Chapter+8 local+financing+mechanisms
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Local financing mechanisms for water, sanitation, and hygiene (WASH) services are needed to increase coverage, especially for low-income communities. These mechanisms include pooled funds, microcredit, small-town innovations, and enabling policies that support decentralization, capacity building, and participation. Effective financing requires understanding costs, tariffs, billing, and involving actors like utilities, microfinance institutions, and communities to manage funds transparently and sustainably.
Chapter+8 local+financing+mechanisms
- 1. Economic and Financial Instruments for IWRM Local Financing Mechanisms for WASH Services
- 2. Goal and objectives of the session At the end of this session, participants will be: Aware of the importance of, and constraints to, the development of local financing mechanisms for sustainable, pro-poor WASH services Conversant with role of different actors to access local financing mechanisms Able to identify the elements of an enabling environment required for effective financing mechanisms
- 3. Outline presentation Introduction: the big picture on water needs Local Finance Mechanisms for WASH Services Actors for Financing of Local WASH Services Key elements for an enabling environment for increased flows of local finance
- 4. Introduction Local governments, development agencies and communities in different parts of the world are struggling with the issue of decentralisation and cost recovery for public services such water and sanitation. Few countries have realistic policies, operational strategies or plans for cost recovery and sustainable financing for increased service coverage, particularly for the poor. This chapter explores local mechanisms as an innovative solution to be considered.
- 5. Need to increase water coverage (i)
- 6. Need to increase water coverage (ii)
- 7. Need to increase sanitation coverage (i)
- 8. Need to increase sanitation coverage (ii)
- 9. Local Finance Mechanisms for WASH Services The goals of local finance mechanisms in the WASH services sector are to ensure: Sufficient revenue to deliver services in long-term Sufficient revenue to support improved quality of services Sufficient revenue to extend service coverage, particularly to low-income consumers Better use of scarce water resources and management of waste water disposal to conserve the natural environment
- 10. Elements of Local Finance Mechanisms Setting cost recovery targets Analysing ability and willingness to pay Calculating affordability Setting service objectives Calculating the basis for charging Tariff setting Billing and collection Book keeping Financial control and monitoring
- 11. What is meant by “cost recovery” ? Recovery of all costs associated in a water system, programme or service to ensure long-term sustainability. Cost recovery is more than money for capital costs and O&M. It is also about institutional continuity, and strengthening (including capacity building)
- 12. Some actors for Financing of Local WASH Services Funds: Pooled resources and revolving funds. Microfinance institutions for water and sanitation. Small towns and innovative finance. Domestic private sector. Utilities.
- 13. Financing options for Local WASH Services (1) Pooled resources and revolving funds . a revolving fund is a pool of capital created and reserved for specific activities, e.g. latrine construction, water system rehabilitation money borrowed is returned to the fund for reuse in similar activities by other fund contributors.
- 14. Financing options for Local WASH Services (2) Micro-credit is the principle of giving small loans to the very poor to help them generate an income of their own Mainly for financing small individual activities, such as rainwater harvesting, maintenance materials, and help the poor to afford a connection. Financing important capital investments through micro credit is difficult due to the small amount of money and the short term nature of the credit provided.
- 15. Options for local WASH services: micro finance Microfinance means literally that the amount of finance provided is small, and it has been defined as the provision of diverse financial services, including savings and insurances as well as credit, to low-income people microfinance for household connections. micro-project finance for community-led or larger investments
- 16. Small Towns and innovative WASH finance Mechanisms at the Municipal & Utility Level Features of innovation in financing mechanisms at the municipal level
- 17. Innovative WASH Finance in Small Towns How to extend coverage in slum areas and small towns? Features of innovation in financing mechanisms by (poor) users
- 18. Guiding Questions for Finance Mechanisms for Community Managed Systems
- 19. Key elements for an enabling environment for increased flows of local finance Level Element Policy level Political support Institutional & Legal frameworks Regulation Transparent processes and practices Intermediate level Decentralization of fiscal revenues Support for local priority identification through transparent, pro-poor participatory processes Capacity building for good local governance Support for local supply chains & market development Flexibility in technology options and management & financing arrangements Community level User awareness raising on savings, funds management Systems based on social capital, mutual trust & social pressure Collaboration with and support for NGOs, local champions to reach the poorest clients Transparent fund management processes and practices
- 20. Main constraints to innovative local financing Micro level Additional finance is not always the solution Limited outreach Limited product diversification Financial sustainability of MFIs Role & capacity of intermediate level Macro aspects Longer timeframes, combination of supply-side & demand-side approaches New risks require holistic interventions Meso level Long route from approval to disbursement, to impact Making finance more accessible
- 21. Opportunities for local financing Opportunities for leveraging resources Strategic partnerships to develop scalable solutions From charity to business Increased competition Attracting private finance Diversification Development of sanitation supply chains
- 22. Think about it In your country are there examples of microfinance for local WASH services? If not, can you give examples of microfinance schemes, and how they are structured, connected to initiatives in other sectors?
- 23. End Well done! You have gone through the training manual. Just remember a few things: IWRM is a process which requires that we are aware of our fellow beings; and water is life. Everything we do needs our entire responsibility and deep exploration of these two key ideas. 'Water is life' by Alique van Nes