- Many in rural households are unable to bear the cost of toilet construction
- The RBI has included sanitation under priority sector lending
- Sanitation loans from financial institutions can help solve this problem
With more than 2 lakh villages declared open defecation free (ODF) and 4 crore toilets constructed, the Swachh Bharat Abhiyan (Gramin) has accomplished a chunk of its primary objective of eradicating open defecation. But a lot is still left to be achieved in terms of rural sanitation, which among many other things is undoubtedly a costly process. When the Abhiyan was launched in 2014, it was estimated that a total of Rs 1.96 lakh crore would be required to meet the objectives of the sanitation mission. The Union government and states cannot bear such a huge cost alone, and given the objectives of the mission, it is imperative that other financial institutions play an important role in terms of providing financial help.
The Swachh Bharat Abhiyan works on a remuneration post verification model. Citizens are requested to construct toilets at their own cost, and upon verification by district authorities, an amount of Rs 12,000 is disbursed directly to them. While the financial model has found favour among many, particularly the direct disbursal of the amount to the beneficiaries, the initial bearing of construction cost has also been a deterrent in rural areas. Further, the amount is disbursed only for the construction of new household toilets and is not released for renovation or reconstruction purposes, nor is it released to households which have received financial help under previous sanitation incentives.
In the Union budget for the financial year 2016-17, the government allocated Rs 11,300 crore for Swachh Bharat Abhiyan, of which Rs 9,000 crore was allocated for the rural part of the mission, whereas Rs 2,300 crore was for the urban part. The 0.5 per cent Swachh Bharat cess, which was applicable on various services till June 30, also managed to collect a total Rs 9,851.41 crore. The government disburses the amount only when the construction of a toilet is complete. Under such circumstances, sanitation loans could become beneficial for rural inhabitants and help them cover costs of toilet construction.
Right after the Abhiyan was announced, Tiruchirapalli was one of the first cities to organise a Bankers’ Meet through the micro-finance institution Gramalaya, which announced that even before the commencement of Swachh Bharat Abhiyan, it had helped in the building of nearly 56,000 toilets in Tamil Nadu by providing easy installment loans to villagers. The National Bank for Agriculture and Rural Development (NABARD) has also been instrumental in providing financial support. It sanctioned Rs 47 lakh as a grant amount and Rs 200 crore as a loan to 17 agencies in 2014, to be lent as toilet loans. Occasional roles of importance have been played by banks and micro-finance institutions (MFIs). However, such instances have been few and far between in the past three years. Financial institutions are capable of playing a bigger role in providing sanitation loans in rural areas.
The Swachh Bharat Abhiyan is a nationwide implementation of sanitation policies. We have not only encouraged such moves in the past, but also allocated a significant amount to 17 agencies to be disbursed as toilet loans. Micro-finance institutions can work closely with self-help groups to disburse small amount loans in rural areas with ease, said Mr. Subrata Gupta, Chief General Manager, Department of Financial Inclusion and Banking, NABARD.
In March 2015, the Reserve Bank of India (RBI) included water and sanitation under priority sector lending (PSL). The aim of the inclusion was to ensure that more money could be lent by banks and micro-finance institutions towards non-income generating activities such as construction of toilets. With the inclusion of water and sanitation, the sector received approximately Rs 700 crore in loans. Though not an insignificant amount, when compared to the value of Rs 80,000 crore of the sanitation sector, it seems less.
The onus though, does not lie solely with banks or micro-finance institutions. Many renowned banks such as Bank of India, Central Bank, Punjab National Bank etc. reported huge losses in March 2017, due to non-performing assets. Presence of non-performing assets and unrecoverable loans results in banks losing interest in lending towards non-income generating activities. Though banks are given individual PSL targets, they are finding it increasingly difficult to fulfill them. Certain commercial banks are also reluctant to release loans for sanitation purposes, given the non-income generating nature of the cause.
Banks are often reluctant to lend for causes where there is no scope for any income generation. Lending in rural areas is always a risk and for reason like construction of toilets, which is not a revenue generator, the risk for banks increases. Normal interest rates of 18 per cent on such loans is also a big risk, as there is a danger of non-repayment, said Vedika Bhandarkar, Manager, Water.org, India.
Financial experts, however, suggest that two methods may help banks to release more funds for lending towards sanitation causes.
One is placing a sub-limit on the amount commercial banks can release as sanitation loans. Even a 1 per cent sub-limit on banks would result in nearly Rs 90,000 crores available in the lending market for sanitation. A second option would be to give incentives to bank and give higher weightage to lending for water and sanitation under PSL. Lending of 1 per cent towards water and sanitation causes could count as 1.5 per cent towards the bank, therefore allowing the bank to voluntarily lend towards water and sanitation.
Micro-finance institutions of course can play a game changing role in restructuring the sanitation sector in rural areas from a lending point of view. If the district if Kalaburagi in Telangana is seen as an example, several micro-finance institutions lent money to villagers at zero or low interest rates of 10 to 12 per cent. The loan amounts, ranging from Rs 15,000 to Rs 30,000 (for those who wished to build costlier toilets) were easy installment loans, enabling the borrowers to pay back without any hindrance. But that model has its own shortcomings too. The concept of borrowing money for constructing toilets is yet to catch on in rural India and hence, despite low interest rates, the demand for such loans in also low. Further, people are wary of maintenance costs of toilets and hence are often reluctant to opt for one.
Despite being a tricky arena, even the problem of people not willing to borrow for toilet construction could be solved. The solution is to build low-cost toilets out of recyclable materials which do not cost more than Rs 6,000 to Rs 8,000 and can effectively run for a period of two years. This ensures that the initial investment remains on the lower side. Post that time period, the toilet can be renovated at a very low cost, or a similar model costing a similar amount could be repurchased. Pune based Saraplast Pvt. Ltd. is one such company which has provided low cost toilet models at construction sites and tourist spots. It is an effective way to ensure that toilets are constructed without anyone becoming financially overburdened by their construction or maintenance.
Low-cost toilet models are better suited for rural areas. Conventional toilets use a lot of water and are expensive two maintain, two principal discouraging factors for people in rural areas. Availing loans for conventional toilets is also risky as the cost is high. Low-cost toilets can be constructed with adequate financial help and money borrowed for building such toilets will be easier to repay, said Srinath Vishwanathan of Arghyam, a Tamil Nadu based NGO working in the sector of rural sanitation.
Raising the limit of lending by micro-finance institutions for sanitation purposes is also going to bring in more money in the lending market for MFIs to disburse. At present, RBI allows MFIs to allocate up to 50 per cent of their lending capacity for non-income generating loans. Increasing that cap could result in MFIs disbursing more money for PSL purposes. But lending money for water and sanitation also depends on the nature of the MFI, as many MFIs still prefer to lend money for income-generating purposes. This is where MFIs need to become more financially active and lend support to rural households.
The role of MFIs in development of social sector has been a globally recognised model, especially in developing economies. Given the scope of the Swachh Bharat Abhiyan, and the required finances, MFIs, banks and SHGs should be more lenient about lending for water and sanitation purposes. With behavioural changes related to sanitation gradually becoming a part of the daily rural regimen, easier access to funds for those who require money would further ease the completion of Swachh Bharat Abhiyan’s core objective.