Innovative Financing Mechanisms for the Water Sector
This report examines innovative financing mechanisms that can help attract new financial resources into water and sanitation services. A particular focus is placed on mobilising market-based repayable financing (such as loans, bonds and equity) as a way of bridging the financial gap to meet the Millennium Development Goals and other crucial sector objectives.
It examines how innovative financing mechanisms, such as micro-finance, Output-Based Aid, guarantees, pooled financing or sub-sovereign lending can increase flows of repayable finance to the sector. A key related recommendation is to build establish institutions at the national level that could channel funds (both public and private) into the sector in order to finance relatively small projects rather than focus on a few landmark transactions at the international level.
Finally, the report examines the impact on the ongoing financial crisis on flows of finance to the sector. Assuming sector reforms are conducted in parallel, the financial crisis could prove an opportunity to develop the water sector into a low-risk, low-return sector that could attract long-term investments looking for safe and socially-responsible returns.