Epanding Financing Mechanisms

Utilities perceive that there is a high risk associated with working and investing in low income communities for the many reasons outlined in the introduction. Linking this with the low creditworthiness of many utilities, the general status of poor viability with deteriorating services elsewhere within the service area of utilities, utilities are unable and unwilling to invest in low income communities. Investment takes place by donors, NGOs, and community organisations with little risk to the utility but often with unclear arrangements for sustainability after construction and sometimes poor construction and management.

The lack of recognition of many informal settlements discourages external financiers and makes formal agreements difficult to reach. The small scale nature of investment by communities and the private sector cannot exploit the economies of scale resulting in relatively higher costs. Higher costs of investment also arise from the poorly developed distribution network which necessitate high connection charges due to the long distances from the network.

The separation of responsibility between authorities for water and for sanitation prevents any cross subsidy or alternative financing arrangements reducing the likelihood of investment finance for sanitation development and operation and maintenance.

How can practitioners overcome the problems of finance for investment?

The broader problems of viability of utilities and the trend towards increased privatisation are dealt with in detail elsewhere (See Case Examples). However there are still significant opportunities to improve management of water and sanitation service delivery within existing institutional structures. Improving the management and viability of services to low income urban communities is an important element to justify, finance and sustain improved coverage. There are a variety of means by which investment in the sector can be increased and they do not all depend upon utility finance.


Increase the investment taking place to extend water and sanitation services to the low income urban poor.

  1. Improve viability of utilities and strengthen their mandate to invest in low income areas. Address the investment risk for example by negotiating with local authorities on the security of the infrastructure and developing payment systems suitable to the circumstances of the customer.
  2. Expand the range of financing mechanisms (funds, taxes, surtaxes, grants)
  3. Credit schemes established for sanitation, perhaps managed independently, linked to sustainable financing mechanism. Finance options may include Government grant funding for household sanitation systems.
  4. Recognise and institutionalise investments made by alternative providers.
  5. Review policies for sanitation to improve collaboration or reform institutions to allow joint management or unify the management.
  6. Establish credit/ subsidy mechanisms for connections, installations, condominial or group extensions of water and sewerage.


  • Model agreements on protection of investment in informal settlements
  • Simple explanation of the various financing options for water and for sanitation.
  • Guide on how to integrate investments of private sector (BOOT)

See also Case Examples: : Funds, financing mechanisms.


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