Bonani Roychoudhury, Managing Director, Nabsamruddhi, believes that collaboration is vital to reach WASH lending to the last mile. In the second part of the interview with Renjini Liza Varghese, she explains the importance of collaboration and the role each partner has played in the organization’s growth.
Q. There are unreached geographies. What is your plan to tap these markets?
We are covering mostly rural areas, especially tier-5 and -6 towns and villages. But there are unreached areas; for example, if you look at the northeast, Manipur has been covered. There are regions in the NE where a village has a common toilet which is not being used. It is a socio-cultural issue. A lot of canvas has to be covered. The rest of rural India is very aspirational. So, we are reaching out to partners in these untapped geographies, and the response is very encouraging.
Q. You follow a collaboration model to reach the last mile. What are the parameters in place while choosing a partner?
We have three sets of partners, first the high-rated ones with whom we are already working within other segments. In addition, we check whether they have worked in WASH, have the ability to take it forward, and have the manpower (team) to manage the WASH portfolio.
For those partners who have not handled WASH, we help them in capacity building through Water.org and make them future-ready. If that also doesn’t work, then we go with co-lending, where we will pick up 80% of the risk. In our experience, WASH loans witness almost 100% repayment.
The second is the mid-segment, which is unrated to BB +, where we support the entities through securitization of WASH pools.
The third segment comprises unrated entities with an AUM of less than Rs 100 cr for whom we have a special dispensation to finance under WASH. Here, we assess them basis their financial strength, past work, and reputation. Interestingly, these entities already have a good body of work in the social segment, which is encouraging.
Q. How have your partnerships evolved over the years?
The key sectors covered under our WASH lending include microfinance, MSME, and housing. Of the 22 partners, 15 are NBFC MFIs (few prominent names being Annapurna, Satya, Sonata, Pahal, Muthoot Microfinance), 4 are section 8 companies/societies in the MF sector (FWWB, Cashpor, Sahyog, Sanghamithra), 1 is a NBFC ICC in the MSME sector i.e. Ugro capital and 2 are HFCs (Aviom and IFL Housing).
The end use encompasses toilet loans, drinking and running water solutions, hygiene products, rainwater harvesting, WASH product manufacturing, trading, retailing, servicing, and waste management, including FSTPs and STPs, among others.
These 22 entities have been provided 30 credit facilities cumulatively exceeding Rs. 200 Crore for on-lending towards the WASH segment by NSFL (of which 93% of the disbursements were made in the last 2 years).
I would also like to highlight that NSFL provides WASH loans at concessional rates, by not only bypassing the concession availed from NABARD but further discounting the interest rate to support the segment.
Q. What are the major challenges?
As far as microfinance lending is concerned, we have not faced many challenges. However, challenges arise when it comes to financing WASH MSMEs through NBFC-ICCs who are not convinced about the need for WASH financing. It is also difficult to identify them and source such loans. All the same, financing of MSME is critical to ensure innovations in product and service delivery as well as to reduce time and costs in WASH delivery.
Q. Women get hit the maximum in a climate disaster event. Do you have any products designed for climate disasters?
Climate risk and mitigation are covered under our green and wellness finance. RE is under mitigation. We are looking at climate-resilient toilets under WASH. We are encouraging partners to innovate to address these challenges. Any climate event (floods) leads to contamination and we need the participation of stakeholders to develop products to address these risks.
Retrofitting of toilets alone requires Rs 61,000 cr of financing, according to the Ministry of Jal Shakti estimates. But the ticket size will be small, as low as Rs 15,000 and may be considered unviable by lenders. But it is an important project and a critical requirement. Let me draw a parallel. The piped water initiative of Jan Jeevan Mission, ‘Har ghar nal se jal’ is a success because of the high volume of data. The full benefit can be seen only when these pipes are connected to the kitchen and toilets directly. The loan for retrofitting of toilets, if combined with piped water connection, may require Rs 40,000 to Rs 50,000 that can be met by a loan – this can resolve the small ticket size issue.
We have asked all partners to consider exploring the opportunity which we will support with the bulk loan.
Q. What is the solution?
NBFC ICCs and NBFC Factors need to come in here. We are even suggesting creating a sourcing body for such loans.
There is scope to fund MSMEs for community-level solutions through contracts from ULBs and GPs- funding for community borewells, water harvesting structures, waste management, sewage and faecal sludge treatment plants (STPs, FSTPs), community toilets, hand wash and drinking water facilities, climate risk adaptation measures. These are mostly undertaken in PPP mode—through SPVs, contractors and sub-contractors. Support from bodies such as the Toilet Board, India Sanitation Coalition, National Faecal Sludge and Septage Management Alliance (NFSSM) and other coalitions in connecting the stakeholders, as aggregators, accelerators, incubators, etc., is critical here.
Delayed payments pose a significant challenge for MSMEs undertaking community-level WASH projects. There is a need to explore receivable financing, factoring, the TReDS platform, and third-party guarantees, influenced by RBI’s revised guidelines.
Q. Do you have enough products to cover the expected demand? What is the way forward?
We have three products: the term loan, the PTC and the loan to unrated entities. But going forward, we know that the low-hanging fruit is co-lending. We will launch that shortly. We are also exploring other structured products, such as partially guaranteed loans, pool loan issuances and supply chain financing (working capital financing). Two of these products will be rolled out in the current fiscal, and the balance will be launched in FY25.
Q. As you look at co-lending, would you consider joining hands with any underwriters for health insurance issuance? Health insurance coverage is much less than the world average?
We haven’t thought about it. But it is a good suggestion; we will surely consider exploring it. But, the premium needs to be affordable for the underlying borrowers.