Sanitation is an untapped investment opportunity. 2.6 billion people lack access to basic sanitation. This affects their health, their environment, and their ability to work. In turn, their communities and national economies suffer. The challenge of accessing finance should not be the reason for the deprivation of this most basic human right. The demand is great and the potential for impact and income is huge.
Current estimates value the sanitation market for products and services at USD 80 billion over 10 years to meet the MDG. This represents unmet demand. Moreover, the World Health Organization (2004) has found that there could be at least USD 556 billion annually in economic benefits (such as improved health and increased productivity) to capture from universal access to water supply and sanitation.* In plain English, this means:
Fewer children dying from diarrhea
More children, especially girls, staying in school
Less time lost due to illness and seeking safe places to go
A cleaner environment and less polluted water
Growth in tourism, fishing, health care, insurance, and other industries impacted by sanitation
The Challenge: An Emerging Market
If the potential size and impact of the sanitation market is so large, why is the current level of grant and investment finance inadequate? The short answer is that the market is emerging:
Socially and environmentally focused investment is relatively new
The players lack a common language and network
The route for entrepreneurs to access finance is not obvious
The return for investors is unclear
Investment infrastructure (lenders, risk takers, credit ratings, insurers) is lacking
Though grant and investment finance to provide the products and services are critical, today's interventions remain fragmented and inefficient. In addition, for-profit businesses demand high rates of return on investment that are not available at the bottom of the pyramid - unless cost structures and scale are created. For this reason, we need to develop mechanisms that match lower return rates to positive social and environmental impact - then capture the value of future cash flows. This is why WSFF is needed to help build the marketplace.
A New Approach is Needed
Finance on its own is NOT the sole answer, but new finance mechanisms are needed to change the incentives for the involvement of all players: businesses, banks, social entrepreneurs, community. In addition to grants, we need foundations to increase mission related investment (MRI) and program related investment (PRI), and new legal mechanisms such as the L3C are making this possible. Equally important, financial innovations such as Social Impact Bonds must be deployed at scale. The idea is to leverage these concepts to draw new capital and players into the social finance market.
Transparency and Collaboration
Closing the sanitation financing gap requires that we make this $1/2 trillion marketplace more transparent by identifying the viable business lines and business models to meet demand, supporting innovation through a streamlined capital flow, and matching the right financing interventions with the right target groups and demand creation programs. Fortunately, engaged in WSFF is a strong, identifiable social sector community who recognize they have to look to financial innovation and the private sector to find solutions. Sanitation only receives $1 out of every $10 that goes to "Water and Sanitation", meaning the status quo players are genuinely open to innovation, collaboration, and new capital market opportunities.
* Sources: WHO (2007) Economic and health effects of increasing coverage of low cost household drinking-water supply and sanitation interventions to countries off-track to meet MDG target 10, and WHO (2004) Costs and benefits of water and sanitation improvements at the global level (Evaluation of the)