Our globe is under constant duress from water problems, with one in nine people lacking access to safe water and about 30,000 deaths arising every week from diseases due to unsafe water and lack of sanitation. Furthermore, the Asia Pacific region has the lowest per capita water availability in the world, with rapid population growth, accelerating economic development, unstable governance, and external shocks such as the recent Nepal Earthquake all exacerbating already challenging circumstances.

Given the complexity and scale of such stresses and shocks on water, the traditional state and philanthropy-based approaches have proven to be insufficient by themselves. The continued prevalence of water-related problems necessitates the intervention of the market as a creative engine for confronting and overcoming the water challenge.

The good news is that, in spite of the scale of this problem, we are seeing a rise of innovative market-based approaches that are filling in the gaps to providing clean and affordable water access to all. Such solution are coming from the rise of inclusive Social Enterprise (SE). While more capital-intensive approaches (e.g. R&D and infrastructure) demand large-scale government intervention, there is great scope for SEs in the production and distribution of innovative, cost-effective technologies.

Among the many SEs that IIX has worked with, Nazava stands out as a successful case that targets specific segments of the water value chain. Nazava markets and distributes affordable household water filters to low-income (less than US$7 per day) rural and urban households in Indonesia. The general Indonesian population is under constant stress from a lack of drinkable water, as most water for household use is contaminated. The resulting waterborne diseases result in over 27,000 children death and over 8 million stunts each year. To address this problem, Nazava assembles and distributes water filters that do not require electricity and that provide safe and affordable drinking water. The filter is made of Ceramic and Anti-microbial Silver which, when combined, kills 99.99% of the bacteria. Nazava water filters dramatically reduce the cost of safe drinking water to US$15 per year, which is about 1/3 to 1/9 of what an average Indonesian spends on water. To date, Nazava has provided over 100,000 people with access to safe drinking water, reduced 5,135 tons of CO2 emissions and increased disposable income by US$1.3 million.

Nazava’s case underlines two crucial roles that SEs can take in addressing stresses in the water system. Firstly, SEs can effectively fill the gap in the value chain that governments and NGOs may struggle to fill. Nazava, in producing and distributing its water filters, is successfully scaling up far quicker than NGOs can with a filter product called Ceramic Pot. This is due to local NGO’s limited distribution channels and purchasing power, and lack of ambition to scale. Second, SEs can identify and address problems that may be overlooked by the government. For example, the Indonesian government’s actions, guided by UN Millennium Development Goals (MDGs), focus on outputs – the number of people that have access to an improved source of drinking water – and not outcomes. Nazava realized that the quality and costs of drinking water are often overlooked and therefore set its mission to provide “affordable and safe” drinking water. Thus, Nazava demonstrates that SEs can operate not only as businesses in the water value chain but also as a strategic partner that can complement the government’s area of focus.

Alongside SEs such as Nazava, innovative financial instruments also complement efforts to mitigate the water crisis brought about by stresses in the system. For example, the Asian Development Board (ADB) has come up with the Water Operational Plan 2011-2020, through which it aims to expand wastewater management and reuse, and knowledge and capacity development. Since its inception in 2010, the ADB has raised more than US$1 billion in water bonds, the issue of which was arranged and distributed by Daiwa Securities Co. Ltd. to Japanese retail and institutional investors, under Daiwa’s Impact Investment initiative. With increased financing channels, additional funds can thus be channeled toward water projects in developing countries whose governments often do not have enough money. It therefore follows that projects such as those pertaining to water sanitation, irrigation and drainage, and river basin management, can be (and have been) undertaken in greater number and scope across Asia with the advent of such instruments.

Against an inevitably burgeoning water demand, it is imperative that a community’s resilience toward stresses and shocks in the water supply be built up through the construction of robust infrastructure to enlarge water supply capacities. However, the investment needed to achieve this is too high to be financed by the public sector alone. Given the present demand-supply gap of water, effective public-private sector partnerships will need to be formed, and private finance, and private management and technological expertise scaled up significantly.

Fortunately, we are witnessing a surge in private sector participation via innovative social enterprises and institutions that are issuing instruments aimed at overcoming water challenges. Through the issue of instruments such as the aforementioned water bonds, private investors are also given the opportunity to be directly involved in solving the water crisis, and to contribute to poverty reduction through their investment. As long as the need for creative water solutions persists, the investment appeal of SEs and financial instruments that effectively address the water challenge will continue to grow.

By Chris Jeon and Chloe Chua
Corporate finance, IIX