REPORT__Evaluating_the_potential_of_microfinance_for_sanitation_in_Tanzania_May_2013

of microfinance products could help them overcome these constraints. Given affordability
issues, it might be preferable to start with savings products and to introduce micro-credit only
gradually and in specific circumstances.
As discussed above, the potential for combining sanitation financing with overall housing
finance should also be considered in more detail. Finally, the potential for microfinance to
support micro and small businesses to engage in sanitation activities (such as in the case of
the “gulper project” supported by WaterAid) could be further explored, once again through
engaging with established microfinance institutions and helping those small businesses
develop their business case and apply for funding.
Linking sanitation microfinance to the broader social performance measurement
indicators of microfinance institutions. One potential way of fostering the interest of
microfinance institutions would be to present the development of sanitation microfinance
products as a way to improve their social performance. The benefits from sanitation
investment are generated for the borrowers but also for their neighbours, through reducing
the risks of diseases. Although the pressure to report on social performance has remained
limited in Tanzania so far, it could increase over time as pressure on microfinance
institutions to improve their social performance increases in the wake of crisis in Andhra
Pradesh or in Bangladesh. Placing more emphasis on social performance indicators would
also help MFIs attract funding from a broader range of funders, including social investors.
Influencing policy to trigger a debate on sanitation financing
At the policy level, sanitation microfinance should be discussed as part of the broader
debate on sanitation sector financing. As indicated in Section 2, the current sanitation
policy assumes that households are responsible for investing in household-level sanitation
but there is no clearly articulated strategy as to how such investments could be mobilised.
Approaches have been developed that centre on demand promotion and support to artisans
in order to stimulate supply. However, an analysis of how households can mobilise financing
for sanitation investments is currently missing.
This report argues that sanitation microfinance tools could be considered in order to
overcome affordability constraints, at least for those households that are able to repay the
loan or to save towards this investment (i.e. those that are above “basic needs poverty line”,
estimated at 62% of the rural population and 74% of the urban population as per the Poverty
and Human Development Report (2009) estimates). Microfinance is unlikely to be
appropriate for the poorest and most destitute households, who may need to receive specific
assistance to invest, but could still serve the majority of the population as per those
estimates.
For those who may not be able to afford microfinance loans, a reorientation of subsidies,
away from expensive sewerage solutions and potentially towards hardware subsidies for
onsite sanitation investments by the most destitute should be discussed. This could be
incorporated into a broader discussion about how to finance affordable housing solutions.
Other areas that would benefit from subsidies are the construction of a network of transfer
stations and decentralised treatment plants, so as to bring down the costs of emptying
latrines (through a reduction in transport costs).
Outside the sanitation sector, it may also be necessary to influence financial sector
policy, so as to provide external stimuli for developing the sector. In India, for example,
the Central Bank has identified certain priority lending sectors, where financial institutions
need to make lending. The sanitation working group could identify financial regulatory
changes that could be made in order to make it more attractive for financial institutions to
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