The cost of building a basic toilet with water and a septic tank in Maharashtra is estimated to be around Rs 35,000, as per the study. Under the Swachh Bharat Programme For Urban Areas (SBPUA), which focuses on improving hygiene and sanitation practices in cities, the central government provides a partial subsidy of Rs 4,000 per household. This is supplemented in Maharashtra by a state subsidy of Rs 8,000.
The total subisidy extended to households thus is Rs 12,000, which is only 35 percent of the construction cost. The remaining 65 percent or Rs 23,000 has to be organised by the household that is constructing the toilet.
To increase the number of individual household toilets, it is important to ensure that additional finance be available through credit options, the study said.
Microfinance institutions (MFIs) have traditionally led the way in sanitation credit, largely in rural areas, but commercial and cooperative sector banks, credit societies and housing finance institutions (HFIs) also need to recognise it as a viable lending streams, said the study.
Why Every Household Needs Its Own Toilet
In 2015-16, 10.5 percent of urban households in India practised open defecation; 14.9 percent used toilets where waste comes into contact with humans and 6.1 percent used shared facilities, according to the National Family Health Survey data of 2015-16.
Part of the SMBUA’s objective is increasing the coverage of households with individual toilets and ensuring that waste is safely and properly managed. Shared facilities, whilst used by over 761 million people globally and an improvement on open defecation, are not an acceptable alternative to individual household latrines.
Improving sanitation levels, and with that ensuring individual household toilets, is a key factor in reducing the spread of infectious diseases such as cholera, diarrhoea, dysentery and hepatitis A.
For children under five, diarrhoea is the second leading cause of death, IndiaSpend reported in July 2017.
Wai and Sinnar: High Demand for Toilets, but Low Affordability
CEPT conducted a survey in two cities of Maharashtra: Sinnar, around 30 km from the northern district of Nashik, and Wai, 85 km from Pune. The survey showed that 30 percent of households in Wai and 35 percent in Sinnar do not have their own toilets. But over 80 percent were keen to install a toilet if they could overcome financial and space constraints.
In Sinnar, 7 percent of the total population of 65,000 lives in slums (4,500) and lacks access to individual toilets. In Wai, 97 percent of the total population of 339,500 owns a home, but many of them share community toilets built by the government and run by a local NGO.
For these residents, individual toilet ownership would mean reduced risk of infection and illnesses, greater convenience for the elderly and children and a host of other social benefits.
“Everyone in our house resorts to open defecation,” said a respondent. “Our relatives do not visit us because of this. We feel it is very important to have a toilet and are willing to take a loan to build one.”
Only 50 percent of potential applicants in Sinnar and 12 percent in Wai have actually applied for the SMBUA scheme despite the demand for toilets and the local government’s outreach to create awareness about it. Cost was cited as one of the main reasons for this gap.
Sanitation Credit Could Help Bridge the Funding Gap
Those who build toilets under the scheme get 50 percent of the subsidies at the start of the project and the remaining on completion. This means sanitation credit is needed to not only plug the funding gap but also to support construction costs.
Local municipal councils in Wai and Sinnar provide an additional Rs 5,000 – bringing the total subsidy to Rs 17,000 – but even with this additional sum, only 48 percent of the total cost gets covered.
Building a toilet is perceived as an ‘‘aspirational’ project; Once households decided to build a toilet, they usually added bathing facilities and upgraded fixtures to make the exercise worthwhile, the study found. This usually brought the total cost up to Rs 45,000, necessitating a loan.
“We had to walk a long distance to reach community toilets [and] it is not possible to use these at night,” said one respondent. “We have left our home and moved to a rented house with a toilet because we cannot afford to spend Rs 40,000–45,000 at once. We pay a rent of Rs 3,000 instead.”
Commercial and cooperative banks and credit cooperative societies in Wai and Sinnar have no experience providing loans for sanitation projects. But cooperative societies were found to be more willing than commercial banks to explore sanitation finance options, lending unsecured amounts up to Rs 50,000 with a four-to-five-year payment model, according to the study.
Housing finance companies did offer home improvement loans in both cities at competitive rates but their demand for detailed documentation, insurance and processing fees intimidated the target socio-economic group. Also, most people in this group are not in a position to offer the bank the complete documentation required for loans.
Additionally, MFIs, who tend to have the most experience in lending to this sector, had limited presence in the two cities (with the exception of one, Grameen Koota, in Sinnar). Self-help groups (SHGs) – community-based saving and borrowing groups consisting of 10-20 local women and formed in conjunction with various government schemes – in both Wai and Sinnar found banks reluctant to lend to them due to earlier repayment delays.
How Access to Sanitation Finance Can Be Improved
The study emphasised the need to build awareness amongst borrowers about credit options and amongst lenders about borrower profiles and needs. It was also necessary to ensure that the banks monitored the use of the loans, the study added.
Empowering SHGs to approach financial institutions for toilet construction credit might be a workable strategy, said the study. Building on their established links with banks and leveraging support from urban councils and different government programmes, this approach can be replicated across other cities and states.
In Wai, three women members of two SHGs successfully applied for the toilet subsidy scheme and received their first installment (Rs 6,000 each). The SHG then supported their loan applications to Wai Urban Cooperative Bank and each member borrowed Rs 20,000 at a rate of 11 percent for one year, by acting as each other’s guarantor.
Other types of financial institutions, often with less experience in sanitation loans, may not be this willing. Commercial banks, HFIs and MFIs are often hampered by a lack of agency at the branch level. Sanctioning any new loan product or applying for it with existing products would need approval and engagement at senior levels.
Lenders who do mobilise resources for sanitation credit, however, can benefit from an increased client base, the study suggested.
Banks can also include sanitation loans under the Priority Sector Lending (PSL) category. This helps banks meet Reserve Bank of India requirements on lending 40 percent of their total loan amounts to sectors that boost development in agriculture, micro credits, education, social housing and so on.
Recent changes in the PSL guidelines allowing lending for “sanitation facilities including construction/ refurbishment of household toilet” can ensure that sanitation is included as part of Annual Credit Plans (state fiscal planning statements launched annually on April 1). These plans can specify sanitation-related targets for participating banks.
Access to finance may remain an issue even after lenders come forward to extend sanitation credit, especially because such loans are seen as a ‘non-income generating activity’ – a particular problem for MFIs under current RBI regulations. Currently 50% of the total aggregated loans disbursed by MFIs has to be used on an income-generating venture.
(This story was first published on IndiaSpend and has been republished with permission.)