The COVID-19 pandemic has highlighted the crucial role of water and sanitation in safeguarding human security. The pandemic has also brought to the fore the lack of access to water and sanitation for a vast majority of the world’s population—more than 2 billion people still lack access to safe water. To achieve universal access to water and sanitation by 2030, capital investments of $114 billion per year will be required (as per 2016 World Bank estimates): this is about three times current investment levels. Bridging this financing gap will require mobilization of resources from the private sector and others. Presently, water and sanitation utilities do not have adequate access to credit and capital to expand and improve their services. Moreover, water utilities are under additional financial pressure as a result of revenue losses and rising costs due to COVID-19. Accessing the necessary financing will also allow utilities to invest in sustainable, climate-resilient water and sanitation infrastructure.
Through its Water, Sanitation and Hygiene Finance (WASH-FIN) program, USAID has been helping expand access to finance for water service providers (WSPs). In Kenya, the program is helping WSPs access commercial financing through capacity building in the form of business planning, which will help increase their creditworthiness. When approaching commercial lenders, Kenyan WSPs are often impeded by their lack of business planning experience. To successfully apply for commercial financing, WSPs need to present to potential lenders projects that have been fully designed and packaged in a manner that makes it easier for the lender to assess both their technical and financial viability. USAID has demonstrated considerable success in Kenya in helping WSPs with their business planning. The WASH-FIN program supported the national regulator, Water Services Regulatory Board (WASREB), in updating its business planning guideline for WSPs as part of a more comprehensive approach to institutionalize business plans. The updated business planning guideline focuses on improving internal processes to create new efficiencies, increasing credibility of providers with financiers, and improving performance. The WASH-FIN program supported the launch and rollout to providers and helped train WSPs to use the guideline to produce short-term business plans incorporating growth projections and other relevant changes in the operating environment. The program’s assistance with updating the business planning guideline contributed to WASREB’s ability to more uniformly support and monitor WSPs. Two WSPs have successfully used the guideline to prepare their first-ever business plans since it was revised in 2019.
As part of the business planning process, the WASH-FIN program is helping Kenyan WSPs demonstrate improved creditworthiness to lenders. Creditworthiness is a measure of how risky a business is as a borrower, i.e., it reflects a company’s ability to pay back its debt. Lenders use these data to determine how much they are willing to lend. A strong business plan demonstrates creditworthiness to lenders by giving them an accurate picture of the utility’s financial health and the ability to pay back what they borrow. For the WSPs to conclude any financial transaction with a commercial lender, they must have the ability to take on and repay loans as well as sufficient debt capacity. Debt capacity measures the amount that a business can feasibly borrow and pay back within a specified time period. The WASH-FIN program provides customized debt capacity assessments that allow WSPs to gauge how much they should borrow to grow their business.
Addressing the creditworthiness of WSPs is only one-half of the solution to help increase investments in Kenya’s WASH sector. The WASH-FIN Kenya program is also sharing information with commercial banks that have shown interest in the WASH sector, specifically: creditworthiness in the WASH sector, market opportunities for lending and investing, and how to tap into these opportunities. Eleven banks attended a WASH-FIN and WASREB joint knowledge-sharing event in February 2020. As a result of the program’s support to the sector, to date, $4.2 million has been raised through a combination of commercial loans and grants.
In addition to Kenyan WSPs, USAID’s WASH-FIN program has helped South African municipalities (local government authorities that are responsible for provision of water and sanitation in South Africa) improve their creditworthiness. This experience in South Africa has shown how a lack of creditworthiness among municipalities hampers their ability to obtain financing. In response, the program hosted knowledge-sharing workshops on the credit assessment and ratings process and provided assistance to municipalities to improve creditworthiness. The program also supported credit assessments of 20 municipalities for the development of a municipal infrastructure finance fund focused on secondary cities and smaller metropolitan areas.
USAID is committed to helping water and sanitation utilities access financing so that communities around the world can benefit from access to improved water and sanitation services. As the COVID-19 pandemic has shown, support of WASH utilities is even more critical now, not just to enable them to continue their essential services in the midst of falling revenues and rising costs, but also to help them become more resilient in the face of a changing climate.
By Farah Siddique, USAID WASH-FIN