Who gives a sludge about toilets? Building markets for safe and sustainable sanitation

Social Finance partnered with the Stone Family Foundation, iDE and USAID to design the world’s first Development Impact Bond (DIB) for sanitation. This $10 million impact bond is a groundbreaking initiative that brings safe sanitation to some of the poorest and most vulnerable households in Cambodia.

Over the past decade, iDE has played a pivotal role in the increase of sanitation coverage from 29% to 67% in rural areas of Cambodia. But the challenge remains to further increase coverage to a level that contributes to significant positive health outcomes for communities.

The Cambodia Rural Sanitation DIB is the world’s first for sanitation. Social Finance led the partners from initial design to launch in just nine months,an example of how experience and partnership can move impact bonds forward in a more streamlined way.

The goal of the impact bond is to reach 85% rural sanitation coverage in target areas by 2023, with 1600 villages claiming Open Defecation Free (ODF) status. This will greatly accelerate the Government of Cambodia’s efforts to reach universal sanitation ahead of the 2030 Sustainable Development Goal (SDG) targets.

The importance of access to improved sanitation is increasingly recognised. Yet open defecation remains widely practiced in rural Cambodia where sanitation access is poor — putting whole communities at risk of the spread of diseases and contamination of drinking water. Open defecation also impacts the safety and dignity of all household members — especially women, girls and older people.

To tackle this challenge, the impact bond will fund the scale-up of iDE’s sanitation marketing program, which galvanises local markets to meet demand in a sustainable way. Working on both the supply side (via sanitation entrepreneurs who supply and install modern latrines) and on demand creation (through sales agents who reach out to households), iDE’s approach is different to traditional input-based aid. The approach aims to generate enduring jobs at the local level, ensuring that the market for sanitation products continues after the impact bond ends, linking it to household behaviour change around the use of these products.

But this is not just a numbers game.After an impressive decade of growth in sanitation coverage in rural Cambodia, remaining households in target areas are a tougher nut to crack. The households without modern latrines tend either to be the poorest or the hardest-to-reach. To overcome this challenge, iDE is iterating its business model, trying out different tactics to see what works best. This means that iDE needs more flexibility than a traditional grant — where a program of activities is set out in advance — to allow this testing of new and adaptive approaches.

The Cambodia Rural Sanitation DIB does exactly that — it’s not about how much funding is provided, but how that funding works. Stone Family Foundation will provide the upfront funding — in the form of flexible investment — to give iDE the space it needs to achieve its goal, focusing on outcomes not inputs. This reflects a shift for SFF from grant funder to impact investor, with high social impact and financial return achieved in a mutually beneficial way. This is a great example of leadership from a Foundation to demonstrate that innovative financing can drive progress towards national and global development goals including the SDGs.

And if outcomes are achieved — but only if — then USAID will provide up to $10m in outcomes funding. This emphasis on accountability for results reflects USAID’s desire to support Cambodia on its road to self-reliance.

At Social Finance, we are particularly happy with the process of preparing of the Cambodia Rural Sanitation DIB: it’s been the most rapid development from initial design to launch of any impact bond that Social Finance has led. Throughout, we have sought to build on the learnings and experience from other impact bonds:

• The priorities of all parties have been aligned from the outset, building on the existing deep partnership between iDE and Stone Family Foundation.
• We’ve kept things simple. A single investor and outcomes funder has reduced the contractual complexity significantly, and we’ve used a single payment metric: the number of villages claiming ODF status.
• We’ve also adopted a simple and low-cost approach to evaluating results:data from iDE’s own robust M&E systems is cross-referenced with Government data on villages’ ODF claims.

In the words of our CEO, ​“This has been great example of how focusing on a clear outcome allows different partners to collaborate in a compelling way, playing to organisational strengths to deliver high impact programmes.”

Social Finance is proud to have led the feasibility assessment, design and launch of this ambitious impact bond. We are looking forward to seeing the results come through — and to exploring whether this new type of partnership can accelerate sanitation progress in other countries.