Danida (2007). Financing mechanisms for peri-urban, small towns and rural water supply. (Technical Advisory Services. Good practice paper). Copenhagen, Denmark, Danida, Ministry of Foreign Affairs. 30 p.
This good practice paper reviews experiences and current trends in sector financing. It provides recommendations on different options on specific financing and subsidy mechanisms to be used by Danida in the delivery of water supply (WS) infrastructure in peri-urban, small towns and rural areas.
The paper beings by presenting a number of key issues and challenges in the delivery of infrastructure for WS in peri-urban, small towns and rural areas, which are directly or indirectly related to the choice of a financing mechanism. This is followed by a review of selected donor policies and strategies in the use of financing mechanisms for WS, with examples of Danida’s use of financing mechanisms. The lessons from piloting new financing mechanisms are highlighted and selected promising new financing approaches – public-private partnerships (PPP), output based aid (OBA) and microfinance – are presented in more detail. Finally, the paper provides an assessment of how alternative financing mechanisms could be incorporated into budget support as an emerging aid modality as well as into existing sector programmes.
This good practice paper has been prepared for the Technical Advisory Service (BFT) by the Danish Water Forum through a team of consultants from COWI, with inputs from the Danish Embassies in Bangladesh, Benin, Burkina Faso, Ghana, Kenya, Niger, Uganda, Vietnam and Zambia.