REPORT__Evaluating_the_potential_of_microfinance_for_sanitation_in_Tanzania_May_2013

Are household microfinance products most likely to be viable in urban or rural areas?
Although needs are great throughout the country, needs are even greater in rural areas
where improved sanitation coverage has been going down rather than up in the last few
years. However, the demand for sanitation microfinance products may be more difficult to
stimulate in rural areas, for a number of reasons. First, the size of required investments is
likely to be lower, given that poor households may choose to buy only a concrete slab to
improve their existing latrine and use low-cost local materials for the rest (pit lining and
superstructure). Second, due to affordability constraints in rural areas (and the lack of a cash
economy), the solvable demand for sanitation microfinance is also likely to be lower. In
addition, fewer MFIs operate in rural areas on a large scale.
We would therefore recommend that sanitation microfinance products be tested and scaledup
first in urban and peri-urban areas, which are also generally closer to most MFIs’ areas of
operation. Demand in urban areas is likely to be relatively easier to stimulate, the synergies
with housing are likely to be greater and building and sanitation regulations are stricter and
better enforced by the municipal authorities. MFIs could test the products with their existing
urban customers before potentially rolling out those products to rural areas (evidence from
India gathered in a parallel SHARE-funded research shows that there might be significant
demand for such products in rural areas).
Who should be targeted by the loans?
A key issue that was brought up by stakeholders which applies particularly to urban areas is
that a high proportion of urban dwellers are tenants, particularly in unplanned settlements.
As a result, it may be preferable to target landlords with microfinance products and toilet
loans in particular, at least in the first instance, as this is done by MAMADO for example. For
Dar es Salaam, another suggestion was that it would be easier to test out these products in
areas that have been surveyed as part of the World Bank-funded Community Infrastructure
Improvement Project, which included slum-upgrading activities and land and property
registration in a number of areas throughout the city.
Should sanitation microfinance products be offered as stand-alone or integrated
products?
An issue that frequently comes back to the fore is that sanitation investments (such as in
latrines) may not be sufficiently attractive for households as stand-alone investments. In rural
areas in particular, earlier emphasis on sanitation as a “stand-alone” product has sometimes
resulted in awkward situations, where the stand-alone toilet is constructed with better
standards than the house itself. A number of stakeholders therefore support the idea of
financing sanitation investments via broader programs such as “housing microfinance”
products, a segment that is currently being developed in Tanzania, as discussed in Box 7.
According to interviews with key members of the housing microfinance working group
(Stephen Wanjala, founder and chair of the working group, and Tim Ndezi of CCI), there are
widely diverging views within the working group members about whether sanitation
microfinance could simply be a sub-set of housing microfinance. Each institution that is part
of the working group has a different view, depending on its strategic direction. Whereas
traditional microfinance institutions are not interested in promoting sanitation as part of the
package, other organisations (such as CCI) see the need to incorporate sanitation
specifically into the package. When financing new constructions, financial institutions by law
have to include the financing of a sanitation facility. When financing incremental housing
improvements, however, making the financing of sanitation facilities optional often results in
them not being financed in many cases or them being under-prioritised.
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