REPORT__Evaluating_the_potential_of_microfinance_for_sanitation_in_Tanzania_May_2013

Executive Summary
This case study investigates how household financing for sanitation can be mobilised via the
use of microfinance in order to accelerate sustainable access to sanitation facilities and/or
services. The audience for this research comprises microfinance institutions, sanitation
sector actors and funders.
Although most Tanzanians use a basic latrine, only a small percentage has access to what
is defined as “improved sanitation”, i.e. a sanitation solution that safely separate humans
from their faeces. Even fewer of them are connected to a waterborne sewerage system,
which means that the vast majority of Tanzanians rely on “on-site sanitation” solutions, i.e.
pit latrines or septic tanks. According to the Government of Tanzania policy, households are
responsible for investing in on-site sanitation solutions and maintaining them in good working
order by emptying them in a hygienic manner when they become full. Most households are
struggling to do so, and sanitation expenditures are often relegated below other more
pressing needs. It is also possible that cultural factors are at play in this lower priority given
to sanitation.
Microfinance is a financial tool that could help reduce the sanitation financing gap, which is
particularly significant in Tanzania. Microfinance includes microcredit, savings products and
other financial services, although this research focuses mainly on the potential of
microcredit.
Microfinance could be used in two main ways to promote access to sustainable sanitation
services:
By enabling households to spread out the costs of investing in household sanitation
solutions (such as latrines and septic tanks), thereby improving the affordability of such
investments;
By supporting the development of a broad range of sanitation service providers,
including masons (fundis), communal toilet block operators or pit latrine emptiers.
Sector participants interviewed as part of this research appeared supportive of relying on
microfinance as a way to expand the sources of financing for the sector and alleviating
existing financial constraints. Yet, the use of microfinance instruments for sanitation has so
far remained confined to small pilot programmes, with no clear strategy for scaling-up.
There may be several factors accounting for the limited scale of these programmes so far:
Pilot programmes have mostly been introduced by water and sanitation NGOs, with only
limited outreach in isolated locations in the country and close to no prior microfinance
experience.
Established microfinance institutions only have a very limited appreciation of the
financing needs of sanitation sector actors (including household-level investment needs
and at the level of sanitation entrepreneurs).
There is a real fear among MF clients to take on a loan for sanitation services and
products as these are not seen as income generating and therefore cannot contribute
towards repaying the debt.
Tanzania has a very small and not particularly sophisticated microfinance market.
Given the low coverage rate of improved sanitation and the need to keep existing latrines in
good working order, the potential for development of these products is large and currently
untapped. To this date, no formal sector-level dialogue has taken place on whether
microfinance could play a role in mobilising the substantial household and private sector
investments required to deliver sustainable sanitation services.
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