Lessons learnt from water and sanitation projects in Central America
One of the ways in which ADA aims to increase the quality of life of vulnerable people is by designing tailored micro-loans which will enable them to access water and sanitation services (known as WASH services). To this end, ADA has been partnering with REDCAMIF to develop WASH credits with their member MFIs for several years.
In total, the partners implemented eight projects in Guatemala, El Salvador, Honduras, Nicaragua and the Dominican Republic to improve access to water and sanitation and two for providing access to green energy since 2019. As part of its knowledge management activities, ADA and REDCAMIF extracted the following lessons learnt:
- Preparatory market and supplier research: Market research is indispensable for identifying areas of intervention and for designing products that really meet clients’ needs. It is also important to map suppliers that operate in the project intervention areas to ensure good quality products and services.
- Multi-purpose financial products: A single loan for multiple purposes enables clients to invest in their businesses to generate income and to improve water and sanitation systems at the same time.
- Flexible product design: Loans must be adaptable to individual and community needs and practices. For example, the loan amounts earmarked for product design should be adjustable to the current average price of construction materials as they were usually higher than those foreseen in the product design phase.
- Alignment of disbursements with construction phases: It is important to release funding in line with the construction phases to meet basic priorities, which are determined collectively by microfinance institutions and technical partners who advise clients. This approach builds client loyalty, reduces the risk of over-indebtedness and ensures ongoing construction.
- Advisory training for MFI staff: MFI staff must be provided with multiple training sessions before and during the projects to transfer sufficient knowledge to clients. It is important to collaborate with technical partners and suppliers of equipment and/or services both for training MFI staff and for providing advice and technical assistance to clients directly. This requires the scheduling of relatively long project implementation timeframes as these new topics require more time for staff training and customer awareness raising.
- Incentives for behavioural change: These could take the form of lower interest rates than for other loan products which not only incentivise customers to improve their living conditions, but also reduce the risk of defaults.
Project example: WASH and green energy loans in El Salvador
The microfinance institution FUSAI in El Salvador designed green loan products to enable low-income families to improve their living conditions with access to water, sanitation and renewable energy. The project improved their levels of hygiene, reduced electricity costs and promoted alternatives to cooking with wood by enabling access to sanitation, water (also through rainwater harvesting), waste management (including wastewater purification) and solar energy.