Nonprofit seeks backers for $50m water fund

US-based Water.org hopes to tempt investors to spend social capital bringing safe water and toilets to 4 million people

Water.org, the US-based nonprofit cofounded by actor Matt Damon, is to launch a $50m impact investment fund in an effort to bring clean water and sanitation to more than 4 million people in Asia.

The NGO plans to raise enough capital from philanthropists and foundations through WaterEquity to roll out microloans to low-income families in India, Indonesia, Cambodia and the Philippines, allowing them to buy water connections or build toilets. It also hopes to harness the rising popularity of impact investing to persuade mainstream financiers, such as banks with social impact funds, to lend their support.  

“We’ve created a financial vehicle whereby women living in poverty can get access to water and a toilet and see their expenditures go down, which enables them to work,” said Gary White, CEO, Water.org. “Millions of people pay so much in terms of coping costs, because they lack clean water. They can recover some of that, for example, by no longer spending three hours a day scavenging for water. The cost savings are more than enough to service the loans. They come out much better off.”

Social capital has blossomed in recent years. Some $15bn in impact investments – where investors seek both a social and monetary return – was deployed in 2015, up from $10.6bn in 2014, according to the Global Impact Investing Network (GIIN). Though this still represents a fraction of the estimated $71.4 trillion in assets under management worldwide, impact funds are gaining a broader following. US bank JPMorgan Chase & Co, for example, claims to have committed $68m to impact funds.

“The microloans can draw on capital at the same time that impact investing is really taking off. We see it as a win-win,” White said.

Water.org aims to open the WaterEquity fund to investors in the first quarter of 2017 and raise its first tranche of $5m. The capital will provide reliable and affordable financing for microfinance institutions (MFIs) the nonprofit already works with so they can offer more loans to poor customers.  

The seven-year fund aims to reach 4.6 million people. The lion’s share will go to India with a 45 per cent slice of the capital. Ninety per cent of the fund will finance MFIs that lend to individuals, while 10 per cent will be dedicated to helping water and sanitation businesses scale up.

“MFIs can’t solve the whole problem. There are other enterprises working to meet water and sanitation needs, such as toilet manufacturers,” said White. “The bottleneck for some of these enterprises is capital. This is the frontier slice of the fund.”

WaterEquity will build on a pilot programme the nonprofit launched in 2014. WaterCredit Investment Fund 1 has issued $10.4m - out of its target $11m - in loan capital to date, with funds injected from donors such as the Hilton and Skoll Foundations. The fund targets around a 2 per cent annual return for investors. Water.org estimates the pilot will reach 730,000 people in India in its first round of investments, with interest rates of 10.5-12 per cent.

Since 2003, Water.org says it has offered $14.8m in philanthropic capital to MFIs – its WaterCredit scheme – for water-focused microloans. This funding has helped 4 million people gain access to safe drinking water and sanitation.

White hopes the WaterEquity fund will power up microfinance in the water and sanitation sector, while also boosting the argument for social capital among traditional investors.  

“A lot of people are still getting comfortable with the impact investing concept,” said White. “My hope is that as they see this [fund] unfolding, it will help their internal deliberations to set aside more for social impact investing.”

Water-related diseases affect more than 1.5 billion people and kill nearly 1 million each year. Philanthropy alone cannot meet the needs of the 663 million people globally who use unsafe drinking water, or the 2.4 billion people who don’t have a toilet, according to the World Health Organisation (WHO), which estimates it would cost $200bn a year, for five years, to solve the current water crisis.