5 Conclusions and lessons learnt

Conclusions

The key principles for addressing financial constraints in the water sector can be distilled to:

• Strong governance environment at national and sub-national levels
• Clear ideas and planning for projects
• A clear understanding of how the project fits within a broader framework of reform
• Increased information and knowledge sharing
• Cooperation amongst different development actors.

There is no single model by which project development or financing facilities should be created or managed. However, they have a strong and direct role to play in pro-poor water sector reform.

The shift from grants and concessional loans to more innovative forms of finance for the water sector carries risks that should be identified and addressed as early as possible. A range of finance mechanisms is required for successful innovative finance to work, including grants, loans, guarantees, seed capital, and bridge financing. This finance should not just be used to create new facilities, but also to scale up successes from existing facilities.

Lessons learnt

• The principles guiding State Revolving Funds in developed countries have been transferred with some success to India, South Africa, the Philippines, and Mexico. Countries need a functioning governance framework for project development or financing facilities to be effective, but the principles are universally applicable.
• Community groups often have ideas for water supply and sanitation solutions that can be scaled up and replicated. Financing facilities can provide finance to support the poor as they take greater control over their own development.
• Funders need to understand that project development can take up to five years, with another five years of learning by doing before an entity can borrow on commercial or near commercial terms.
• New approaches for financing projects often require changes in institutional, regulatory, and legal frameworks and a new mindset. The ability to access finance is interdependent with broader governance frameworks, but blockages can often be cleared during the process of developing or scaling up a project.
• An influx of cheap or free money from development agencies or government bodies, without due diligence or expectations for cost recovery, can reduce momentum towards good mechanisms that stimulate long-term solutions, and foster a continuing cycle of donor dependency. Some development agencies act in their own self-interest, despite globally-agreed objectives to eradicate poverty.

The remainder of the full text TOP (PDF) identifies resources including books and papers, websites, conferences, and training courses, and includes a glossary of acronyms.