Governments Don't Have to Go it Alone: Leveraging Public Funds to Attract Commercial Finance for Improved Water Services
Publication Date:
Mar 01, 2015
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This brief highlights the roles that governments can play and the mechanisms they can use to attract commercial finance into the water sector. This note also illustrates successful cases where water service providers have accessed commercial financing to expand coverage, often to serve poor areas. The brief summarizes the common constraints to commercial finance in the water sector and offers several financial structuring and risk mitigation strategies to overcome these constraints.
Key findings of this report:
- Governments don’t have to go it alone in expanding water access. If public resources are used strategically, governments can leverage existing budgets into larger pools of financing by attracting commercial lenders to the water sector.
- Governments can play an active role in identifying hurdles and creating solutions. Governments can create a supportive enabling environment and de-risk projects to align the incentives between financial institutions and water service providers.
- The water sector can attract a range of lenders to commercial financing from small individual household loans from micro finance institutions to large infrastructure bonds issued in capital markets.
- Technical assistance is key. Service providers, lenders from small individual household loans from micro finance institutions to large infrastructure bonds issued in capital markets, and governments require assistance to overcome capacity and knowledge constraints in the introductory stage.
- Risk mitigation tools are available. Output-based aid subsidies, partial credit guarantees, and dedicated credit lines are tools that can incentivize commercial lenders and target the poor.
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