W t r Making Toilets More Affordable for 92036 Cambodia’s Poor Through Microfinance September 2014 Background From 2000 to 2012, access to sanitation in Cambodia’s ru- ral areas increased by only 1 percent per year (JMP, 2014). By 2012, 75 percent of rural Cambodians lacked access to improved sanitation, and 66 percent practiced open defeca- tion. Though open defecation rates are highest among the poorest rural Cambodians at 86 percent, they are still quite high even among the richest at 32 percent (CSES, 2011). Lack of access to sanitation imposes significant economic and social costs on rural Cambodians, from higher child mortality due to diarrhea, other fecal-borne diseases, to stunted growth of children. In Cambodia, extensive previous experience with sanitation marketing approaches illustrates there is strong household demand for sanitation and the domestic sanitation market is 1,994 Total number of loans $126,125 Total amount of loans capable of meeting it. At the same time, challenges remain in granted disbursed 0 $10,428 reaching low-income households that do not have the cash to meet upfront payment costs to purchase sanitation products. Number of loans in default or Total revenue collected with payments 30 days or more through loan interest Action past due Over a 13-month period, the Water and Sanitation Pro- gram (WSP) of the World Bank worked with a number of partners, including the international non-profit Program Lessons Learned for Appropriate Technology in Health (PATH) and Inter- 1. There is demand for latrines even among poor national Development Enterprises (iDE), to pilot a sanita- households when credit is available. tion financing program to address the challenge of reaching 2. MFIs can increase the number of loans offered low-income households with improved sanitation solutions. and reduce loan processing time by dedicating loan officers to the sanitation portfolio. Several sanitation finance options were assessed, including 3. Allowing borrowers to repay loans close to saving groups, revolving funds, and supplier loans. A house- where they live increases the likelihood of hold loan product offered through a Microfinance Institution interest in this loan product. (MFI) was determined the most scalable and sustainable ap- 4. A close partnership between MFI and a latrine proach in Cambodia. WSP and partners (PATH and iDE) business that has the motivation and capability to produce and deliver on time is needed to sought to partner with MFIs with established scale and pe- maximize commitments from customers and netration in rural areas, a commitment to serving poor Cam- avoid losing latrine orders. bodians, and an interest in participating in a pilot project. 5. A socially-oriented sanitation loan program is financially viable and sustainable given Through this process, two MFIs—VisionFund Cambodia the right support and if loans are managed in Kandal province and KREDIT in Prey Veng province— carefully. were engaged in the pilot. WSP is a multi-donor partnership created in 1978 and administered by the World Bank to support poor people in obtaining affordable, safe, and sustainable access to water and sanitation services. WSP’s donors include Australia, Austria, Denmark, Finland, France, the Bill & Melinda Gates Foundation, Luxembourg, Netherlands, Norway, Sweden, Switzerland, United Kingdom, United States, and the World Bank. The Pilot Results KREDIT enabled villagers to decide whether they wanted By the end of the pilot, both MFIs achieved loan self-suffi- to join a group or obtain an individual loan. Loan size of- ciency ratios greater than 100 percent, indicating that costs fered for both group loans and individual loans was similar of offering sanitation loans can be covered by the loan inter- ranging between US$40 and US$250. The interest rates est revenue. were 2.9 percent and 3 percent per month for group loan and individual loan (no collateral required), respectively. Average Weight Loan-Self-Sufficiency Ratio (LSSR) VisionFund Cambodia offered group loans through a com- 115% 102% munity bank model with a 2.6-2.8 percent interest rate per 88% 90% month depending on the source of loan funding. Groups of LSSR 57% 61% households shared the risk of default. 42% 47% 19% Latrines were sourced from independent latrine businesses, which hired commission-based sales agents responsible for Mon 1 Mon 2 Mon 3 Mon 4 Mon 5 Mon 6 Mon 7 Mon 8 Mon 9 selling latrines to groups of households within a given area. It is noted that the latrine product delivered by the suppliers in Because many households, especially those with lower in- the program was the substructure part of the latrine. The shel- come levels, cite an inability to pay the up-front costs of a ter for the latrine comes from household’s additional invest- latrine as a major barrier to accessing improved sanitation, ment which could be made of local organic materials or ma- purchasing a latrine on credit may help increase sanitation terials available in the market. The diagram below depicts the uptake rates. It is observed that, overtime, credit orders in- process of supplying latrines to households under the pilot. creased significantly. Additionally, the sanitation loan pro- grams were poor inclusive, mainly due to group loans and Latrine businesses produce latrines and build up stock no collateral requirements and as a result better able to serve the poor as compared with the normal loans of the MFIs. Sales agents of the latrine businesses sell latrines to households through a group sales method Cash vs. Credit Latrine Orders 1475 Cash MFI field loan officers attend group sales meeting to offer credit 1015 of Orders 996 982 Credit Number to households for latrine purchases 853 637 645 351 490 Sales orders and immediate post-meeting loan applications are completed at the end of group sales Mon 1 Mon 2 Mon 3 Mon 4 Mon 5 Mon 6 Mon 7 Mon 8 Mon 9 MFIs perform normal loan review and approval process Though many rural Cambodian households lack improved sanitation, there is considerable demand for latrines, espe- cially when offered on credit. Small loans issued by MFIs to Once approved, latrine businesses deliver latrines to households either individuals or groups of households can be a viable way to increase uptake of improved sanitation in rural areas, MFIs disburse loans to latrine businesses upon confirmation of including among the poor. If such a program is planned, latrine delivery to households tested, and scaled up carefully, MFIs with good lending practices could reasonably expect low default rates and high MFIs review monthly loan performance data and follow-up loan self-sufficiency, while supporting their social mission on late payments and widening their customer base. Water and Sanitation Program (WSP) reports are published to communicate the results of WSP’s work to the development community. Some sources cited may be informal documents that are not readily available. The findings, interpretations, and conclusions expressed herein are entirely those of the author and should not be attributed to the World Bank or its affiliated organizations, or to members of the Board of Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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