Digital Finance for the Real Economy: Water
22 August 2018
Efficient, customer-centric water providers are using digital finance to expand access and provide better service.
Over the past several years, CGAP has been exploring the potential of digital financial services to spur solutions to some of the most pressing challenges in international development. We have interviewed customers, helped design and pilot new products, attended dozens of events, and met with hundreds of individuals who work to provide poor households with the services they need. This presentation is part of a series that synthesizes what we have learned and our insights into the power and challenges of digital finance.
In the water sector, 2.1 billion people do not have safely managed access to our most important resource. Water is many things: scarce, essential, expensive, heavy. If people are going to pay for it, then it needs to be even more things: clean, safe, close, and affordable. Water has always frustrated economic models. People will pay, but not too much; free alternatives abound, but you get what you pay for. Governments know that their people need water today, and so have historically been willing to mandate low prices and subsidize loss-making utilities. For these reasons, scalable for-profit businesses are hard, if not impossible, to run in the water sector. The capital costs of treating, pumping, and distributing water are too high, and the margins are kept too low.
But in place of profit we do have progress: 2.6 billion people have gained access to an improved water source since 1990. Blended finance arrangements are emerging every year that mitigate risks and unlock revenue, bringing private capital into a sector where it is sorely needed. And as shown in this presentation, efficient, customer-centric providers are using digital finance to expand access and provide better service:
• Digitizing collections creates cost savings for water service providers equivalent to 5–20 percent of revenue.
• Pay-as-you-go water (digital payments linked with prepaid smart meters) helps to eliminate arrears and expand access.
• Digital credit can help households finance water connections.
There are still challenges to implementing digital finance, and many providers need institutional and financial reforms in addition to technological innovations. But providers that have oriented their businesses around customer service and financial sustainability have been rewarded. In this presentation, you can see the water providers of the future are beginning to take shape: lean, multi-channel, and responsive. Digital finance is essential for achieving universal access to safe water.