Several studies have sought to evaluate the economic costs and benefits of investing in sanitation. These studies highlight the economic gains associated with improved sanitation, raising awareness among decision-makers of the importance of such investments. To increase our understanding of the sanitation sector, however, it is critical to go further and apply economics to the analysis of how sanitation markets work or, more often, fail, so as to identify potential improvements. Sustainable sanitation requires that several mutually dependent services be provided, including collection, transport, treatment, and reuse. In each of these segments, service delivery is often inadequate due to failures either on the demand or on the supply side. Investments by households or service providers are driven by their own perception of economic benefits rather than macroeconomic arguments. This paper argues that economics can be used to evaluate what drives decisions across all these segments and support public policymaking to ensure access to sustainable sanitation services.
The sanitation sector is gradually realizing that the effectiveness of approaches such as Community-Led Total Sanitation (CLTS) is limited by inadequate access to finance. Households are not able to construct durable facilities and sanitation services are unable to develop so as to respond to demand. At the same time, there is fierce competition among microfinance services providers that is pushing institutions towards more remote customers and to offer innovative products. In addition, the rise of mobile banking and digital finance has lifted many poor people out of financial exclusion. These factors have created a nexus between microfinance and sanitation with high growth potential. However, the sanitation microfinance market remains small to date. Since 2010, the SHARE research consortium has investigated global experiences and lessons for using microfinance to develop sanitation services. A SHARE action-research in Tanzania triggered selected financial institutions to offer financial products for sanitation and generated lessons for scaling up sanitation microfinance. This article presents the findings from the SHARE research, in the context of broader developments in the microfinance markets and key findings from other donor-led initiatives.