adopt innovative roles similar to those of microfinance institutions. Instead of relying solely on traditional microfinance or grant mechanisms, governments could explore blended schemes combining loans, grants and private finance linked to other related development areas such as livelihoods.

The second group addressed financing to reach the last mile, focusing of LMICs. Their observations included:

• Often the demands of the last mile community do not reach the decision makers. Identifying the last mile communities and engaging them in the decision-making process is important for allocating financing for the last mile.
• Within the last mile communities, women are the least heard. Lack of access to water, sanitation and hygiene (WASH) affects women disproportionally, due to both biological and cultural factors. Thus, engaging women in decision making is key to designing a service for last mile communities.

Key observations on alternative sources and mechanism to mitigate the WASH financing gap were:

• Context is king/queen! Understanding the reality on the ground is key to considering solutions.
• Water and sanitation components can be integrated into the livelihood development programmes e.g. as an integral part of housing designs promoted by these programmes.

In general, the session highlighted that there is no silver bullet for closing the WASH financing gap. Microfinance can be a valuable tool in closing this gap, but it must be effectively integrated into service design and carefully monitored. Although microfinance alone may not be sufficient to reach the last mile, it can alleviate some of the pressure on public funding, allowing these funds to be redirected to support those in greatest need.

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