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.
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.
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
Small Towns and innovative WASH finance Mechanisms at the Municipal & Utility Level Features of innovation in financing mechanisms at the municipal level
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
Guiding Questions for Finance Mechanisms for Community Managed Systems
Key elements for an enabling environment for increased flows of local finance Level Element Policy level
Institutional & Legal frameworks
Transparent processes and practices
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
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
Main constraints to innovative local financing
Additional finance is not always the solution
Limited product diversification
Financial sustainability of MFIs
Role & capacity of intermediate level
Longer timeframes, combination of supply-side & demand-side approaches
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?