Market-based Approaches for Sustainable Rural Water Supply: The Project Maji Model

In the development discourse, water is increasingly being seen as a basic necessity with a price tag. Market-based approaches are deemed the most efficient in rural water provision. Yet low potential for cost recovery hinders private sector involvement. The Project Maji model combines the strengths of entrepreneurship and sustainable development to deliver sustainable access to safe water.

Water is essential for sustenance of life and has been declared a basic human right. On the other hand, it is becoming increasingly scarce, and thus valuable. The question that arises is: Should water be freely available because of its centrality to human existence or should it be regarded as an economic good to be bought and sold in the market? Since the 1990’s the latter approach has dominated the global water space. Proponents of this approach claim that while there is no doubt that access to water is a right, to enable people to exercise this right sustainably, the need to pay for it cannot be denied. Over time, the debate has evolved into a general consensus that there is congruity in viewing water as both: a right and as an economic good that needs to be managed efficiently through the forces of demand and supply.

Hence, in the rural water space, national and international policies encourage market-based approaches via private sector involvement for improved service delivery. However, these policy objectives are yet to be materialized into reality. Community-based management (CBM) remains the dominant framework in practice, particularly in sub-Saharan Africa. Under this approach, capital costs are subsidized by local government while rural communities are responsible for tariff-setting, revenue collection, maintenance, and repairs of a water service. It is being widely scrutinized for its inefficiency and the loss of billions of investment dollars, with more than 330 million people still lacking access to water in rural Sub-Saharan Africa. The question is: why has the private sector not replaced CBM as the dominant service delivery model in the rural water space?

Approximately 47% of rural dwellers in the developing world draw water from dispersed water points – wells, boreholes and handpumps. This includes Sub-Saharan Africa. While private sector involvement is premised on the potential of full cost recovery and high profit margins, dispersed water points rarely allow for sustainable financial returns to recover costs, let alone generate profits. Cost recovery in rural water projects is an important concept, used in a variety of ways that merits elaboration:

Cost Recovery in Rural Water Projects

In general, cost recovery refers to the practice of charging users the full (or nearly full) cost of providing services. On the other hand, full cost recovery means reimbursement to service providers of both recurring and non-recurring costs associated with construction, management, O&M, rehabilitation and expansion of water systems. Costs include, but are not limited to, the costs of community mobilization, planning, design, administration, construction and O&M. Regardless, full cost recovery is deemed an unrealistic goal in rural water provision simply because it is beyond the capacity of rural communities. Subsequently, there has been a shift to towards the concept of “sustainable cost recovery”. This approach recognizes the resource constraints faced by remote rural communities and calls for cost recovery for ongoing service delivery and recurrent O&M costs for sustainable access to water. Capital costs are typically subsidized by a third party i.e. local government or NGOs. Though, even paying for O&M of a water service remains an exception in rural communities and sustainable cost recovery is rarely achieved mainly due to a lack of transparency in collection and storage of repair funds and a general unwillingness to pay among rural communities. This has implications for both, the demand and supply sides in the rural water space. Experts claim that a shift in mindset on both ends is required if market forces are to be harnessed to expand water provision in rural communities.

Shift in mindset required

If universal and sustainable access to water in rural communities is to be achieved, “sustainable community financing” of water services is a pre-requisite. Simply put, this means rural communities need to pay for water – finance the cost of ongoing provision of a water service on an indefinite basis. On the supply-side, the first step is to forego the inaccurate assumption that rural communities are too poor to pay (at least something) for a water service since many people are already paying a high price for sub-standard services. This means resources are available to pay for service delivery, but the way in which the service is managed will determine the willingness to pay among rural consumers. Therefore, the second most important shift is for safe water enterprises to adopt a behavioral approach in trying to understand what determines willingness to pay for a water service, amongst rural communities. Measure, value and deliver what rural consumers value to create and maintain their willingness to pay for sustainability of water solutions. Third, transparent and efficient financial management systems need to be developed and implemented to ensure availability of maintenance funds – so that communities see merit in paying the water tariff, and trust upon the service-provider can be cultivated. Lastly, on the supply side, reliance on third parties via unsustainable subsidies needs to be phased out through profit maximization and/or capital cost reduction. On the demand side, communities need to be consulted and convinced for agreement over a nominal water tariff. Through community sensitization efforts, rural consumers must be made to realize that the promise of free water essentially leads to inadequate and unsustainable water access.

The Project Maji Model

Our model has been developed in response to the challenges currently plaguing the rural water sector. We have combined the strengths of entrepreneurship (market-based approaches) and sustainable development to deliver sustainable access to water to remote rural communities and rural growth centers. Our demand-driven approach that allows for a revenue stream for O&M of each kiosk, transparency in revenue collection through e-payment system, reliability through remote monitoring and high level service delivery as well as investments in R&D to curtail capital investments, reflect our commitment to ensure sustainable access to safe water for rural communities.

That said, it cannot be denied that a positive business case or full cost recovery is yet to be achieved in the rural water space. Experts point to performance-based funding models as the most viable solution. Under this model, service providers are incentivised to maintain high working ratios of a water service, to be able to receive concessionary resources. The Water Services Maintenance Trust Fund in the Kenyan water sector provides evidence that performance-based funding can potentially ensure sustainability of a service. Regardless, this model remains dependent on donor-funding whereas our innovation journey is geared to create a benchmark where a rural water service model operates independent of donor funding.

Community driven

We typically serve rural communities of less than a thousand people, as well as rural growth centers with population ranging between 2500 to 3500 people. Our model is demand-driven, and we see villagers as consumers, willing and able to pay a fair price for water. The price is agreed on by the community through an inclusive consultation process. This modest charge is collected through an automated e-payment system that supports accountability and sustainability of operations. It covers operating expenses, technical support and a reserve fund for long-term repairs. This makes each Maji kiosk self-sustaining after the capital investment is made.

Our work begins when taps open

Aligned with the SDG approach, our work begins once the taps are opened. We are not only implementing the hardware, but also act as the service providers. A robust site-servicing scheme supported by remote monitoring systems, is non-negotiable. The monitoring system allows for our technical teams to monitor the performance of each kiosk on an everyday basis. In addition, we have a trained and qualified technical support team available in all countries of operation, with necessary tools and components on hand to repair any problem. In the unlikely event of an issue, these teams aim to restore kiosk operation within three days.

Ability and willingness to pay

We recognize that willingness to pay for a water service depends not only on the affordability or price but is driven by reliability and service levels as well. We are inspired by a behavioral approach in trying to understand what rural consumers value in terms of water quantity, quality, proximity, and reliability and how do these attributes shape their willingness to pay for a water service. Simply put, by valuing what our consumers value, we can ensure profitability and sustainability of each kiosk. It is, therefore, indispensable for us, to ensure the most reliable and best possible user experience for our consumers.

To begin with, we situate our kiosks in the heart of communities, ensuring the safety of women and girls and saving them precious time and energy to be channelized towards more productive activities. The e-payment system is also a significant addition that eliminates queuing time and fast-tracks access to water. Second, our solar-powered water kiosks have in-built water treatment features that ensure good taste and overall consumer satisfaction. Third, remote monitoring helps us measure our kiosk performance on a real-time basis, vital in ensuring maximum uptime and community reliability on each of our kiosks. All of these service level attributes in turn shape Maji communities’ willingness to pay for our water service, contributing to the sustainability and profitability of our model.

Cracking the rural water business case

Financial sustainability is one of the biggest challenges in rural water economics, yet at the same time the biggest opportunity to reach universal access and meet SDG 6.1. Most supply models aspire to cover operation and maintenance costs through performance-based management, which is a challenge in itself. However, we are aiming even higher and challenge ourselves to truly crack the rural water business model to ensure full cost recovery. Acknowledging that water revenue is limited by low ability-to-pay levels, we focus on reaching economies of scale and bringing the price of the hardware down.

Working with disruptive like-minded experts, we have embarked on a multi-year engineering challenge to prove a financially self-sustaining smart technology water kiosk whereby the revenue can pay back the capital investment. Driven by our innovation ethos, we invest in R&D to significantly reduce the price of key kiosk components. By rethinking and challenging the status quo, we try to unlock repayable development finance. This will then have a ripple effect leading to impact acceleration. As a result, we will open more sustainable taps and transform more lives.