REPORT__Evaluating_the_potential_of_microfinance_for_sanitation_in_Tanzania_May_2013

1. Introduction
1.1. Case study objectives and methodology
The objectives of the case study are to investigate how household financing for sanitation
can be mobilised via microfinance institutions, community banks and mass market
commercial banks in order to accelerate sustainable access to sanitation facilities and/or
services.
The research conducted in Tanzania is exploratory in nature. It seeks to map out the existing
provision of microfinance for sanitation, to identify where opportunities for future market
development lie and to identify how the development of such a market could be fostered
(through the targeted use of public funds or regulatory changes for example). The case
study in Tanzania will feed into broader research about how donors can channel financing
for water and sanitation to small-scale actors.
The research was conducted in July 2011 based on interviews with interested water and
sanitation organisations, financial institutions and a review of the literature on the subject
(see Annexes C and D for more detail). In addition, WaterAid hosted a half day workshop in
Dar es Salaam on 27th July 2011, which gathered representatives from sanitation
organisations as well as microfinance and banking institutions. The workshop enabled
testing the level of interest in microfinance for sanitation.
Within the limited context of this project, it was not possible to conduct demand assessments
for sanitation microfinance products (this could be carried out as part of follow-up activities at
a later stage, depending on which type of financial product is taken forward for development
and by whom).
The audience for this research comprises microfinance institutions, sanitation sector actors
and funders. As a result, it is crucial to define key terms used in this report, such as
microfinance and sanitation, as developed in Boxes 1 and 2 below. Additional details on
sanitation solutions are also provided throughout the report for the benefit of readers with no
prior sanitation sector knowledge.
Box 1 - What is microfinance?
Microfinance has been practiced for many years in different forms. It first became prominent in
development circles in the 1970s in Bangladesh, with the provision of small loans for incomegenerating
activities with only minimal collateral requirements and at lower interest rates than those
available through traditional lenders. These loans were provided by microfinance institutions (MFIs)
with a good knowledge of local communities and therefore a better ability to manage underlying risks
and keep costs down.
Microfinance often refers to financial services for low-income people offered by different financial
institutions. The concept is commonly used to mean loans by microfinance institutions. However, over
time microfinance involved the provision of a broad range of financial services including loans,
savings and insurance. Microfinance institutions use various methods, such as joint liability, advance
cash deposits and group members’ follow-up, to deliver and manage small loans to usually selfemployed
borrowers.
The entities providing such services can include MFIs (for profit or non-profit), but also traditional
banks, SACCOS (Savings and Credit Cooperatives) and solidarity lending groups, such as Self-Help
Groups which are very prevalent in India. The type of institutions providing microfinance services
9