Survey Results
India Financial Capital Survey 99% Summit – February 26, 2014
Background • INITIAL INSIGHTS •
•
•
Ongoing discussions with Water.org’s MFI partners—and in particular August 2013 discussions—pointed to the need to better understand potential choke points to WaterCredit scaling Cost of capital, timing of capital, frequent moratoriums on household water connections and policy/regulatory environment surfaced as chokepoints MFI’s cost of capital is around 14%; social impact investors would likely lend at below 10%
• RAPID ASSESSMENT • •
To better understand these constraints and opportunities we surveyed our partners in October 2013 Reached out to learn from others organizations leveraging social capital markets to deliver debt and equity to MFIs
-2 -
Survey Results PARTNERS CAPITAL SNAPSHOT Percent of capital sourced from Indian banks Average cost of capital Average interest rate for end borrower
Overall 81% 14% 21%
WC 64% 12% 19%
• Regulatory climate places risk premium on cost of capital paid by partners to borrow bank funds (13%-‐15%) • Banks more willing to lend to largest MFIs as safer bets, placing small and medium sized partners at greater risk • Bank lending for WaterCredit not considered “priority sector” lending according to RBI guidelines
-3 -
Survey Results Capital constraints viewed as top challenge but not only problem facing partners PROBLEM
Overall Rating
% Selected as Top Challenge
% Selected as Top 1-‐2 Challenges
Availability of loan capital
3.21
36%
57%
Water resource conditions
3.29
21%
50%
Timing of loan capital
3.64
7%
29%
Political difficulties
3.93
21%
36%
Financial sustainability
4.64
0%
0%
Internal total operations
5.71
14%
14%
Water loan definitions
5.71
0%
7%
Internal WaterCredit scaling
5.86
0%
7%
1 is highest , 8 is lowest in the rati ng system.
Survey Results MFIs desire lower-cost capital, and many willing to pass savings on to clients WATERCREDIT COST OF CAPITAL COST OF CAPITAL
AVERAGE
MEDIAN
Current
12%
13%
Maximum rate to pay for new debt capital
12%
9.5%
WILLINGNESS TO PROVIDE MORE FLEXIBLE WATERCREDIT LOANS If your organization were to receive loan capital at lower costs than at present for water and sanitation lending, would your organization consider providing loans under more flexible terms to your borrowers than at present? 28%
Yes 72%
No
Survey Results Consistent relationship between cost of capital and offered WaterCredit interest rates COST OF CAPITAL 3%
Median Interest Rate to Borrower 12%
Spread (Median Interest – Cost of Capital) 9%
6%
16%
10%
9%
18%
9%
12%
22%
10%
Notes: In all cases, spread is 2-‐4 percentage points higher than current reported spread for WaterCredit products. Based on presenti ng hypotheti cal costs to survey respondent.
Findings
WATERCREDIT FINANCIAL CONSTRAINTS • •
Partners view availability/cost and timing of capital constraints as 2 of top 3 issues they face Most partners are concerned about capital availability currently and in the future
PROFITABILITY • • •
Many early stage partners have not analyzed WaterCredit Among those that have, most believe that WaterCredit not currently covering all of their costs Over ½ believe that WaterCredit can/should be cross-subsidized by MFI or that some activities should continue to receive long-term support
Findings (continued) DEBT AND AFFORDABILITY • Many partners stated that they are willing to pass savings on to clients in form of lower rates if they can obtain more flexible, lower cost capital • Desired spread is 9-10%, which is 2 to 4 points higher than what partners earn today in WaterCredit products POTENTIAL IMPACT OF LOW-COST CAPITAL • Water.org’s Indian MFI partners collectively report that they could accept an estimated INR3.4bn (US$56m) in debt for WaterCredit if financed at a rate of 6% and paid over 3 years • Lending this additional capital could reach 1.4m people with water or sanitation improvements
Many Thanks
Background • INITIAL INSIGHTS •
•
•
Ongoing discussions with Water.org’s MFI partners—and in particular August 2013 discussions—pointed to the need to better understand potential choke points to WaterCredit scaling Cost of capital, timing of capital, frequent moratoriums on household water connections and policy/regulatory environment surfaced as chokepoints MFI’s cost of capital is around 14%; social impact investors would likely lend at below 10%
• RAPID ASSESSMENT • •
To better understand these constraints and opportunities we surveyed our partners in October 2013 Reached out to learn from others organizations leveraging social capital markets to deliver debt and equity to MFIs
-2 -
Survey Results PARTNERS CAPITAL SNAPSHOT Percent of capital sourced from Indian banks Average cost of capital Average interest rate for end borrower
Overall 81% 14% 21%
WC 64% 12% 19%
• Regulatory climate places risk premium on cost of capital paid by partners to borrow bank funds (13%-‐15%) • Banks more willing to lend to largest MFIs as safer bets, placing small and medium sized partners at greater risk • Bank lending for WaterCredit not considered “priority sector” lending according to RBI guidelines
-3 -
Survey Results Capital constraints viewed as top challenge but not only problem facing partners PROBLEM
Overall Rating
% Selected as Top Challenge
% Selected as Top 1-‐2 Challenges
Availability of loan capital
3.21
36%
57%
Water resource conditions
3.29
21%
50%
Timing of loan capital
3.64
7%
29%
Political difficulties
3.93
21%
36%
Financial sustainability
4.64
0%
0%
Internal total operations
5.71
14%
14%
Water loan definitions
5.71
0%
7%
Internal WaterCredit scaling
5.86
0%
7%
1 is highest , 8 is lowest in the rati ng system.
Survey Results MFIs desire lower-cost capital, and many willing to pass savings on to clients WATERCREDIT COST OF CAPITAL COST OF CAPITAL
AVERAGE
MEDIAN
Current
12%
13%
Maximum rate to pay for new debt capital
12%
9.5%
WILLINGNESS TO PROVIDE MORE FLEXIBLE WATERCREDIT LOANS If your organization were to receive loan capital at lower costs than at present for water and sanitation lending, would your organization consider providing loans under more flexible terms to your borrowers than at present? 28%
Yes 72%
No
Survey Results Consistent relationship between cost of capital and offered WaterCredit interest rates COST OF CAPITAL 3%
Median Interest Rate to Borrower 12%
Spread (Median Interest – Cost of Capital) 9%
6%
16%
10%
9%
18%
9%
12%
22%
10%
Notes: In all cases, spread is 2-‐4 percentage points higher than current reported spread for WaterCredit products. Based on presenti ng hypotheti cal costs to survey respondent.
Findings
WATERCREDIT FINANCIAL CONSTRAINTS • •
Partners view availability/cost and timing of capital constraints as 2 of top 3 issues they face Most partners are concerned about capital availability currently and in the future
PROFITABILITY • • •
Many early stage partners have not analyzed WaterCredit Among those that have, most believe that WaterCredit not currently covering all of their costs Over ½ believe that WaterCredit can/should be cross-subsidized by MFI or that some activities should continue to receive long-term support
Findings (continued) DEBT AND AFFORDABILITY • Many partners stated that they are willing to pass savings on to clients in form of lower rates if they can obtain more flexible, lower cost capital • Desired spread is 9-10%, which is 2 to 4 points higher than what partners earn today in WaterCredit products POTENTIAL IMPACT OF LOW-COST CAPITAL • Water.org’s Indian MFI partners collectively report that they could accept an estimated INR3.4bn (US$56m) in debt for WaterCredit if financed at a rate of 6% and paid over 3 years • Lending this additional capital could reach 1.4m people with water or sanitation improvements
Many Thanks
