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Setting It Up: Financing
What are options for financing service provision?

Options for Financing Service Provision

Excerpted from:
Shelter, Infrastructure, and Services for the Poor in Developing Countries: Some Policy Options. UNCHS (Habitat). (Nairobi: UNCHS (Habitat), 1987) 3-4.

No matter which policy options are selected, new policy alternatives for financing them must also be explored. The alternatives available for financing shelter, services and infrastructure for the poor include:

a. Expansion of the general revenue base for those services or infrastructure which benefit the community as a whole;

b. Earmarking special revenue or funds from specific revenue sources, such as tax surcharges, import duties, fees and fines, amusement or entertainment taxes or lotteries, for housing, infrastructure and services;

c. Adoption of user charges for those services or infrastructure for which there is a direct relationship among the costs of providing services, the amount charged for the services and amount of services received;

d. Application of betterment levies on properties the value of which is enhanced by the provision of new or additional services, the costs of providing the services being recovered by taxing surplus value due to service provision;

e. Adoption of co-financing, an arrangement through which the user participates in providing a service, and thereby reduces the overall cost to a level lower than if the service were provided entirely by the government;

f. Mobilization of government resources (through loan guarantees, creation of secondary mortgage markets, or subsidized credit) for borrowing by individuals or private-sector organizations to provide housing, infrastructure and services;

g. Use of government assets, such as publicly-owned real property, to provide collateral to borrow funds for financing housing, infrastructure or services;

h. Use of indirect subsidies from government to the private sector to provide services or the provision of services such as electricity or water that will stimulate private investment in the development of low-income areas of the city;

i. Exchange of services or labour of beneficiaries in return for the extension of services or infrastructure by the municipal or local government, or the assessment of a charge on neighbourhood residents by the municipal government to extend services into a community;

j. Solicitation of ad hoc contributions and donations or the use of community festivals and lotteries to raise funds for service extension.

Most countries will require a combination of these options to raise the financial resources needed to meet even the basic shelter and services needs of their growing urban populations.

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