Financial Services and Environmental Health: Household credit for water and sanitation

THE FOCUS OF this paper is on recent experiences with loan finance for the provision of water supply and sanitation. In addition to a review and analysis, a separate section provides a summary of ten examples of projects in which credit has been provided for this purpose. The author begins the report by noting that households often provide themselves with water and sanitation through incremental development as the cost is too great for a single investment and state provision is inadequate. Formal financial institutions have little interest in lending for water and sanitation provision, and a range of development assistance agencies and government organizations have been responsible for innovative programmes and projects. After an introductory chapter, the author describes a situation where much urban development is taking place and identifies some lessons from both rural water supply projects and the provision of urban services to date.

The third chapter considers experiences with innovative new financial institutions established for water and sanitation loans. The author argues that credit should be viewed as a financial service and the operation run with financial efficiency while having broader social objectives. He discusses factors affecting the willingness and capacity to repay loans, and the costs for agencies acting as intermediates in the provision of loan finance. The fourth chapter focuses on possible institutional mechanisms through which credit might be provided, reviewing their advantages and disadvantages. The fifth chapter contains the ten summary case studies and the final chapter contains conclusions