Better access to safe drinking water and sanitation around the world could prevent the deaths of 297,000 children aged under 5 years from diarrhea each year. Likewise, the risk of infection of other common infectious diseases including cholera, hepatitis A, typhoid, and most recently – the coronavirus, can be reduced by improving access to clean water and sanitation facilities. 

Over a longer horizon, water, sanitation and hygiene (WASH) investments reduce healthcare cost, increase school attendance, and lift labor productivity. Although policymakers are almost universally aware of these benefits, WASH financing is notoriously difficult to get right. Today, water sector investments are still heavily reliant on public-sector funding or international aid in most developing countries, with a focus on funding large infrastructure projects instead of decentralized, smaller-scale solutions.

The billions spent over the past 50 years to meet the United Nations 2030 WASH goals (SGD 6) have improved water and sanitation infrastructure, but the World Bank estimates the world still needs to invest about 1.7 trillion dollars more. In rural China, where drinking water insecurity persists, some innovative projects are mobilizing domestic private-sector financing for community-run water infrastructure rather than relying on aid or traditional lending.

The Business Case for Community-operated Infrastructure

When MyH2O began to introduce drinking water solutions to rural Chinese villages in 2019, we experimented with two financing strategies. The first was bridging corporate and social philanthropy with communities most in need of water solutions. MyH2O has collaborated with the corporate social responsibility departments of multinational engineering companies as well as private philanthropic organizations to fund drinking water facilities in villages and public schools in poorer and drought-prone regions such as Gansu and Hebei.

The other strategy we took was partnering with private sector water technology providers who donate equipment to villages in need, and recoup the initial investment by sharing profits later. Although many Chinese manufacturers in the water treatment sector are keen on exploring the rural market in China, information on specific villages with a true demand for safe water and potential for cost recovery is scarce.

Third-sector organizations like MyH2O can usher in this kind of commercial funding by filling this market intelligence gap and ensure creditworthiness of investments into water kiosks in villages. Specifically, MyH2O field researchers survey villages and tap local knowledge from county officials, gathering information on income level, population, existing clean drinking water sources, as well as unit costs for electricity and piped water. Extensive local participation during scoping helps identify villages that can support and maintain water kiosks to sell water at a fair price.

In the due diligence phase, it is crucial to have a pro-poor focus right from the start. This means getting clarity not just on demand, but also on the extent of maintenance costs that the community would need to bear to keep the water kiosks open at all times. This approach ensures that investments do not end up indebting communities but instead create positive value.

Lessons Learned

In one village in Gansu Province where MyH2O introduced a water kiosk in 2019 as a gift from a water treatment equipment manufacturer, a local clothing store took over operations of the facility. When field researchers went back one year later, the water kiosk was serving clean drinking water to 24 households in the village at a price lower than what consumers previously paid. Moreover, the kiosk was making a profit, with 20 percent paid to the operator and the rest collected by the equipment supplier. The investment proved a triple win for the donor, the operator, and the consumers.

However, as we replicated this model and saw investments multiplying across dozens of villages in three provinces, we discovered the reimbursement model carries certain risks. Firstly, corporate gifts with profit-sharing clauses can carry marketing objectives that conflict with the commercial neutrality required of non-profit organizations like MyH2O, especially in villages where the resulting impact would be unclear. Secondly, it is challenging to select and incentivize a skilled individual operator who can commit to a consistent high quality of maintenance and reporting over the long term.

Imparting the lessons from the village in Gansu into our subsequent water investments, we focused on reaching multi-year agreements with local governments or organizations following the Build – Operate – Transfer model. In these agreements, we procure drinking water equipment with project-specific restricted funds and contract village governance committees or local NGOs as operators. Profits are required to be reinvested in future community infrastructure procurement or staffing costs for facility management, rather than paid out to any individual or corporation as profit. By engaging local organizations as responsible parties, they have “skin in the game” to keep the infrastructure up and running and ideally profitable. To manage the risk of breakage and abandonment, MyH2O has a mandatory work plan for the monitoring and reporting of use, operation, and financial data for all water facilities that MyH2O has helped install.

Since 2020, MyH2O has catalyzed investment into three new water kiosks that are serving more than  40 percent of their respective village population, providing 40-80 liters of clean water to each user every month. The investments are also generating more than a thousand yuan (approximately $150) in monthly revenue that goes directly into improving local water and road infrastructure.

In MyH2O’s experience, the Chinese villages that benefited the most were those where infrastructure investment was accompanied by education and community resource mobilization. In our first village in Gansu, where we installed the water kiosk without other inputs, the facility managed to make a profit, but only 4.5 percent of village households were regular users of the kiosk one year after its installation. In contrast, in a village in Hebei, we carried out deeper pre-investment engagement such as online water and hygiene classes before installing a kiosk in December 2020. Three months later the adoption rate has been much higher, serving 87.6 percent of households.

An Eye on Scaling Up

Community-managed water infrastructure is not new to rural China. However, innovative modalities for funding and partnership are required to draw investments to poverty-stricken areas.

The power of one organization is limited, but in the process of finessing its approach to bridging philanthropy with investments in drinking water solutions in rural China, MyH2O hopes to promulgate a sustainable and replicable model of investing in community-managed drinking water infrastructure with more NGOs, policymakers, and practitioners.