Microcredit for water supply and sanitation uses small loans to help small businesses and families in developing countries gain better access to clean water and improved sanitation.

In general, most investments in water and sanitation projects are funded by government programs, but these investments have not been enough to provide clean water and sanitation for everyone. Loans for public utilities were limited because water prices were too low and not enough money was collected to cover costs. Microcredit offers another way or a helpful addition to help poor people access water and sanitation in these areas.

Funding is given to small, independent water providers who earn money by selling water or to families to pay for home water connections, plumbing, or on-site sanitation like latrines. Many microfinance organizations have not had much experience giving loans for water and sanitation projects. Although many test projects have been tried in both cities and rural areas, only a few have grown larger. A water connection can greatly reduce a family’s water costs if they previously used water sellers, allowing them to save money to repay the loan. Time that was once spent going to get water can now be used for work, and investments in sanitation improve health, which can also lead to more income.

Types

There are three main types of microcredit programs related to water services:

• Microcredits that help families gain better access to clean water and sanitation at home.
• Credits for small and medium businesses to fund small water-supply projects.
• Credits used to improve city water services and shared areas in neighborhoods with low incomes.

Household credits

Microcredits can be used specifically for water and sanitation needs or for general purposes that include these needs. These loans are often used to help families connect to water and sewer systems, build bathrooms and toilets, install pit latrines, set up rainwater collection tanks, or buy water purifiers. The loans are usually between $30 and $250 and have a repayment period of less than three years.

Microfinance institutions, such as Grameen Bank, the Vietnam Bank for Social Policies, and many organizations in India and Kenya, offer loans for water and sanitation projects. Non-governmental organizations (NGOs) that are not microfinance institutions, like Dustha Shasthya Kendra in Bangladesh or Community Integrated Development Initiatives in Uganda, also provide loans for water and sanitation. The potential market for these loans is very large in both rural and urban areas, and some programs have grown to serve many people. However, compared to the total work of microfinance institutions, these programs still play a small role.

In 1999, microfinance institutions in Bangladesh reached about 9% of rural households, and in Vietnam, they reached about 2.4% of rural households. In both countries, water and sanitation loans made up less than 2% of all loans given by these institutions. However, in Bangladesh, 30% of Grameen Bank’s borrowers used loans for water and sanitation, and in Vietnam, 10% of borrowers from the Vietnam Bank for Social Policies used loans for these purposes. For example, in India, the SEWA Bank provided 15% of its loans in the city of Ahmedabad for water and sanitation projects over five years.

The US-based NGO Water.org, through its WaterCredit program, has helped microfinance institutions and NGOs in India, Bangladesh, Kenya, and Uganda provide loans for water and sanitation since 2003. By 2011, Water.org had supported 13 partner organizations to give out 51,000 loans. The organization reported that 97% of these loans were repaid, and 90% of borrowers were women. WaterCredit did not lower interest rates or give loans directly. Instead, it helped connect microfinance institutions with water and sanitation NGOs to create loans, including by assessing market needs and improving skills. Only in rare cases did Water.org provide guarantees, letters of credit, or initial funds to start a revolving fund managed by an NGO not previously involved in microcredit.

Since 2003, Bank Rakyat Indonesia has used microcredits with support from USAID’s Environmental Services Program to help low-income households connect to water systems through PDAM, a water utility. An impact study in 2005 showed that this program increased PDAM’s customer base by 40%, reduced its water selling costs by 42%, and lowered its non-revenue water from 56.5% in 2002 to 36% by 2004.

In 1999, the World Bank worked with the governments of Australia, Finland, and Denmark to create a Sanitation Revolving Fund with $3 million in initial funding. This project took place in the cities of Danang, Haiphong, and Quang Ninh in Vietnam. The goal was to give small loans of $145 to low-income households for sanitation projects like septic tanks, composting toilets, or sewer connections. Borrowers had to join savings and credit groups of 12 to 20 people who lived near each other to ensure community oversight. These loans helped families cover about two-thirds of their sanitation costs, with the remaining costs coming from family and friends.

Unlike a top-down approach where government projects are designed without community input, this program focused on meeting the needs of local people. It required the Sanitation Revolving Fund to educate communities about sanitation. Managed by the Women’s Union of Vietnam, which had experience with microfinance, the fund helped 200,000 households build sanitation facilities over seven years. The program used public funds efficiently, with each dollar of public spending leading to up to 25 times more investment in sanitation by households. Repayment rates were nearly 100%, and the program was considered a successful model. By 2009, the World Bank and the Vietnam Bank for Social Policies planned to expand the program further.

Small and medium enterprise loans

Small and medium-sized businesses (SMEs) use loans to fund investments in water and sanitation projects. These loans help community groups, private companies in new areas, and groups working to repair water systems. These loans are provided by experienced microfinance institutions and are also used by other businesses involved in water services, such as those who empty pit latrines or supply water tankers. When conditions like strong government policies and clear roles for organizations are in place, there is potential for small water projects to grow.

Compared to loans given to individual households, loans for SMEs are less common. Most of these programs are still in early testing stages. However, recent projects in some African countries, such as those by the K-Rep Bank in Kenya and Togo, show that these loans can work well. In Kenya, the Water and Sanitation Program is exploring ways to expand its efforts nationwide.

Kenya has many small water projects managed by local communities. The Water and Sanitation Program started a plan to use small loans to support these projects. As part of this plan, the K-Rep Bank gave loans to 21 community-run water projects. The Global Partnership on Output-based Aid (GPOBA) helped by offering partial financial support. Each project received up to 80% of its costs as a loan (averaging about US$80,000). After a project is completed successfully and verified by an independent group, 40% of the loan is replaced with a financial aid payment. The rest of the loan must be paid back using money earned from selling water. Additional grants are also given to help develop the projects.

In Togo, the CREPA organization encouraged more private companies to provide water services in 2001. This led to six local microfinance institutions creating small loans for projects like shallow water wells (costing about US$3,000) or rainwater collection tanks (costing about US$1,000). These loans were originally meant for households that sell water in bulk or in buckets. However, the money was given directly to the companies that drill wells. Between 2001 and 2006, about 1,200 water sources were built, and the households involved used them for small business activities.

Urban services upgrading

Microcredit has been used only a little to improve urban water and sanitation services, especially in low-income areas where traditional funding and public investment are not enough. In many cities, infrastructure projects are usually paid for by government programs, aid from other countries, or large loans, not small loans for families or communities. Some microfinance organizations have tried helping with urban improvements in a few cases, giving loans to support community projects like shared water stations, sanitation buildings, and water pipes. "Microcredit for Water Supply and Sanitation Solutions." CGAA. Retrieved 9 February 2026.

However, studies show that using microcredit for urban improvements is still rare. A review of new funding methods notes that while some microfinance groups in Latin America and South Asia have created loans for community infrastructure, few people have used these loans because of the large costs, long repayment times, and rules that make urban water and sanitation projects difficult. "Innovative Financing Mechanisms for the Water Sector" (PDF). OECD. Retrieved 9 February 2026.

In practice, microcredit in the water and sanitation sector is more often used for small household projects or water services for small businesses, not large city-wide improvements. Some programs pair microcredit with other funding methods and work between NGOs, banks, and local governments to help low-income urban areas, but these efforts are not common in most cities. "Microcredit for Water Supply and Sanitation Solutions." CGAA. Retrieved 9 February 2026.