Watershed Management Projects and Microfinance comparative experiences
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Is the inclusion of a microfinance component in Watershed Management projects useful or do project-specific microfinance components lead to higher default rates?
Experiences
UNDP examples
UNDP Community Water Initiative
Inspired by the success of other UNDP programmes, such as the GEF Small Grants Programme, the Local Initiative Facility for Urban Environment (LIFE), and Africa 2000, the Community Water Initiative functions as a decentralized, demand-driven funding mechanism for sustainable community-based water and sanitation development and management. The Initiative operates closely with the existing UNDP small grant mechanisms and includes their proven effective features. Grants to a maximum amount of US $20,000 are made available per community to implement projects under the following criteria: demonstrable innovative approaches; focus on strong involvement of community; providing reliable, sustainable management systems and affordable services; demonstrable improvement of livelihoods; low cost, appropriate technologies; demonstrable gender mainstreaming approach; long-term sustainability. As a result of the Community Water Initiative, communities have set their own priorities and developed their own projects, thereby demonstrating the potential for scaling-up.
UNDP Community Water Initative and the Factsheet provide more information.
Contact [email protected]
Guatemala - Potable Water System Enlargement for Tzucubal
Deficient infrastructure, lack of municipal support, population pressure, and deforestation meant the indigenous community of Tzucubal suffered from inadequate water supply. The Guatemalan Red Cross, with funds from the Spanish Red Cross, responded by initiating a project to provide equipment for a new water conduction system. In 2004 with a grant of $30,775, UNDP’s CWI provided the additional resources that were required to build community capacities to manage the new water supply system, including the creation of a Community Water Committee and 10 workshops on community health and hygiene. Monthly monitoring and evaluation of the activities were also included in the project.
Kenya - rainwater harvesting for Needy Communities
Rainfall in the Makueni district is erratic, insufficient, and unreliable, and in recent years water resources have been affected by prolonged dry spells. The lower-lying divisions, including Nguu, have been the most seriously affected. The aim of this UNDP CWI project – implemented in partnership with the German Agro Association – was to improve access to water through rainwater harvesting and storage in three Nguu communities: Vololo, Nthungui, and Mwingati. In 2005-6 the US $7,040 project oversaw the installation of infrastructure and provided the capacity building necessary to establish a rainwater harvesting program with solid water management practices. Community members contributed labour and raw materials, including sand, ballast, and stones.
Tanzania - Community Water Scheme in Lufumbu, Ludewa
In 1993, Lufumbu village implemented a gravity water supply project through support from Africa 2000 Network. However, increased population and establishment of new settlements subsequently mean expansion of the project to widen water supply coverage is necessary. The village relies on agriculture and villagers live on less that a US $1 per day. UNDP’s CWI partnered with the local communities in order to enable project expansion. In 2004-5, the CWI grant of $20,090 enabled the Lufumbu Village Council to expand and consolidate the water supply scheme by establishing an additional intake and storage tank, expanding distribution mains and facilitating public training in health and sanitation.
Other country experiences
Costa Rica - Environmental Services Payments Programme (ESPP)
The ESPP is a financial mechanism implemented by the government of Costa Rica to compensate owners of forests and forest plantations for the environmental services that these provide, which directly contribute to the protection and improvement of the environment. The programme is implemented by the National Forest Finance Fund (FONAFIFO). Environmental services included are: GHG mitigation; protection of water for urban, rural or hydroelectric purposes; protection of biodiversity for conservation and for sustainable, scientific and pharmaceutical purposes; research and genetic improvement; the protection of ecosystems and life forms; and natural scenic beauty for tourism and scientific purposes.
India - The Watershed Agricultural project, Churgaon Village
Catholic Relief Services staff, their partners and the villagers of Churgaon have designed and implemented a successful watershed project, including the establishment of a savings group which provides small loans to jump-start new businesses. Though primarily an agricultural project, CRS intentionally added gender and Microfinance components to: increase participation in the project; enlarge the project's outreach; promote unity and collective action; promote self-sufficiency and self-reliance within the community. The project worked to conserve soil moisture, control soil erosion, protect forests and provide the best use of surface water for planting. As a result, farmers in Churgaon are producing more crops than before, women spend less time collecting water and firewood, children are healthier and are able to go to school, and soil erosion has decreased, the forests are being replanted with young trees and fishponds provide increased revenue for the village. Under the CRS model, before a watershed project is approved, there is a pre-watershed period where the community demonstrates its ability for collective action, either through savings and credit (S&C) group formation or through other activities that require the entire community. Only then is approval given for a full-scale watershed development project. After approval is granted, a watershed committee composed of both men and women from the community is established and becomes responsible for much of the project oversight.
Somalia - Community Based Natural Reource Management in the Dur-Dur Watershed, Awdal region
This comprised a comprehensive watershed management scheme providing financial and technical support in an area where many farming communities were displaced during the civil war. Carried out by the NGO German Agro Action (Deutsche Welthungerhilfe) and funded by the EU (€1.875, 2003-2006), the initiative involved support to soil erosion and watershed development, and wadi as well as oasis agriculture in mountain areas, women’s training, and funding of small rural enterprises. Investments are building on and scaling up past and ongoing activities using proven and new technologies based applied to wadi and oasis agriculture, enabling recovery in both rain-fed and irrigated oasis agriculture.
Vietnam - Participatory Wastershed Management in Hoanh Bo District, Quang Ninh Province
An FAO-Government of Belgium watershed management project with a microfinance component. The project aimed to support the development of participatory planning and integrated watershed management by focusing on productive resources management in selected pilot areas. Of the project’s five key components, one was a microfinance component, which introduced two complementary mechanisms: community-based saving and credit schemes (S&C) and a Guarantee Fund facility. For more information see: Microfinance in Vietnam: Three Case Studies (2002) which includes a description and evaluation of the project. It concludes that while it is possible to design good microfinance schemes in Vietnam at present, their future viability depends on the evolution of a legal framework for the microfinance organizations and the development of the financial system in the country.
Guidelines for the design of Savings and Credit (S&C) components within projects
- Should be a strong justification for including a credit component in a development project.
- The financial services component should be handled by a financial institution or suitable local organisation.
- Realistic interest rates must be adopted.
- Full-time technical assistance is required during the initial start-up phase. S & C schemes demand long-term commitment and a solid starting basis.
If these conditions cannot be met, whether to include a financial services component in a project should be seriously reconsidered
Main Lessons
- Theoretically, microfinance initiatives are a useful entry point for income generation; facilitating community organisation; women's empowerment; promoting transparency and accountability in public decision-making; and could promote a more sustainable approach to solving the problems associated with watershed management.
- However, realistically, utilising microfinance mechanisms to support watershed management projects is not particularly widespread or common. More often microfinance tools are used to support small service providers i.e. of potable water and sanitation.
- Available examples suggest watershed management activities may be more effectively supported through targeted subsidies such as payments for ecosystems services or grant funds provided through community grant programmes, or alternatively a project implementation fund.
- Microfinance must be context-specific. It depends on the demands of the clientele, the cash-flow of the communities' income-generating activities, together with the supply and demand of financial products in the region.
Further useful resources, websites and contacts
Publications and Papers
World Resources 2005 - The Wealth of the Poor: Managing Ecosystems to Fight Poverty The report contains in-depth analysis of environmental-poverty linkages and case studies of innovative community-based initiatives, including watershed management.
Websites
UNCDF Microfinance UNCDF works in micro-finance in least developed countries. This website offers information on UNDP's new microfinance Policy, on-line training and other materials.
Microfinance Gateway is a comprehensive online resource.
FINCA International pioneered the village banking method of microcredit, which gives the decision-making power of who may borrow, how much, and for what purpose to the 10-50 neighbours who come together to form the village banking group, giving autonomy to the participants. The website provides links to a growing body of literature on what makes microfinance successful.
The Consultative Group to Assist the Poor (CGAP) - a consortium of 28 leading agencies who support microfinance programming.
The Rural Finance Learning Centre is a new information gateway poviding access to information and materials for organisations providing microfinance and other financial services in rural areas.
Recommended contacts
John Tucker, Microfinance Advisor, UNCDF, New York
Joan Hall, Microfinance specialist, Green Microfinance, LLC, United States.
Source(s)
This article is based on the Consolidated Reply to the query (by UNDP Lesotho) on Watershed management projects and Microfinance which was sent over the UNDP listserve in September 2006.
