Finance for the Future: How Fintech Can Help African Governments Leverage Public Resources for More Inclusive WASH

The widespread use of cellphones and increased access to mobile Internet is enabling the growth of financial technology (fintech) in the developing world. Photo credit: Shutterstock
The widespread use of cellphones and increased access to mobile Internet is enabling the growth of financial technology (fintech) in the developing world. Photo credit: Shutterstock

The finance gap remains a critical barrier to achieving universal sanitation and hygiene coverage across Africa. In recognition of this challenge, African countries recently reaffirmed their commitment to achieving the Sustainable Development Goals and the Ngor Declaration on Sanitation and Hygiene at the joint AfricaSan5/Fecal Sludge Management5 Conference. Chief among these commitments are increasing public expenditure for water, sanitation, and hygiene (WASH) and engaging the private sector in innovation. USAID’s Water for Africa through Leadership and Institutional Support (WALIS) project has been providing critical support to the African Ministers’ Council on Water (AMCOW) and its efforts to track progress by countries, including funding commitments, through the Ngor baseline monitoring initiative and the African Water Supply and Sanitation Monitoring platform.   

Building on this African sector-wide WASH information, emerging developments in the financial sector can strengthen the impact of public investments and help identify ways to allocate limited resources more efficiently.

Disruptive technologies are rapidly changing how customers and companies use financial services. With more cellphones than people in the world, mobile Internet access is increasingly accessible and affordable. This is enabling the growth of financial technology (fintech) in the developing world. Fintech is dramatically reducing costs and enabling new business models capable of reaching the most vulnerable. Several pioneers in the water sector are harnessing the power of fintech to make access to water easier and cheaper for low-income households. A recent World Bank publication, Fintech for the Water Sector: Advancing Financial Inclusion for More Equitable Access to Water, provides a roadmap for policymakers, utilities, and financial services providers interested in leveraging this resource.

The ongoing costs of water supply and sanitation are manageable for many households in sub-Saharan Africa. However, an often high initial upfront cost serves as a serious barrier to access. A utility may require a large connection fee—a 2006 DFID study found that connection fees for developing country utilities can range from as low as US$15 to nearly $800. The cost to dig a borehole, build a latrine and septic tank, or purchase a cistern could cost several hundred dollars. For policymakers in the WASH sector, three policy levers have traditionally addressed this challenge:

  • Demand-Side Approach: Subsidize Households—Provide a subsidy for initial investment, either directly to households or indirectly through the service provider. While this can be an effective way of increasing access, it is often expensive and poses a significant risk of targeting subsidies to households that do not need them.
  • Supply-Side Approach: Focus on Service Providers—Use regulation to control prices, create competition, or support innovation that lowers costs. Seemingly less costly, this approach can negatively impact the financial sustainability of service providers.
  • Financial Services—Support the use of loans or savings accounts to help households borrow or save for the upfront cost of access to WASH services. Some successes in providing microfinance for WASH have been documented, but high costs and limited profitability have made scaling these services difficult.

Compared to conventional financial services, fintech has lower costs, faster transaction times, and wider coverage. In addition, fintech can support new business models such as pay-as-you-go that would otherwise be impractical. For example, Kenyan company M-Kopa provides prepaid solar power to more than 600,000 households who pay in advance for the electricity they use through their mobile money accounts. Several organizations are now exploring how to extend this model to pay-as-you-go irrigation.

Fintech can make each of the policy levers above more effective. Subsidies can be more effectively and efficiently targeted using mobile money. Service providers can take advantage of cloud-based accounting and management systems to reduce costs. Microloans and savings products can become more viable.

Fintech offers a unique opportunity to not only help stretch public funding further through more effectively delivered subsidies, but also lowers costs for service providers and the most vulnerable. Efforts, such as WALIS’s ongoing support to AMCOW to track Ngor commitments for country level sanitation and hygiene spending, are critical to increasing the transparency of where funding flows and subsidies are going. Pairing this data with fintech can help identify opportunities to improve the efficacy of government spending and fill funding gaps, while also making the business case for the private sector.

By Kate Edelen, WALIS Knowledge Management Specialist and DAI Global Environment and WASH Sector Fellow and John Ikeda, Senior Financial Specialist with the World Bank’s Water Practice and co-author of Fintech for the Water Sector: Advancing Financial Inclusion for More Equitable Access to Water