Webinar: Credit for climate resilience – water tanks for smallholder farmers

Billions of people around the world lack access to safe water*. This has harmful effects on health because water is not available for handwashing and cleaning. It imposes a significant time burden, especially for women and girls, and leads to some children missing school.

The webinar will be on Zoom on 23 April from 14:00 – 15:00 (GMT +1) – Add to Google Calendar

 

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Since 2010, the Nyala dairy cooperative in Kenya has been providing loans for water tanks to smallholder farmer through its associated savings and credit cooperative (SACCO), collaborating with a group of researchers – including Michael Kremer, a co-recipient of the 2019 Nobel Prize for Economics, and a co-founder of Precision Development. The dairy farmers repay the loan through a deduction from their milk income which they receive from the dairy. Because milk production is increased when farmers have a water tank, this gives the farmer enough additional income to pay off the loans within 2-3 years. 

These loans are unusual because the borrower makes only a minimum deposit, is not required to have saved money at the cooperative, and they are not required to offer guarantors. Instead, the loan is secured against the value of the water tank itself, which is possible because the tank is a long-lasting asset which remains productive for 30 years and is easy to repossess in the rare case of loan default. This change in the loan terms led to a huge increase in uptake – from less than 3% uptake under normal loan conditions to 42% uptake when the loans use this innovative financing structure. Defaults did not increase at all with moderate deposit requirements, and even in the case with the smallest deposit requirement, the repossession rate was just 0.7%. 

The effect of these loans for water tanks is to increase households’ dairy production by 20-31%, improve health and increase school attendance. This increase in buying power makes a real difference to the lives of some of the poorest families and significantly increases resilience to climate change. Because it leads directly to higher milk income, the tank pays for itself quickly; but the low risk, low cost loans are not yet widely available.

Two thousand water tank loans were provided during the initial research with the Nyala dairy cooperative; since then, Nyala dairy has provided a further four thousand loans, and this has become a popular and successful part of the portfolio of services they offer. Precision Development and the Development Innovation Lab (DIL) at the University of Chicago are working together to test this approach in two other dairies in Kenya’s rift valley. So far, these dairies have reproduced Nyala’s positive experience.

Our goal is to make these loans available to smallholder dairy farmers who do not have a reliable water supply in Kenya, across East Africa, and ultimately across the world. Though the loan design is working well, we are testing whether it can be improved further. We are learning about what support dairy cooperatives and associated financial institutions need to get up and running to provide these loans, and what support the farmers themselves need. And we are learning whether the dairies are constrained from making loans by lack of access to capital and, if so, how this constraint can be alleviated, for example by crowding in more capital.

This is a high impact, cost-effective and scalable intervention targeted on farmers living in extreme poverty. The tank pays for itself – but for more people to benefit we need the idea to spread far and wide. Please join us for a discussion about what we have learned so far, and how we are approaching the challenge of bringing the benefits of this innovation to millions of people around the world. 

 

* World Bank Data blog

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For more information about partnering with PxD or specific initiatives in the webinar, please contact development@precisiondev.org