How large, typically, are these loans?
The average amount is $287. And our partner organizations have provided 1.6 million of these loans to families, who earn anywhere from $1 to $8 a day.
Repayment rates for these loans range from 90 to 99 percent – the average in Asia is 99 percent. Having such a high repayment rate is critical, because it enables these microfinance institutions to recycle that capital, and then provide another loan. So the ripple effect can be quite significant. WaterCredit, for example, has allowed us to provide seven million people with safe water and/or sanitation – and that’s at least ten times the impact we would’ve had through a traditional water and sanitation program.
So what was the need for WaterEquity?
The challenge is that microfinance institutions are still capital constrained, making it difficult to scale WaterCredit loan portfolios. WaterCredit loans are smaller than your traditional income-generating microfinance loans. For our microfinance partners to reach economies of scale, they have to increase their loan portfolio volume. Right now, they’re trying to meet the demand that they’re seeing, but the cost of local investment capital is still expensive for them, at least to scale at a pace that meets demand.
We launched WaterEquity to help address that capital constraint. And not just for microfinance institutions, but also for other water and sanitation businesses that are reaching people at the base of the economic pyramid. It’s hard for them to attract high levels of capital to fuel their growth.
And the way we do that at WaterEquity is by raising and launching social impact investment funds – from both the public and private sector. We then deploy that capital at slightly concessionary rates to a portfolio of microfinance institutions providing WaterCredit loans, as well as to water and sanitation businesses impacting people at the base of the economic pyramid.
What sort of returns do WaterEquity funds offer?
Our first fund, which was $11 million and is now fully deployed among seven microfinance institutions in India, will provide a targeted return of 2 percent to investors. Our new fund, which we just went to market with in April, is $50 million. We’re targeting investments in enterprises, including microfinance institutions in India, Cambodia, Indonesia and the Philippines and will offer a targeted return of 3.5 percent.
What’s exciting about these social impact investment funds is when you look at the whole landscape of water and sanitation, they’re providing forward-thinking philanthropists and socially-minded investors an opportunity to invest in this crisis in a way that is going to enable millions of people at the base of the economic pyramid to get access to safe water and sanitation – while also getting a return of their capital and a return on their capital.
But, to be clear: this is an impact-first fund.