Q&A: CEO of Water.org on bringing water to 5 million people through social impact investing

Devex
By Catherine Cheney

Gary White, CEO of Water.org. Photo by: Jakob Polacsek / World Economic Forum / CC BY-NC-SA

Every year, World Water Day presents an opportunity to raise awareness of what is working, and what more is needed, to provide global access to safe water.

Last week, Devex moderated a conversation with Gary White, CEO of Water.org, and Michele Sullivan, president of the Caterpillar Foundation, which has provided funding to Water.org’s WaterCredit program, at South by Southwest in Austin, Texas.

Here, White talks to Devex about how “social impact investing” could be the solution to bringing sustainable water access to millions. His comments have been edited for length and clarity.

We want to start by asking the question: why water?

For me, it was having this life changing experience when I was studying engineering as an undergraduate, and visited Guatemala City with a group of volunteers. I took a side trip there in the slums, and saw a little girl who was collecting this obviously contaminated water, walking through streets that were filled with sewage.

It just blew me away that this was still happening just a two-hour plane ride from the United States. As I began to research it, I thought: This needs to be addressed, and I might be able to do something about that. It seemed infinitely solvable, and something I could dedicate my life to. And that’s what I’ve done.

I quickly found out there was never going to be enough charity in the world to give water access to everyone. It would take about $200 billion a year in charity over the next five years to get this done. Right now, there are about $8 billion going into all the assistance for water and sanitation.

But there were already hundreds of billions of dollars in the system that poor people were paying for water and sanitation. They were paying in terms of their time. They were paying water vendors who sell water in their slums, because they can’t afford to connect to the utility. They were paying in terms of their health.

So there were over $500 billion a year of what we call “coping costs” in the system [which could be tapped into to solve the problem].

Water.org is the result of a merger between your organization, WaterPartners, and Matt Damon’s H20 Africa Foundation. How did the two of you work together on the WaterCredit idea and how did that lead to the WaterEquity launch?

[Matt and I] took a trip to India almost three years ago. We met a woman in Bangalore, India, who was using about 20 rupees a day to pay for water from these vendors. She was paying another 20 rupees a day so that her family could use a toilet in the slum. 40 rupees a day: Each day that’s about 60 or 70 U.S. cents.

Her problem was that she was locked in this cycle. She couldn’t afford the $200 to connect to the public utility. To her, that’s a small fortune. All she had was 60 or 70 cents a day. So she took out a WaterCredit loan for a water connection to the utility and a toilet. Her combined loan repayments each month was 12,000 rupees [around $180].

So this was a no brainer: The poor can do this, as long as they get access to it at scale. We started talking to our microfinance partners there and saying: “What’s keeping this from scaling even further?”

They told us we needed more consistent access to capital; and more affordable capital — the interest rates were high. So Matt said: “We know people in the U.S. who, if they could invest on this and get a small financial return, and also have a social impact, this would be a no brainer for them. As a matter of fact, I’ll put in the first $1 million.” We started to tap into another kind of collaboration, this concept of social impact investing.

Now we’ve created the first fund of $11 million, and investors came into that. They’ll get a 2 to 3 percent financial return each year over seven years. About 1 million people will get access to water and sanitation.

Later this year, we’ll be democratizing this concept of social impact investing. We’ve actually created a whole separate spin-off entity called WaterEquity. That’s going to spin off from Water.org, focusing solely on social impact investing, and matching that to people who need water and sanitation.

After that initial fund of $11 million, we’re now launching a $50 million fund. With this next round we’re going to allow people to come in at very small levels, as little as $25. So someone can come onto the platform, make a loan which goes into the fund and reaches people with water, and then get their investment back. It probably won’t pay an interest rate because of all the transaction costs. But think about that. You can put your money in for a couple of years, and when you need it you take it back out — but in between someone is getting water and sanitation with that.

The Caterpillar Foundation’s $8.3 million grant to launch your WaterCredit model in Indonesia, the Philippines and Peru was its largest grant to date. You’ve said this high-risk philanthropic capital allowed Water.org to prove the market and pave the way for this social impact investing. Can you expand on that and what you hope our audience of global development professionals takes away from this partnership?

We’ve more than doubled the impact that we signed up for with the Caterpillar Foundation. We’ve driven the philanthropic cost per person reached with water or sanitation down to about $8 per person. A typical philanthropy-led project would be at least $25 to $50 per person.

Catalytic philanthropy is philanthropy you can apply in a way that will help correct market failures, so you can dislodge the market forces to come in afterwards. A lot of times, the system just needs a nudge, as opposed to philanthropy forever.

We see WaterCredit, and the investment that Caterpillar has put in, as catalytic philanthropy because that provides the nudge to get these microfinance institutions to loan. If you look at all the grants that we’ve raised — multi-year grants being paid over time and spent by us over time — we’ve put about $17 million into smart subsidies. That allows microfinance institutions to come online with portfolios for water and sanitation, while before the risk to them was too great and their understanding of the market was too little.

This philanthropy allows them to get comfortable with that. Then that $17 million unleashes $280 million in commercial capital that they source to scale up the loan portfolio.

I would say two things to your audience. One is to invest in areas that seem risky and be willing to open yourself up to potential failure. The other is to scale up those things that are working.

We stayed quiet about WaterCredit for some time, while we were in the proof of concept phase. We wanted to be working in multiple countries before we started advocating more broadly. In fact some people felt like we weren’t collaborators because we weren’t out there all the time, joining this or joining that. First, we wanted to understand if the poor really could be the source of the solution.

We now reach more than 5.3 million people with WaterCredit and 1.25 million people just through the Caterpillar Foundation.

I’m an engineer by training, so I’m much more conservative about not saying we have the solution to save the world when it’s just an idea. But when we got the evidence base, we started reaching out, going to conferences and co-authoring white papers with the World Bank on how we can help them reach poorer populations with water infrastructure.

There’s never going to be enough charity in the world to get all of these problems solved. The key takeaway for this is how do we solve smarter instead of just trying to scale up charity?