ImpactAlpha, Rome, July 10 –– Catholic Relief Services and the Inter-American Development Bank are creating an investment fund to finance clean, reliable water for underserved communities in El Salvador.
The blended fund, dubbed Azure Source Capital, will finance the improvement and expansion of water delivery systems in the country’s growing urban areas.
Launched with a combined $10 million in equity and debt capital, the architects expect to increase its size to $25 million and to expand efforts around Central America. Catholic Relief and the IADB’s Multilateral Investment Fund have invested, along with high-net-worth and other investors. Total Impact Capital will manage the fund.
The loans, typically around $25,000, will help water utilities make repairs to aging, inefficient infrastructure and build systems to reach new customers.
“These water systems run very inefficiently,” Paul Hicks, director of water and landscape restoration for CRS, told ImpactAlpha at the Third Vatican Impact Investment Conference here. “Sometimes just basic repairs can significantly reduce the loss of water and the cost of pumping water.”
The aim is to fund utilities that serve large towns and small cities, which are experiencing increased demand due to sprawling population growth. Such borrowers tend to be overlooked by other financiers, such as non-governmental organizations that finance projects in big cities, or nonprofits working in more rural areas.
The utilities pay back the loans through increased service charges, income from connection fees paid by new customers, which run around $200, and government subsidies.
To determine if customers would be able and willing to pay more for water, CRS and the IADB launched a pilot project in 2015, with loans provided by local banks. The project proved families who paid around $2 per month for sketchy service would willingly pay more—$5 to $10 per month depending on the family size—to have reliable, clean water. The loans were repaid to the banks, and in 2016, CRS set out to expand the project but needed additional funding to do so, which is where Azure comes in.
CRS partnered with Total Impact Capital, an impact investing firm located in Bethesda, Maryland, to structure the fund. The Catholic organization, just one arm of the Church that has embraced impact investing, is also providing the first tranche of debt.
In recent weeks, protesters have demonstrated in San Salvador against the “privatization” of public water utilities. Lawmakers in the National Assembly have been working on a “Comprehensive Water Law” that critics say would lead to the privatization of drinking water.
The Third Vatican Impact Investment Conference in Rome this week, hosted by CRS and the Dicastery for Promoting Integral Human Development (IHD), brings leaders from the Catholic Church, the investment world, and humanitarian organizations together to discuss concrete ways that capital can be put to use to help the poor around the world.
Editor’s note: This article was updated July 11.