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Microfinance partnerships in India

Pilot project explores the role of microfinance in selling water filters to low-income customers

PATH launched several pilot projects in India to test whether collaborations between microfinance institutions (MFIs) and manufacturing companies can result in better market penetration of household water treatment and safe storage (HWTS) devices among base-of-the-pyramid households.

PATH conducted a pilot project in low- and middle-income communities in India to test whether microfinance institutions could be a successful distribution channel for water filters. Photo: PATH/Sara Watson.

Through the process of lending, MFIs in India have developed unique relationships with large numbers of consumers, fostering a level of trust at the community level. PATH is facilitating partnerships between MFIs and manufacturing companies who seek to efficiently reach these consumers. Manufacturing companies offer quality products and after-sales support on credit through MFIs, expanding their role and contribution to borrowers’ lives.

“The model takes a manufacturer or marketer with an effective product and an acceptable price point and links it with a microfinance institution that can provide credit for a HWTS product to low-income households,” explains Sidhartha Vermani, team leader, Safe Water Project (PATH office in India). “Both MFI loan officers and manufacturers promote the product. The MFI offers financing, and the manufacturer is responsible for delivering the product and training customers on proper use and handling.”

Two companies join forces to offer access to household water treatment systems

Hindustan Unilever Limited (HUL) has a product that costs about US$44. Spandana, a local Indian MFI (with a pan-India presence), has partnered with HUL to test different loan terms in the state of Tamil Nadu. In two centers, customers pay a little less than US$1 per week, for about 50 weeks. In two other centers, customers pay a little less than US$2 per week for about 25 weeks. “We’re interested in finding out which loan scheme works better and also whether the results are replicable in other parts of the country,” says Vermani.

Now four months into the pilot, the model itself appears to be working. HUL has achieved double-digit market penetration among low-income consumers. For these pilots, Spandana has also modified the types of loans it typically offers, growing its business practices from its traditional role as a microfinance institution to that of a micro-creditor as well. Most importantly, households that could not afford home water treatment products are now using them to clean and filter their water. “Our goal with this project is to find commercially viable models that reach base-of-the-pyramid populations and have the ability to scale up. We think this model has good potential,” explains Glenn Austin, director of PATH’s Safe Water Project.

Study offers a better understanding of water treatment practices

To get a sense of the populations and to gather baseline data to help measure progress toward its goal, PATH hired Abt Associates, a

firm focused on research and technical assistance, to conduct assessments in the four pilot areas of Tamil Nadu. The assessments revealed that most households in the pilot areas have access to piped water, but only about half of the households surveyed felt a need to treat their water. Most households were aware of rudimentary water treatment techniques, such as using a cloth or sieve, letting water settle, and boiling. About half of households surveyed currently boil or filter water using a cloth or sieve. Use of other treatment methods (durable filters or chlorine drops or tablets) is very low. Based on perceptions of affordability and self-efficacy, likely buyers are those who currently feel a need to treat their water and who are relatively more educated and have higher relative incomes.

The baseline assessment will help PATH understand whether rudimentary water treatment techniques, such as boiling, are characteristic of early adopters of new filtration technologies. Demographic information will help PATH understand various price points for low-income households and determine what kinds of loans make purchasing decisions easier and which products or methods of water filtration generate sustainable, long-term use. “Ultimately, if commercial markets can penetrate lower-income households with products that make drinking water safe, and if households then use those products correctly and consistently,” says Austin, “we’re going to have an impact on health. That’s our vision. It’s what makes us excited to come to work every day.”

About our project and partners

PATH’s Safe Water Project was launched in December 2006 to assess gaps in the household water treatment and safe storage market and to determine how well private-sector companies can successfully and sustainably reach lower-income consumers with effective household water treatment and safe storage products.

Spandana is one of the fastest expanding microfinance institutions in India. It caters to over 3.5 million customers in over 11 states. It has been an innovator when it comes to understanding customer needs and providing loan products that are best suited to these needs. It is also one of the world’s most cost-efficient MFIs. For more information, please visit Spandana’s website .

Hindustan Unilever Limited (HUL) is India’s largest fast-moving consumer goods company, touching the lives of two out of three Indians with over 20 distinct categories in home and personal care products and foods and beverages. HUL meets everyday needs for nutrition, hygiene, and personal care with brands that help people feel good, look good, and get more out of life. For more information, please visit HUL’s website .

Abt Associates is one of the largest for-profit government and business research and consulting firms in the world. Abt applies scientific research, consulting, and technical assistance expertise to a wide range of issues in social, economic, and health policy; international development; and clinical trials and registries. For more information, please visit Abt’s website .

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