The biggest challenge of WASH financing

Financing for water, sanitation, and health (WASH) infrastructure is known as WASH financing.

USAID (United States Agency for International Development) in India aims to create healthier urban communities and improve livelihoods by increasing access to safe water, sanitation, and hygiene (WASH) services. USAID works directly with the Government of India on its three national flagship programs Swacch Bharat, Atal Mission for Rejuvenation and Urban Transformation (AMRUT), and Jal Jeevan, to improve the provision of safe water services and move the country toward sustainable sanitation standards.

Currently, Micro Finance Institutions (MFIs) are the largest partners in WASH financing. Banks and non-bank lenders disburse WASH loans to micro-finance institutions that utilise these funds for the construction of household toilets, repair of old sanitation units, enlarging existing toilets to toilet cum bathroom, construction or renovation of a shared toilet facility, installation / adding a hand wash facility, water connections/pipelines, overhead tanks, rainwater harvesting structures, sludge treatment plant, etc.

In public sector banks of India, individuals of SHGs/ JLGs, and persons belonging to weaker sections with a minimum banking period of 6 months are eligible to borrow under the scheme. The minimum amount of the loan is Rs 20,000/- and the Maximum of Rs 100,000/-. The quantum of the loan is assessed by the lender duly ascertaining the project cost and income source of the applicant. The maximum period for repayment of a loan is 60 months including a moratorium  period of 3 months

Borrowers between the ages of 18 to 60 years may avail of the loan. If the age of the landholder exceeds 60 years, in such case the legal heir is to be made co-borrower. He /She must possess/own a household property. Water facilities and toilets must be built within that property only. Necessary proof of ownership is to be submitted. Hypothecation of assets created out of the Bank’s finance will be offered as security for bank finance

Challenges:

The high cost of borrowing is the biggest challenge for financing water, health, and sanitation (WASH) infrastructure. Union bank of India financing to individuals upto Rs. 50000 @ 1Yr MCLR +0.10% and for Advances above Rs.50000 upto Rs. 1.00 Lakh @ 1Yr MCLR+0.65%. As per a report, If a bank like SBI is lending at the rate A, the final rate of interest quoted to the end user will be A+50 bps or A+150 bps.

Many experts opined that NBFC/MFIs need at least 200 BPS net interests Margin (NIM) for encouraging them to promote WASH finance as they also need to employ a person dedicatedly to finance in this sector. According to data available, currently, micro financiers’ outstanding book stands at around Rs 2.6 trillion, of which sanitation loans are at Rs 400 crore.  NABARD refinance will be provided to eligible banks and NABARD Subsidiaries in the form of term loans for a period of 18 to 36 months. However, the concession (interest rate) by NABARD and other commercial banks is so low, and there are only a few active players because of it. To promote a sector, there has to be a huge concession.

As an alternative, experts have opined that the government should introduce capital gains bonds, green finance bonds, interest rate subventions, and the creation of a social stock exchange to encourage WASH financing. To enhance participation in WASH financing. Experts have also suggested creating a sub-target under the Reserve Bank of India’s priority sector lending norms for this line of credit.