Microcredit: a way to ensure access to water and to generate revenues

Project completed

The rural populations in West Africa rarely have the means to invest in a water system. And yet small producers know that access to water would allow them to develop revenue-generating activities. In order to finance this type of installation in West Africa, the SDC has developed a pioneering project for microcredit.

Country/region Topic Period Budget
Employment & economic development
Agriculture & food security
Informal banking & insurance
Agricultural water resources
01.02.2012 - 31.12.2015
CHF 4'925'000

Microcredit makes it possible for small farmers to finance the purchase of seed, fertilizer, or even the rental of a tractor. However, a system of small credits hardly lends itself to projects in the domain of water. The digging of wells, the drilling for water, and the creation of irrigation systems generally represent extremely costly investments. The loans used to finance such works are accompanied by a long reimbursement period. Nonetheless, water systems remain crucial for the development of agriculture, animal husbandry, and cottage industry craftsmanship. If it weren’t for these revenue-generating activities, the rural populations would be even more subject to poverty and the capriciousness of the climate.

Microcredits particularly adapted to the domain of water
A study conducted in 2011 with the clients of microfinance institutions in four countries of West Africa revealed that 82% of them were undertaking a project for water to be used in production. However, only 10% of them were successful in obtaining a credit.

The SDC is engaged in an innovative project to facilitate the acquisition of infrastructures in the domain of water. The objective is to create an offering of microcredits adapted to this particular type of investment.

Funding to the tune of CHF 3,750,000 was made available to the ONG Pamiga, SDC’s partner in this project and a specialist in the area of microfinance. Pamiga flanks a network of some fifteen renowned microfinance institutions. In this way, these institutions are able to obtain medium-term credits more easily. They in turn then finance their clients desiring to develop a project in the domain of water. The services of Pamiga and of its microfinance institutions are remunerated through the interest paid by the borrowers. During a trial period throughout which the SDC will assume the financial risks, it supports the technical expertise which Pamiga makes available to develop its microcredit products in the domain of water. If this operation is crowned with success, other investors will replace the SDC.

Water systems, internet portal, and the training of loan officers
More specifically, about half of the clients want to acquire motor-pumps for use in irrigation, while the other half represents various needs, i.e., digging of wells, drilling for water, the creation of irrigation systems, etc. Moreover, the demand in the domain of projects for clean drinking water is substantially lower, indicating that this aspect of the problem is primarily considered to be an obligation of the State.
From 2007 to 2011, the SDC financially supported Parmiga in its development of a French-language internet portal dedicated to microfinance. This internet platform, which has been on-line since 2005, has become a benchmark in the field. In committing itself since 2012 more specifically to projects in the domain of water, the SDC’s support to microfinance has taken on an entirely new dimension.

The SDC supports the training provided by Pamiga to loan officers. The latter have an opportunity to take a training-course module on financial education for situations which harbour a risk of over-indebtedness. While Pamiga offers them expertise in the financial domain, the SDC for its part supports service providers specialized in the development of equipment for water. In this way, before the client undertakes to make an investment, he can take advantage of professional information at various levels, facilitating him in making the most advantageous and risk-free choice.