Blended Finance Experiences with Bangladesh OBA Sanitation Microfinance

Blended Finance Experiences with Bangladesh OBA Sanitation Microfinance Program

Bangladesh access to sanitation Access to sanitation has improved dramatically in the last 30 years 70% 60% Coverage (%) 50% 40% 30% 1% open defecation 20% 10% 0% 1990 1995 2000 Improved sanitation facilities 2005 Open defecation Source: WHO/UNICEF Joint Monitoring Programme 2010 2015

Challenges …However, reaching the next level of coverage and meeting the SDG 6 target requires a significant increase in efforts and a more ambitious strategy 37% 26% 1% Households with access to hygienic sanitation Households relying on shared latrines Annual growth rate for improved sanitation (2. 5% needed to reach SDGs) Many existing toilets are poorly constructed, risking contamination to the environment and the user

Moving households up the sanitation ladder …To here? How can Bangladesh move from here…

World Bank (WSP) initiative Test and roll-out of a new model in rural Bangladesh that brings together the domestic private sector, financial institutions (MFIs) and households to support bottom-up sanitation mobility of rural households ü Specialized loan products ü New sanitation technologies considering consumer preferences ü Business loans + training for local construction firms ü Demand creation + market promotion

Sanitation microfinance model MICROFINANCE INSTITUTIONS HOUSEHOLDS CONSTRUCTION FIRMS

Introducing Output-Based Aid (OBA) to the model How to improve household affordability and leverage MFI participation? $3 million OBA grant • 21 Partner Organizations (MFIs) • $22 million in MFI lending for sanitation • 32 districts • 170, 000 households

How it works World Bank Financing terms: 1 Grant Bangladesh Ministry of Finance 5 OBA subsidy and implementation support grant 8 Fees for services Households: • • • Interest: 12. 5% (fixed rate) Loan size: US$45 – 128 Tenure: 12 months PKSF Wholesale lending 2 9 Repayment 6 OBA subsidy Partner Organizations 3 Sanitation loan Independent Verification Agent (IVA) 7 Loan repayment Hygienic Latrines for poor households 4 Payment (latrine construction) Local construction firms

Achievements (to date) • 21 MFIs working in 32 districts • 16, 500 loans disbursed and hygienic toilets installed ($2. 1 million in lending) • 100% household repayment rate • Over $391, 000 in SME loans for construction firms • Clients benefitting from competitive market price, payments in installments, and OBA subsidy • New MFI investments in the sector

Potential national scale-up: Bangladesh WASH Program Ministry of Finance has requested WBG financing to expand project in support of SDG 6 Potential Components 1 Inclusive sanitation in select areas Exclusive focus on improved sanitation in 64 sub-districts, combining subsidy (for extreme poor) with household loans for sanitation 2 Nationwide lending for water and sanitation Household loans for water and sanitation scaled nationwide, targeting both credit group members and non-members 3 Market development Expanding work on financing and capacity building of local private sector to support development of a sustainable supply chain for rural sanitation (with additional pilots on water)

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