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Strengthening WASH business in Ethiopia: Consumer financing

Published on: 27/12/2021

Increasing access to affordable credit for WASH customers – a key to unlocking demand


In a series of posts, we will present the main challenges that businesses face when expanding the range of water, sanitation and hygiene (WASH) products and services available to households in Ethiopia. After describing these challenges, we will recommend specific regulatory and/or policy actions to address those issues, and which also are intended to improve the overall business climate in the country – so that enterprises can more easily start up, grow, and serve their communities sustainably.

This is the final in a series of eight articles discussing the challenges that WASH enterprises face in Ethiopia. This article addresses the importance of improving consumer access to affordable credit mechanisms.

Why does this matter?

Currently, only nine percent of Ethiopians have access to basic sanitation services – a serious situation that affects public health, education, and many other aspects of the country's economic and social well-being (JMP, 2021). Achieving universal access to basic WASH facilities cannot be done by government or NGOs alone; it will require a strong contribution from the country's private sector. The Government of Ethiopia recognizes this and is working to strengthen private sector businesses that offer WASH products and services (including household sanitation) as key element of its greater focus on hygiene and environmental health (FMoH, 2016). These measures are necessary because the current market only meets a small fraction of the country's enormous needs.

To gain insight into how these challenges can be addressed, and to do so in a manner that ensures the solutions are affordable to all, the USAID Transform WASH team spoke with a wide range of experts – including business owners, government officials, and technical specialists in Ethiopia and other East African countries – to get their advice and recommendations on how to develop and expand Ethiopia's WASH market. The post that follows is largely based on these experts' reflections.
To explore this and related topics in more depth, follow this link to the full Learning Note.

Financing for consumers

One of the main barriers to increasing the uptake of basic sanitation services in Ethiopia is the initial investment cost – as many households find it difficult to afford such a facility. This also affects the ability of businesses to sell WASH products and services. Although Ethiopia recorded a sharp decline in the national poverty rate between 2000 and 2016, nearly one-fourth of the population remains below the Ethiopian poverty line of 7,184 ETB per year (about US$ 0.90 per day). An even greater percentage of the population lies below the international poverty line of US$1.90 per day (31 percent). This means that installing an 'improved' household pit toilet (which costs around 1,200 ETB or US$25) is a significant investment for a large portion of the country's households. Access to affordable credit can be vital to encouraging this type of household investment.

There are a wide range of credit mechanisms in Ethiopia, some of which are well-suited to financing consumer purchase of WASH products and services by low-income households. Evidence suggests that repayment rates on these loans is quite high, indicating that such loans should be considered low risk by credit institutions and loan associations. However, the capacity and scale of these credit mechanisms, especially those located at the community level, are still relatively small compared to the scope of the country's WASH needs – especially for household sanitation.

The country has a well-established group of rotating savings and credit associations (collectively known as ROSCAs), which target low- to middle-income households. For example, iqqub and iddir are home-grown mechanisms designed for infrequent or emergency expenditures, such as social celebrations or funerals. These mechanisms do not charge interest, but they have limited capital capacity and would require adaptation and significantly more funds to reach scale. Another popular local financing system is community-based health insurance, through which members make payments into a collective fund, which can be accessed to cover health care costs when a member falls ill.

Community-based initiatives, such as savings and internal lending communities (SILCs), savings and credit cooperative organizations (SACCOs), and village savings and loan associations (VSLAs) are also suitable for household investment in toilet products and installation services. They offer the advantage of local credibility and relatively low interest and service charges, in addition to promotion of household savings. However, these mechanisms require training, management, and supervisory systems that often need external support, such as by the Federal Cooperative Agency (FCA) or NGOs.

Public and private microfinance institutions (MFIs) are more professionally run than ROSCAs and generally have more capital, but they also tend to charge higher interest rates and be geographically limited to the Ethiopian highlands.'s WaterCredit programme in Ethiopia has successfully worked with several MFIs to develop affordable household loans for WASH product purchases. The loans have proven very popular; in less than one year, these MFIs disbursed loans totaling nearly ETB 19 million (US$ 560,000), reaching around 22,500 individuals. The loan repayment rate was 99.9% (Getnet, 2019). Organizations working with banks and MFIs can now cite evidence from this successful microfinance effort to advocate for increasing the availability of loan products suitable for household WASH investments.

MFIs and ROSCAs are often unable to reach consumers at the lower end of the economic spectrum. Since many of these households are also food insecure, the Federal Ministry of Agriculture (MoA) established the Productive Safety Net Program (PSNP), which currently assists about 8,000,000 people (World Bank, 2017). The Federal Ministry of Health (FMoH), MoA, and development partners are currently in discussions to explore ways of promoting sanitation within the PSNP program to help reach food-insecure groups.

Gender issues also factor into the uptake of WASH products, services, and use of financing schemes. A study of cookstove purchases in northern Ethiopia found that women are far more interested and willing to pay for those products (Alem et al., 2018). Similarly, women are often responsible for household water thus are more conscious of water-related problems and are more willing to pay for improved services (Bogale et. al, 2012). The burden of not having access to basic sanitation services or adequate hygiene facilities also tends to be felt more by women and girls. It may therefore be advantageous to tailor WASH loan products and financing campaigns toward female consumers.

FMoH has recognized the need for affordable household financing for WASH and is working with commercial lending institutions to establish a class of bank loans targeting household sanitation, similar to what was done to increase the availability of credit for fertilizer purchases.

In conclusion, there is a growing body of experience and evidence regarding consumer financing in Ethiopia. Many of these mechanisms show promise for supporting the expansion of the WASH marketplace, although additional innovation and expansion will be required to adapt these approaches to meet the latent but growing demand for household sanitation and other WASH amenities. In turn, better access to consumer credit also should help private sector WASH businesses grow and develop. Moreover, collaboration is needed with key government agencies such as the Ministry of Finance and Economic Development (MoFED) and FMoH, as well as with formal banking institutions such as the National Bank of Ethiopia (NBE) and the Development Bank of Ethiopia (DBE), to help prioritize WASH sector financing and to strengthen policies and approaches concerning sanitation financing.

  • In partnership with NBE and FCA, advise commercial banks, SACCOs, and MFIs to develop sanitation loan products designed for businesses and consumers (especially low-income households).
  • Promote setting an aspirational percentage of funding by DBE's Rural Finance Intermediation Program to target financial institutions for provision of low-interest, sanitation-oriented loans.
  • Support efforts by the government to establish links between the PSNP and the national effort to end 'open defecation' and ensure low-income households have the means to acquire basic sanitation services.
  • Work with financial and credit institutions to design products and services tailored for women, who can play a catalytic role in stimulating the private sector market.
  • Encourage MoFED and DBE to prioritize WASH sector financing and lending, adding it to the priority list for development financing, including a clear reference to sanitation.
  • Work with FMoH to increase the awareness of commercial and development banks, MFIs, and SACCOs to the WASH sector and the financing opportunities they offer (as well as sharing information on high WASH loan repayment rates). Related to this, promote the establishment of loan guarantee facilities to encourage expanded access to affordable credit by low-income households.

About Transform WASH

USAID Transform WASH aims to improve water, sanitation and hygiene (WASH) outcomes in Ethiopia by increasing market access to and sustained use of a broader spectrum of affordable WASH products and services, with a substantial focus on sanitation.
Transform WASH achieves this by transforming the market for low-cost quality WASH products and services: stimulating demand at the community level, strengthening supply chains, and improving the enabling environment for a vibrant private market.

USAID Transform WASH is a USAID-funded activity implemented by PSI in collaboration with SNV, Plan International, and IRC WASH. The consortium is working closely with government agencies, including the Ministry of Health, the Ministry of Water, Irrigation and Electricity, the One WASH National Program, and regional and sub-regional governments.