USAID launches resource to address water-credit needs

Microfinance focus, Aug. 21, 2009: The U.S. Agency for International Development (USAID) has launched a new Water Finance website at World Water Week, the international annual conference that brings together more than 2,000 experts, practitioners, decision makers and leaders from around the globe to exchange ideas, foster new thinking and develop solutions.
USAID’s new publicly available resource provides a structured yet flexible approach to help practitioners define appropriate financing interventions for water, sanitation and hygiene (WSH) services.
Director of USAID’s Office of Development Credit, Mr. John Wasielewski, highlighted the importance of this resource to the international development community, stating, “There are many financing options available to water and sanitation programmers, but there is no easy way to explore all these options at the same time. This Web site is a practical resource and one stop shop for exploring various financing options, and will help busy practitioners make good decisions.”
New Web site facilitates the design of blended financing for sustainable WSH services.
National governments, multilateral development banks, foreign donors, microfinance institutions, the local private sector, and WSH service providers themselves are all valuable sources of financing for WSH services. A sustainable financing process must make appropriate use of funds from all these sources. The toolkit will enable users to explore ways of blending these various sources of finance to promote long-term sustainability.
The website helps to analyse how WSH services are currently operating; what current sources of funding for investment in WSH services exist; how financial institutions (from microfinance to capital market institutions) can engage in additional WSH financing; and how the enabling environment of policies and regulations will affect the development of financial sustainability.
“We believe,” said Mr. Wasielewski, “that thoughtful use of this tool will lead to financing solutions that will ensure that even the poorest members of a society have access to safe water.”

SOME FACTS AT A GLANCE

* While estimates vary, somewhere between $15 and $30 billion annually will be required to meet the internationally agreed goals on drinking water and sanitation. Generating these resources will require good planning, sound management, and creative approaches for mobilizing and efficiently using all forms of capital (grants, concessional and commercial debt, private equity, and inter-governmental transfers) for both large-scale and micro-finance grants or loans.

* USAID has launched a Water Finance Web site, located at www.waterfinancesite.org, that will enable water and sanitation programmers to explore various options for financing activities. The toolkit will enable users to decide what types of financing are appropriate for the types of activities they are considering.

* One option USAID programmers can use to support private financing in this sector is a credit guarantee, which is a tool that USAID uses to catalyze existing local capital for investment.

* USAID’s Development Credit Authority (DCA) is a development financing mechanism that guarantees debt investments from private financial institutions and investors with the intent to create sustainable investment channels for water and sanitation in developing countries.

* Through the use of DCA and other resources, USAID catalyzes innovative approaches for providing and blending financial support for the provisioning and management of water and sanitation services from the national to the community level.

* USAID’s Development Credit Authority can leverage private sector resources for investment, for instance, in the following countries:

- Philippines – $62 Million in private financing leveraged

The Philippine Water Revolving Fund (PWRF) is a joint effort under the Clean Water for People Initiative between the United States and Japan to attract private investment in water and sanitation infrastructure. A DCA loan portfolio guarantee for $37.5 million was designed to re-guarantee loans for water investments that are covered by a local guarantor, the Local Government Unit Guarantee Corporation (LGUGC). This guarantee builds on an earlier $24 million re-guarantee with LGUGC initiated in late 1999.

- Kenya – $5 Million in private financing leveraged

In 2008, USAID/Kenya developed a partial credit guarantee designed to increase lending to community-managed small water enterprises in rural communities. This initiative will increase access to water by reducing the collateral requirements of potential borrowers. By working with the Government of Kenya, the World Bank’s Water and Sanitation Program, and Global Partnership on Output-Based Aid, this guarantee will increase the availability of water to those who are underserved by the market and provides a model that can be replicated around the world.

- India – $29 Million in private financing leveraged

In India, two separate DCA guarantees have mobilized a total of $29 million for improved water services in a total of 27 municipalities. USAID guaranteed the issuance of two municipal bonds in India (Tamil Nadu in 2002 and Karnataka in 2003) to raise capital to invest in sanitation and water supply for low-income neighborhoods.

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