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Design of Water, Sanitation and Hygiene (WASH) Impact Note

Design of Water, Sanitation and Hygiene (WASH) Impact Note

Overview: Developing World Markets (DWM) was awarded a proof of concept grant in 2018 Q2. DWM will structure and launch a $100 million Water, Sanitation and Hygiene (WASH) Impact Note to on-lend to financial institutions and businesses active in WASH activities worldwide.

The DWM WASH Impact Note aims to support the creation and maintenance of up to one million safe sanitation facilities and clean water outlets - starting with countries that have among the greatest WASH related needs, including India, Indonesia, Bangladesh, Cambodia, Kenya, Namibia, Botswana, Tunisia, and El Salvador.

Unsafe management of fecal waste and wastewater presents a major risk to public health and the environment - about 2.4 billion people globally lack adequate sanitation. Approximately 900 million people do not have access to any facilities and practice open defecation. Across the developing world, over 1 billion people are exposed to contaminated drinking water.

The WASH Impact Note will make 4-year, senior, USD-denominated or fully hedged local currency loans to financial institutions or businesses active in WASH activities in developing countries. Under this structure, all borrowers will be pre-identified and undergo due diligence by DWM, so that investors will have certainty of where and how the proceeds will be used, prior to investing. This approach creates a higher degree of transparency for prospective investors versus a traditional fund structure, where the investment pipeline is often theoretical in nature.

The WASH Impact Note has received strong interest to-date from prospective philanthropic, public and private investors to participate - ranging from major foundations, development finance institutions to pension funds. Convergence’s grant will allow DWM to complete the design work needed to reach financial close including finalizing the borrower pipeline, vehicle structuring and establishment, investor commitments and contracting service providers.

Design question and learning potential for the market: How can investors invest and earn strong financial returns in a sector that is traditionally grant funded?

Most existing WASH interventions in the target countries are based solely on philanthropy, whereas DWM’s blended model is groundbreaking because it crowds in institutional investors who seek risk-adjusted returns in the space. The WASH Impact Note will be unique in its blended approach. The Notes are structured in three tranches (junior, mezzanine and senior) to match the diverse appetite of private, public, and philanthropic investors.