Ugandan banks urged to tap Shs2.6 trillion WASH lending market

KAMPALA — Uganda’s banking sector is overlooking a potential Shs2.6 trillion ($725 million) lending market in sanitation, despite evidence that borrowers repay sanitation loans at rates comparable to, or better than, many traditional credit products.

This emerged during the Multi-Stakeholder Dialogue on Water, Sanitation and Hygiene (WASH) Financing held in Kampala on Thursday, where government officials, bankers and development partners called for greater private sector investment to bridge the country’s sanitation financing gap.

The meeting heard that only about 15 percent of Uganda’s estimated sanitation credit market is currently being served, leaving millions of households and businesses without access to affordable financing for sanitation facilities.

Uganda Bankers’ Association (UBA) Executive Director Wilbrod Owor said the challenge is no longer a lack of demand but limited participation by financial institutions.

“Sanitation is no longer just a public health issue or a charitable cause. It is a $725 million bankable market opportunity in Uganda waiting to be unlocked,” Mr Owor said.

According to a Sanitation Credit Market Assessment conducted by the Uganda Bankers’ Association and Water For People, formal lending to the water, sanitation and hygiene (WASH) sector stands at about $56 million, representing less than one-fifth of the potential market.

The assessment also found that sanitation loans have recorded repayment rates of between 94.5 percent and 99 percent, suggesting the sector presents lower credit risk than many lenders assume.

“More than 68 percent of underserved households want improved sanitation facilities, while over 76 percent of local enterprises are ready to provide sanitation products and services. The missing link is affordable, tailored and risk-mitigated financing,” Mr Owor said.

The findings challenge long-held perceptions that sanitation projects are too risky for commercial lending, with sector players arguing that the biggest obstacle lies within financial institutions themselves.

Presenting the programme roadmap, Uganda Bankers’ Association Senior Research Officer Ronald Ochen said the country’s sanitation financing gap stems more from supply-side constraints than from weak demand.

“Sanitation financing is constrained less by demand and more by gaps within the financial sector,” Mr Ochen said.

He cited low awareness among lenders, limited institutional capacity to design sanitation loan products, inadequate credit risk assessment tools and weak coordination between financial institutions and WASH stakeholders as the main barriers preventing banks from expanding lending to the sector.

The dialogue was organised by the Uganda Bankers’ Association in partnership with the Ministry of Water and Environment and Water For People.

Speaking on behalf of the Ministry of Water and Environment, Commissioner for Water Resources Planning and Regulation Dr Callist Tindimugaya said achieving universal access to safe water and sanitation would require stronger collaboration between government, financial institutions and the private sector.

He said mobilising private capital would be essential if Uganda is to meet its national development targets while reducing the burden on public financing.

To address the financing gap, the partners announced plans to roll out an Environmental, Social and Governance (ESG) and WASH capacity-building programme targeting financial institutions.

The initiative will also strengthen sanitation credit risk assessment frameworks and establish a coordination platform bringing together government agencies, banks, development partners and WASH service providers.

Sector players said expanding lending to sanitation aligns with Uganda’s Agro-industrialisation, Tourism, Minerals, and Science, Technology and Innovation (ATMS) Growth Strategy, which seeks to increase private sector credit to 50 percent of GDP as the country works towards becoming a $500 billion economy by 2040.

They argued that unlocking financing for underserved sectors such as sanitation would not only improve public health outcomes but also create new business opportunities for banks and stimulate private sector growth.