This brief highlights the roles that governments can play and the mechanisms they can use to attract commercial finance into the water sector. The brief illustrates successful cases where water service providers accessed commercial financing to expand coverage, often to serve poor areas. Common constraints to commercial finance in the water sector are summarized, as are financial structuring and risk mitigation strategies to overcome these constraints.
- If public resources are used strategically, governments can leverage existing budgets into larger pools of financing by attracting lenders to the water sector.
- Governments can play an active role in identifying hurdles and creating solutions.
- The water sector can attract a range of lenders to commercial financing from small individual household loans from micro finance institutions to large infrastructure bonds issued in capital markets.
- Technical assistance is key.
- Risk mitigation tools, such as output-based aid subsidies, partial credit guarantees, and dedicated credit lines are available.