UPSC Prelims 2021 Q14: WaterCredit and Microfinance for Water — Explained
With reference to 'WaterCredit', consider the following statements:
1. It puts microfinance tools to work in the water and sanitation sector.
2. It is a global initiative launched under the aegis of the World Health Organization and the World Bank.
3. It aims to enable the poor people to meet their water needs without depending on subsidies.
Which of the statements given above are correct?
- 1 and 2 only
- 2 and 3 only
- 1 and 3 only
- 1, 2 and 3
Answer: (c) 1 and 3 only
Statement-wise explanation
- 1: correct — WaterCredit is Water.org's programme that brings microfinance into water and sanitation. Water.org works with local microfinance institutions (MFIs), which give small loans to poor households for a tap connection, a water filter or a household toilet. As borrowers repay, the money is lent again to other families.
- 2: incorrect — WaterCredit is not a WHO or World Bank initiative. WaterPartners International, an NGO co-founded by Gary White, created it in 2003. Its first pilots ran in India and Bangladesh. WaterPartners merged with Matt Damon's H2O Africa in 2009 to form Water.org, which runs WaterCredit today. WHO and the World Bank are not its founders or sponsors.
- 3: correct — WaterCredit's purpose is to let poor households pay for their own water and sanitation through small, repayable loans instead of waiting for handouts. It does not lower interest rates or the cost to the borrower. Water.org gives limited 'smart subsidies' only to the lending institutions, for market research, product design and staff training. As each lender builds its own capacity, these grants are withdrawn.
How to eliminate
Statement 2 is the weak link. UPSC often attaches a big-name sponsor ('under the aegis of WHO and the World Bank') to a lesser-known initiative to see if you will accept it. A programme whose name joins 'water' with 'credit' sounds like an NGO or microfinance product, not a UN health agency project. Statements 1 and 3 hang together: if WaterCredit is about microfinance (Statement 1), its aim is naturally self-financing rather than subsidy (Statement 3). The answer key has no '1 only' or '3 only' option, so if you accept Statement 1, the only question is whether Statement 2 is true. Doubting the WHO–World Bank claim leaves only one option. Fact to remember: WaterCredit = Water.org (an NGO) + local MFIs + small loans for taps and toilets.
Know more
Microfinance for WASH (Water, Sanitation and Hygiene)
Poor households often can afford a toilet or tap connection over time, but not the up-front cost. Microfinance spreads that cost into small instalments. This idea is behind WaterCredit and similar Indian schemes.
How WaterCredit works
- Water.org finds regions that need water and sanitation and where microfinance is ready to grow.
- It partners with local MFIs, banks and cooperatives, and gives them time-bound grants to design loan products and train staff.
- Households take small loans for taps, storage tanks, filters or toilets and repay them. The repaid money is lent again.
- Water.org reports repayment rates of about 99%, which shows the poor can be viable borrowers for these needs.
Grant model vs credit model
| Feature | Subsidy/grant model | Credit model (WaterCredit) |
|---|---|---|
| Who pays | Government or donor | Household, in instalments |
| Scale limited by | Budget | Repayment and recycling of funds |
| Ownership | Often weak | Household chooses and owns the asset |
| Subsidy role | Pays the user directly | Only builds lenders' capacity |
India links
- In July 2015, the RBI's priority sector lending norms added household toilet construction to 'social infrastructure'.
- SBM-Grameen guidelines encourage low-cost latrine loans through SHGs and NGOs.
- Water.org's partner MFIs in India have given millions of water and sanitation loans. India is its largest market.
Don't confuse with: WaterEquity, a sister investment fund that raises private capital for these lenders, and the WHO/UNICEF Joint Monitoring Programme (JMP), which tracks progress on SDG 6.
In the news
We could not link this question to a specific PIB release or event before the 2021 exam. Household water and sanitation finance was in the news after the Jal Jeevan Mission (August 2019) and Swachh Bharat Mission (Grameen) Phase II (2020). Water.org's work with Indian microfinance lenders was often cited in that coverage.
NCERT Concepts to Revise
- Microcredit: Statement 1 depends on what microcredit means: small, collateral-free loans to poor households.
- Subsidy: Statement 3 contrasts loan-based access with subsidies, so you need to know exactly what a subsidy is.
- Self-help group: In India, water and sanitation microloans often reach households through self-help groups linked to banks.
- Access to sanitation and drinking water: This is the outcome that water and sanitation lending tries to improve for poor households.