Column: Investing in WCs does not stink

During the recent heat wave in the Netherlands, there were calls to cut water consumption and even limit flushing toilets. For us in Europe, it often goes without saying that we have a lavatory at home. But that is not the case for nearly 2.5 billion other people on our planet.

Especially in developing countries, access to toilets and clean water is the exception rather than the rule. As a result, dysentery, diarrhoea and other diseases are the order of the day. In India alone, unhygienic conditions kill more than 1500 children daily.

Difference

In this domain, loans through microfinance funds can make a real difference. Various providers have accepted the challenge, including Actiam. They offer you a net return of 3-5 per cent, with a clear and measurable impact.

According to the World Bank, 48 per cent of the Indian population does not have access to sanitation systems. Rivers and forests are the most widely used alternatives [yielding untreated waste being dumped directly in the environment]. Possibly hampered by local customs, the Indian government has failed to make a success of its comprehensive “Clean India” (Swacch Bharat Mission) programme, intended to provide sanitation coverage for the entire population.

Investors

There is now more awareness of the need for good sanitary facilities and clean water. The introduction of the United Nations’ seventeen Sustainable Development Goals (SDGs), and particularly the ambition expressed in SDG 6 – clean water and sanitation for all – has made an important contribution to the heightened awareness. As with all the SDGs, governments are not the only parties involved. Increasingly, private parties are being asked to help achieve these ambitious goals. The first investors have now come aboard in search of investable projects in the sanitation sector.

One example is a project for which a loan, with allocation clause, was granted to Cashpor Micro Credit in India. In 2018, this initiative funded 35,000 toilets alone–a clear contribution towards achieving SDG 6.

What makes the sanitation sector interesting for investors? One of the most attractive aspects is its potential volume, on demand and supply sides alike. Serving these neglected communities presents the opportunity to open up a huge, untapped market for entrepreneurs, and not just in the sanitation sector. One good example of this comes from Unilever, which has started marketing washing powder in 50-gram packs to make them affordable for everyone. This has proven an extremely successful way of matching supply with demand. For the sanitation sector, however, achieving this is not so easy.

Finance

Firstly, demand still needs to be stimulated by creating awareness. The importance of having your own toilet is not self-evident for everyone. Governments need to play a role in this respect – as India’s has done with the “Clean India” programme. Once the demand is there, the method of financing must be considered. Here, too, the government has a role to play. But certainly not on its own.

The private sector has now identified the opportunities available. Microfinance institutions in developing countries offer access to financial services to poor and vulnerable groups. Their clients are mainly micro-entrepreneurs, who use their profits to repay the loan and interest. But now these miniature banks are also offering sanitation loans to build toilet facilities. The repayment ratios are higher than those for the loans to entrepreneurs. How is that possible?

Excrement

It turns out that once most people are aware of the importance of sanitation [and the potential impacts small changes can have on their communities], borrowers display extremely high levels of financial discipline [—healthy clients pay back loans at a higher rate than not!]. Nobody wants a sick child (or worse) due to poor hygiene. Moreover, it turns out that economic productivity increases considerably due to better health and the time saved by not having to travel so far to access clean drinking water and sanitary facilities. In addition, human excrement has economic value for the entrepreneurs who empty the toilets – and pay for the privilege.

Anyone who thinks that this is something far removed from them, an issue for the local authorities, is mistaken.

Responsible

The Dutch government is also supporting a programme of this kind, a partnership called FINISH (Financial Inclusion Improves Sanitation & Health) Mondial. Last month, the Dutch embassy in New Delhi hosted a celebration to mark the completion of the one millionth toilet built [in India] with the help of microfinance institutions, supported and funded in part by FINISH Mondial and investors looking for a responsible financial return. And so, a dirty, smelly affair is becoming a booming business with major financial and social impact!

Theo Brouwers is General Manager Impact Investing at Actiam.