Tipping point

WaterEquity’s Alix-Ines Lebec explains how blended finance can help solve the global water and sanitation crisis – in our lifetime

Today, one in three people worldwide lack access to a toilet and one in 10 don’t have access to safe water. The ripple effects of the global water and sanitation crisis are staggering. Women and girls waste 125 million hours each day scavenging for water, and every 90 seconds, a child dies from a preventable water-related disease. After running through those facts, Alix-Ines Lebec says, almost exasperated, “It’s unacceptable this is still happening in 2017.”

Lebec is Director of Business Development & Investor Relations for WaterEquity, a social impact investment manager created by Water.org, the nonprofit co-founded by social entrepreneur and water expert Gary White and Academy Award-winning actor Matt Damon. Both White and Damon received the Forbes 400 Lifetime Achievement Award for Social Entrepreneurship in September this year.

 

Alix-Ines Lebec
Director of Business Development
& Investor Relations, 
WaterEquity

What's especially distinctive about Water.org is how it wants to solve the water crisis. Not by digging wells or delivering bottled water, but by helping microfinance institutions provide small, affordable loans for water and sanitation needs to families living in poverty. This approach, which Water.org pioneered in 2003, is called WaterCredit. Sixty-nine local microfinance institutions worldwide provide WaterCredit loans, part of a “blended finance” model that has helped more than seven million people gain access to safe water and/or sanitation.

WaterEquity, which Lebec helps lead, was created to help scale WaterCredit. How? By raising and deploying social impact investment capital to microfinance institutions that are providing WaterCredit loans. WaterEquity will also invest in local enterprises that serve the water and sanitation needs of the world’s poor. This includes investing in micro- and private-utilities, toilet construction companies, and water purification and sales kiosks. 

"What gets me excited is that we really are the generation that can put this crisis behind us. We live in a time where financial capital is no longer a scarce resource for many leading corporations around the world – the weighted average cost of capital for these corporations is at an all-time low."

It’s a dollars-driven approach and Lebec, a founding member of the WaterEquity team, talks numbers often – not just eye-opening statistics, but also debt-to-equity ratios of the businesses they will invest in and ROI on the funds they are launching.

“The global water crisis is completely solvable – we’ve known how to bring clean drinking water and sanitation to populations for decades,” Lebec said in a recent conversation with Brunswick, “the greatest impediment remains a lack of financing.”

If the solution seems straightforward, implementing it is far from it. The need is huge – Lebec cites a $12 billion unmet demand for water and sanitation financing among those at the base of the economic pyramid. And facilitating investments that reach those families across the developing world presents its own set of challenges.

"It would cost $200 billion a year, over a five-year period, to solve this crisis. To put that in perspective, the international aid and philanthropic community spends about $8 billion a year on water and sanitation."

But they’re making progress. WaterEquity, which raises capital both from the public and private sector, launched a $50 million fund in April, and piloted an $11 million fund in India, both of which are aiming to deliver returns to their investors.

Sprinkled throughout the numbers-driven conversation were the stories of the people behind the statistics, women like Jayamma, whom Lebec met on a trip to India. Jayamma had taken out a WaterCredit loan from one of Water.org’s microfinance institution partners. This loan allowed Jayamma to buy a toilet – a purchase driven by dignity as much as necessity.

Before owning a toilet, Jayamma and her daughters would often have to defecate in open fields, where they could be seen by men. To try and avoid, or at least delay, that humiliation, Jayamma and her daughters would starve themselves, sometimes for days. Jayamma and her family have a toilet now, and, like 99 percent of WaterCredit’s loan recipients, she has repaid what she borrowed.

Lebec sees the story as both an inspiration and a challenge: 2.3 billion people around the world still face the daily indignity and risk of disease that Jayamma once knew, lacking a safe, clean, private space to go to the bathroom.

"What we’ve found is that people who live in poverty tend to pay ten to 15 times more for their water than their middle-income neighbors."

What’s a common misperception about the global water and sanitation crisis?

So there are actually two big ones. The first being that we can only solve the water and sanitation crisis through traditional charity. It would cost $200 billion a year, over a five-year period, to solve this crisis. To put that in perspective, the international aid and philanthropic community spends about $8 billion a year on water and sanitation. We have to find a way to draw on and attract other forms of capital – because there’s a huge gap. Tapping into global capital markets, which exceed $225 trillion, presents a big opportunity.

The second big misconception is that those living at the base of the economic pyramid are uniformly poor. What we’ve found is that people who live in poverty tend to pay ten to 15 times more for their water than their middle-income neighbors, often because they can’t connect to the local municipal water supply since they’re deemed not to be worthwhile customers. Or they have to get water from a local water-vendor that typically charges a much higher price. Or, they pay in terms of coping costs where they have to walk hours to go find water. For instance, Chim Chany, a woman I recently met in Cambodia who had taken out and repaid a WaterCredit loan, used to pay $26 a month for water coming from an unsafe source. Today, after getting her loan, she has access to a safe water connection and pays $7 a month for that water.

And we know there are literally hundreds of millions of people who, like Chim Chany, want access to affordable financing and small loans to meet their water and sanitation needs. There’s a $12 billion demand among families, or 565 million people, at the base of the economic pyramid. That’s the demand we’re trying to meet.

Meet how?

In 2003, Water.org created WaterCredit, which essentially brought together microfinance with water and sanitation to help the world's poor get access to affordable financing (small loans) to meet this need. And the way it works is that Water.org partners with microfinance institutions all over the world – we now have 69 partners – and we provide them with a small philanthropic subsidy, what we call a “smart subsidy.” And that subsidy ranges from about $75,000 to $200,000 a year, and it covers all the startup costs associated with developing a water and sanitation loan portfolio, since this is often a new loan product for them. Our subsidies cover things like market research, hygiene education, loan product development, and ongoing monitoring and evaluation costs.

We’ve provided our network with $19.4 million in smart subsidies to help them jumpstart these loan portfolios. And in turn, these institutions have attracted $463 million in local investment capital to actually fund and provide the loans – as they would do for any other loan portfolio.

So you know, that’s pretty exciting for a philanthropic funder to see: $19.4 million in philanthropic resources unlocking $463 million in local commercial investment capital.

Credit: Water.org

Jayamma received a loan from a microfinance institution that Water.org partnered with, and used the loan to purchase a toilet for her home. Jayamma and her daughters had previously starved themselves to avoid the embarrassment of public defecation.

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.

It took Water.org 20 years to reach its first million people. And now, through WaterCredit, Water.org is reaching nearly a million people per quarter.

What targets has WaterEquity set?

Our goals are to demonstrate that there’s a pipeline of investable and bankable deals in water and sanitation that can scale impact among those living at the base of the economic pyramid. By accelerating scale and impact, WaterEquity’s funds will help address the $12 billion demand I mentioned earlier.

Here’s an important note when we’re talking about its scalability: It took Water.org 20 years to reach its first million people. And now, through WaterCredit, Water.org is reaching nearly a million people per quarter. WaterEquity will help further scale this.

One of the UN’s Sustainable Development Goals is that by 2030, everyone will have access to clean water and sanitation. Is that doable?

We believe it’s doable. However, we can only realistically achieve that goal if global capital markets – including institutional investors – participate. We need to attract and unlock the levels of capital that are needed to match the scale of this problem. Blending this investment capital with catalytic philanthropy and de-risking financial tools (such as guarantees), and ensuring this capital is channeled through effective models presents a viable and promising pathway to achieving Sustainable Development Goal 6.

What gets me excited is that we really are the generation that can put this crisis behind us. We live in a time where financial capital is no longer a scarce resource for many leading corporations around the world – the weighted average cost of capital for these corporations is at an all-time low.

There’s simply never been a better time for companies, financial institutions, and foundations to invest in funds, and local small businesses and microfinance institutions, that have the potential to help hundreds of millions of people get access to safe water and sanitation.

 

Alix-Ines Lebec is Director of Business Development & Investor Relations at WaterEquity. Her responsibilities include raising and managing a $60 million portfolio of accredited investors and funders. She was also Director of Strategic Alliances for Water.org., the nonprofit which created WaterEquity. Previously, Lebec was a Senior Associate at the Clinton Global Initiative.

Lebec spoke with Edward Stephens, Deputy Editor of the Brunswick Review.

Banner photo credit: Courtesy of Water.org