REPORT__Evaluating_the_potential_of_microfinance_for_sanitation_in_Tanzania_May_2013

Sanitation Service Plan, which outlined four on-site sanitation options and a funding
concept for microfinance for sanitation. The initial idea for testing microfinance for
sanitation came from the Household centred Environmental Sanitation research work
(HCES): during workshop meetings, a question was raised on how to help the poor
households. A subsequent pilot project, also funded by SECO, led to the construction of 4
toilets in 4 different streets of Chang’ombe, to demonstrate potential technologies to
address sanitation issues, including Ecosan toilet, fossa alterna, VIP latrine and
renovating existing sanitation facilities. These toilets were provided for free to the
households so as to demonstrate the technologies and train local masons.
Characteristics of the micro loans for sanitation product
Following these projects, MAMADO consulted the communities to evaluate potential
demand for toilet loans and to identify the lending terms that would be attractive and
affordable for the population. No existing MFI were offering loans for sanitation in Dodoma
at the time.
The loans provided are for approximately TSh 350,000, to which a 1% flat monthly
interest rate is applied (which is a non-commercial and therefore unsustainable interest
rate). The loan amount would vary depending on the cost of the sanitation solution
chosen (see Table at the end of this document for an information sheet on the sanitation
solutions on offer). For existing toilet renovation, some loans are available for amounts as
low as TSh 9,000. This type of loan is attractive as it results in cheaper investments.
Customers can choose between repaying over 12 months (and repay 12% of the loan
amount in interest) or over 18 months (and pay 18% in interest). Most customers choose
to repay over 18 months, even if that means paying more interest. They can be expected
to repay between TSh 8,000 and TSh 31,000 a month, depending on the type of
investment made. Initial research during project design found that very few households
could not afford this level of repayment. Most borrowers are low-income but not
necessarily the poorest of the poor.
Once the customer agrees on the type of toilets that they want to build, MAMADO
purchases the building material (based on the bill of quantities) and get the toilet built for
them. Purchasing of building materials is done in collaboration with community project
representatives and MAMADO’s project officer. The purchased materials are distributed
according to households’ choice of sanitation option. The household can choose to buy
more and will be told about the price increase accordingly. The households get one month
grace period after completing construction, after which they need to start repaying. Based
on experience, MAMADO preferred to organise the loan in that way as they felt that
households may otherwise use the funds for other purposes.
The only condition for households to obtain a loan is that they should be in a position to
repay. Borrowers need to make a pre-payment of 20% of the total cost of toilet
construction. The original intention was to give loans to groups (to groups of 3 to 5
households or small scale businesses in the supply chain of sanitation facilities) but they
then decided to provide individual loans. They chose to focus on providing loans to
landlords, to reduce the risk (if dealing with tenants, those may move without leaving
anything behind). The landlords either live in the house by themselves or share with the
tenants. In the latter case, they might share an agreement with the tenant so that the
latter would bear part of costs (for example, by providing some of his time for
construction). The landlord could choose to increase the rent once the toilet is completed
as Tanzanian law offers limited protection against sudden rent increases.
Loan contracts with the landlords are signed in the presence of two witnesses: an
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