Mobilising investments in water and sanitation | Interview with Josien Sluijs

What makes the partnership between Aqua for All and Oikocredit unique? 

This is the first time that an international foundation and an impact investor have joined forces to promote financial inclusion in water and sanitation. There have been several one-on-one collaborations between local financial institutions (banks, microfinance institutions, credit unions) and impact investors. There have also been collaborations between financial institutions and foundations to promote lending for water and sanitation for households and micro, small and medium enterprises (SMEs). But there has never been an initiative at this scale.  

This partnership will help speed and scale up access to finance for water and sanitation SMEs by developing SME loan portfolios. By combining de-risking capital, technical assistance and access to liquidity, the partnership will contribute to overcoming the main challenges that impede local financial institutions from entering the market.  

Why did Aqua for All choose to partner with Oikocredit? 

Aqua for All and Oikocredit share the common view that investments must be done in a responsible manner and that sustainability and impact should be at the centre. 

Oikocredit has a large financial inclusion portfolio that targets low-income people and entrepreneurs. Aqua for All has vast expertise in funding water and sanitation enterprises directly and in supporting local financial institutions in building loan portfolios for water and sanitation.  

The combination of our strengths will be critical for increasing financial inclusion for underserved communities and SMEs more efficiently and at a larger scale.  

Why should the private sector be involved in the provision of water and sanitation services? Shouldn’t these services be free?  

In many countries, public and/or free water and sanitation services are not a reality. Public funding is insufficient leaving about 2.2 billion people in the world without access to safe drinking water and 4.2 billion people (two-thirds of the world’s population) without proper sanitation.  

In Kenya, for example, public utilities serve about 25% of the population. The remaining 75% of the population depends on private service providers offering off-grid solutions, for example, water kiosks, dry toilets or centralised water connections.  

Without these community-based providers and SMEs, countless of low-income communities would not have access to water or sanitation services. People in urban and rural areas would need to relay to often contaminated water sources or would be forced to revert to open defecation.  

One-off donations for time-limited projects are seldom sustainable solutions. The water and sanitation facilities built include infrastructure and assets that need regular maintenance. Without long-term funding or financial self-sufficiency, these facilities will eventually fail leaving communities without these essential services. Market-based solutions are therefore critical to securing sustainable services.  

Why is it imperative to promote private investments in water and sanitation?  

To achieve universal access as set by the United Nations Sustainable Development Goal (SDG) 6, the world needs to invest a total of $114 billion annually. However, public investments and donations only cover 4.4% (less than $5 billion) of the required budget. Private funding is therefore urgently needed to bridge this finance gap.  

This is where we come in.  

Besides funding water and sanitation SMEs directly, we partner with impact investors, local financial institutions, foundations and governments to develop blended and innovative finance solutions. We use our funds to de-risk investments, provide technical assistance and mobilise capital to increase financial inclusion in water and sanitation.  

In the last years, there has been a growing interest for investing in water and sanitation, but as there is little understanding of the sector among private financiers, its risk is also not understood. We therefore participate in initiatives that help impact investors and local financial institutions understand and embrace the water and sanitation market.  

To date, Aqua for All is proud to have a leverage up to1:10 for our blended finance initiatives. This means that for every€1 spent we are able to mobiliseup to €10. For example, in this partnership with Oikocredit, we will allocate €1.5 million for technical assistance, de-risking and/or performance-based incentives. In turn, Oikocredit will invest up to €15 million in portfolio financing to develop the water, sanitation and hygiene portfolios of its financial inclusion partners. 

Can you give an example of what this looks like practically? 

An example of this is in Cambodia where an Oikocredit partner indicated that it wanted to explore the water and sanitation sector. Our first step was to pay for the market research. Once this microfinance institution better understands the market and moves forward, we will then provide de-risking for its water and sanitation portfolio and  institutional support. Oikocredit will provide liquidity and we will assess the partner’s progress. We will make sure that reporting of the results and end-clients is done diligently as we highly value transparency in reporting on impact. 

Our role in the partnership also includes improving Oikocredit’s regional teams’ capacity to understand the water and sanitation sector and assess its risks and potential impacts. This way every investment decision will contribute to creating financial inclusion, sustainability and better livelihoods at household and community level.  

How does access to water and sanitation services build resilience among low-income communities? 

Proper water and sanitation services are fundamental in building resilience among low-income communities. Access to safe drinking water has a huge effect on people’s health by reducing the chances of contracting waterborne diseases, especially among children.  

Access to water and sanitation services also contribute to advancing women and girls’ empowerment, education and safety. Globally, women and girls spend hours fetching water. The long journey damages their bodies as they carry heavy weights and makes them vulnerable to getting assaulted. In Sub-Saharan Africa only, an estimated 40 million hours are spent by women fetching water every year.  

Everything changes when access to water gets close to home. Girls’ school attendance improves significantly and women can have time for other things, like starting a micro entrepreneurship. In turn, access to sanitation facilities, like toilets, make it possible for girls to go to school, prevent assaults, minimise health risks – the list goes on. 

How does climate change impact access to water and sanitation? 

Climate change affects water systems through water stress and extreme weather events, like  drought, heavy storms and flooding. In fact, around 90% of all disasters worldwide are water-related. Over the next decade, climate change will continue to put at risk affordable and safe drinking water supply for approximately 5.1 billion people. 

Due to higher temperatures and heat waves, the demand for water will increase, especially for drinking water.  And as water sources dry, women and girls must spend more time fetching water. 

Low-income communities without access to proper water and sanitation systems often suffer first and the most from climate-related disasters. Floods damage quick-fix and poorly-constructed infrastructures severely. This can lead to drinking water supply interruption or to sewerage contamination when sanitation facilities flood.   

Communities with well-constructed and properly maintained facilities are more resilient to disasters.  

Our climate strategy considers the causes and consequences of climate change as part of our approach.  

In the last couple of years, we have funded community water providers to transition from fossil fuels into solar energy systems. Not only does this contribute to reducing electricity bills, but it also contributes to keeping affordable prices for families, institutions (e.g. schools, markets, and hospitals) and communities.  

We have a long way to go before achieving SDG 6. However, partnering with impact investors like Oikocredit will help us take a giant leap towards universal access to water and sanitation and in building resilience among vulnerable communities worldwide.