From Boda Boda to farming via water and sanitation: what role for credit?
Posted on 24/10/2016 by Goufrane Mansour
An encounter in Dar Es Salaam has Goufrane reflecting on the potential role financial services can have to increase equal opportunities in Tanzania.
Sitting in the back of a taxi en route to the airport I listen to Joseph, the driver, as he tells me his story and his plans for the future. Joseph left his native town, Arusha, to come to Dar Es Salaam to find a job. While working as a hotel taxi driver, he is still looking for better opportunities. He recently applied to become a driver for Dar Es Salaam Rapid Transit (DarT), the capital’s new bus company. He made it through to the final round but unfortunately had to work when it came up, so he automatically failed the interview. His new plan is to buy a motorcycle which he will lease to a driver for a fee to use as a ‘boda boda’, a moto-taxi. He hopes to make $150 per month from this.
But buying a motorcycle is expensive, and it will take him a year to put away enough cash. Joseph doesn’t save in a bank though. Like the vast majority of Tanzanians (81% according to World Bank statistics) he doesn’t have a bank account. Due to stringent regulations on deposit taking, very few institutions (including micro-finance ones) offer saving services. Instead Joseph participates in a ‘tontine’. Every month, he puts TZS 100,000 ($46) into a common pot with some friends, and every month, the pot ends up with one of them. This ‘interest-free’ saving system is common in Africa and when it’s Joseph’s turn to get the pot, he deposits the money with the boda boda dealer.
I listen to Joseph’s hopes and struggles with fascination. I had come to Dar es Salaam to present the findings of a market assessment I carried out with colleagues from MicroSave (Kenya) and eMJee (Tanzania) for rolling-out Water.org’s WaterCredit program in the country. Through WaterCredit, Water.org provides technical assistance (or “smart subsidies”) to selected financial institutions so that they are able to offer financial services that will help households or businesses invest in improving their water and sanitation facilities. Water.org usually works with large financial institutions (it collaborated in Kenya with Equity Bank, among others), that have large lending capital capacity and geographical reach. As 83% of Tanzanians do not have access to improved sanitation facilities and 55% do not have access to safe drinking water, Tanzania presents a huge market opportunity for WaterCredit. The market assessment found that several urban utilities have made important progress in increasing their production capacity and are looking to increase their customer base via household connections. For those who cannot connect to the network (due to inaccessibility, for example), there is a market for water tanks and rain water harvesting. With regard to sanitation, the government policy is that households have to invest themselves. However, when a latrine costs up to $500 (5 to10 times a household’s income), this cost is prohibitive for many.
Joseph’s story tells us that credit facilities via the traditional banking system are not available or accessible to everyone. Yet with the rise of mobile money services, things are slowly changing. Indeed, Tanzania has surpassed Kenya in the number of people who use mobile money services – at least 32% of Tanzanians use them, which brings financial inclusion rates to over 40%. Mobile money services are mainly used to receive or send money, and pay suppliers on credit (for school fees, for example). Providers of such financial services include M-Pesa, Tigo, Airtel, Vodacom and new players that keep on emerging, such as Halotel. These alternative financial services could provide a platform for reaching those without access to formal banking services.
If Watercredit is to be rolled out in Tanzania, time will be needed to develop attractive products (both for the customers and the financial institutions). First, a significant amount of advocacy will have to be deployed by Water.org to convince managers and their boards of directors that water and sanitation can provide investment opportunities (and that funds can be diverted from their core business activities to lend for water and sanitation). Full market studies will have to be conducted to identify what products households would aspire to and would be willing to invest in (for example, would bundling sanitation loans with housing microfinance packages be attractive?). In this journey, the collaboration with the government and other development partners will be critical to reach scale. As one of the strongest economies on the African continent, Tanzania has reached a point where it cannot ignore its water and sanitation issues anymore, just as it cannot ignore the need to provide equal opportunities for all.
As the noise of traffic blare through the window, I ask Joseph why he doesn’t return to beautiful Arusha on the foothills of Mount Kilimanjaro. He says maybe one day he will go back to farm the land his mother gave him, but only when he’s gathered enough working capital. When I suggest he should look into micro-loans for agriculture (In Arusha ECLOF, for example, offers such services), he is utterly surprised as he had no idea such loans existed. Leaving Joseph at the airport (with a generous tip towards his bike), I’m reminded once again of the life changing opportunities access to financial services could provide to millions of Tanzanians.
If you would like to read more about the market assessment click here.