Innovative Financing Brings Clean Water to Low-income Households

BACKGROUND: DAI implements the Indonesia Environmental Services Program (ESP) with funding from the United States Agency for International Development (USAID). ESP works for the Government of Indonesia and regional stakeholders to promote better health through improved and expanded access to clean water and sanitation services. OBJECTIVE: Examine and implement a micro credit program for financing water connections. METHODS: In collaboration with Bank Rakyat Indonesia (BRI), ESP is providing micro-credit to new customers for financing connections to the water company's supply lines. ESP brokered a cooperation agreement between BRI and PDAM Tanah Datar to provide financing for water connections using innovative loan programs. The average Kupedes loan size to new PDAM customers is Rp 800,000 ($80). Every new water connection borrower must deposit an agreed part of the Kupedes loan in a compulsory savings account. The deposit covers three monthly loan repayments. New customers can access credit without collateral, an important opportunity for low income borrowers, who can prove their creditworthiness and gain access to additional Kupedes credit when their water connection loans are fully repaid. RESULTS: 2,000 new PDAM customers were granted Kupedes investment loans. The water supply company increased its customer base by around 10 percent annually since it started its financial cooperation with BRI. Total water sales increased by around 40 % from 2002 to 2005, leading to a decrease in the average water production cost, which declined from Rp 2,500 per m3 in 2002 to a present level of Rp 1,450 per m3 in 2005. The new customers enabled PDAM Tanah Datar to reduce its non revenue water (NRW) production ratio from 56.5 % at the end 2002 to 36 % at the end of 2004. Relative water losses remained at the same level of around 22 % during the last three years. CONCLUSIONS: Providing clean water to low-income households can be a win-win situation for banks, utilities, and families. By taking advantage of affordable, low-risk loan mechanisms to finance capital expenditure, an increased number of households are able to access clean water, improving overall health and sanitation. In addition, utilities can increase their customer base and total sales, while banks can attract new customers.