KfW Water Symposium 2009 – Financing Sanitation: Main Findings and Recommendations for Development Banks
The KfW Financing Sanitation Symposium took place in October 2009. More than 70 experts from various backgrounds explored the challenges of sanitation and discussed ways to develop improved hygiene, sanitation and wastewater management in low-income countries.
The Symposium led to the formulation of recommendations for development banks in four broad topic areas.
The material in this article was taken from the KfW Water Symposium 2009 – Financing Sanitation Frankfurt, 8-9 October 2009: Main Findings and Recommendations for Development Banks.To View the full text of this symposium please Click Here
Content Table
- KfW Water Symposium 2009 – Financing Sanitation: Main Findings and Recommendations for Development Banks
Sanitation Still Remains a Challenge
Sanitation is one of the most important foundations of health, dignity, and development. According to the 2008 WHO/UNICEF JMP report, the improved sanitation coverage in developing regions was 53%, a long way away from the Millennium Development Goal of 77% by 2015.
This means that two and a half billion people remain without improved sanitation facilities, mostly in sub-Saharan Africa and Southern Asia.
Countries not on track to meet the MDG sanitation target
The International Year of Sanitation
The central objective of the International Year of Sanitation was to sensitise governments and the public towards sanitation. Much has been done in this direction, but one year later it is still difficult to keep sanitation high on the agenda. With the support of the German Ministry for Development and Cooperation and together with the European Investment Bank EIB and the French Development Agency AFD, KfW organised a two day Symposium to specifically address ways in which financing institutions can promote the MDG sanitation target.
Main Findings and Recommendations
A general recommendation was often reiterated concerning the process of project design. Development banks should:
1. address the entire sanitation chain
1. plan for all urban areas including informal housing areas and slums
2. ensure the sustainable operation of all sections of the sanitation chain (long-term effectiveness)
Financing Change in Personal Hygiene Behaviour and Demand Creation for Sanitation
Since the 1990s, initiatives fostering hygiene behaviour change have been increasing. This type of investment aims at changing social norms (e.g. open defecation). Eperience shows that non-health messages are often the most successful in motivating sanitation behaviour change. Improvements in comfort, safety and status have a much greater effect.
Sanitation marketing has proven to be an important complement to demand-creation campaigns. The promotion of hand-washing with soap and support to local traders in marketing a range of locally adapted products are ways to strengthen the supply side of the sanitation market.
The cost-effectiveness of financing change in personal hygiene behaviour and of demand creation for sanitation is an important message that should be emphasised in political dialogue. Promoting hand-washing with soap is particularly cost-effective. According to Cairncross, the intervention costs approximately 1 US$ per capita or 3.35 US$ per disability-adjusted life year (DALY) gained.
Recommendations for development banks
- Invest in solid project preparation - Understand the actual motivations behind the sanitation behaviour of different social groups as well as the bottlenecks for behaviour change.
- Gain professional marketing expertise - Develop tailored campaigns.
- Incentive schemes - The chosen approaches should facilitate people’s participation on the basis of informed choices and help to generate community action plans.
- Create a sanitation market - A sanitation market should be developed for the entire sanitation chain, including pit emptying, the transport and treatment of sludge and its disposal or reuse.
- Form alliances - Important institutions are those operating in health and education. Alliances with private sector operators such as the soap industry, sanitation service suppliers, micro-credit can provide a valuable contribution.
- Monitoring - To make software investment more effective over time, development banks should allocate adequate funding also for the monitoring, evaluation and cost-effectiveness analysis of projects.
Challenges
- Time scale - Behaviour changes take time, so programmes will have to span over long periods of time.
- Investment - National scale campaigns, which are necessary for successful sanitation behaviour change, require investment in human capacity.
- Effective Social Marketing - development banks must ensure that messages are coherent and easily understandable, to maximise their effectiveness.
- Distorting market mechanisms - Market mechanisms will not emerge if some technical solutions are heavily subsidised. Output based aid that allows the customer to choose the preferred technical option and contractor is less likely to distort market mechanisms.
Targeting the Poor with Facilities and Improved Services
Sanitation can provide its full benefits only if the coverage is universal. This means that the poor must be included. There is often a funding gap that prevents the poor from meeting the capital and the recurrent costs of sanitation facilities. Financing mechanisms aimed at closing the funding gap should be chosen according to their potential of targeting the poor in terms of effectiveness, leveraging, sustainability, and scale.
Interventions to reduce the funding gap:
Recommendations for development banks
- Approaches targeting the poor should be formulated as a defined strategy in national policy. Development banks should be active in promoting this process.Lower cost technologies - This should be the priority of any sanitation programme aimed at the poor.
- Good project preparation and monitoring - Development banks should foster city-wide planning of basic-needs-services delivery, identifying critical areas of need and developing action plans.
- Micro-credit - This can increase the poor’s capacity to cover investment costs. A major advantage is that the decision on what investment to carry out is left with the households. Thus, the supply side of the sanitation market is not distorted.
- Partner with micro-financing institutions - Sanitation programmes can partner with MFIs and make full use of their resources.
- Evaluate the financing regimes of borrowers - encourage well targeted, effective and sustainable cross subsidies for poor households to reduce their initial capital investment costs.
By making an effort to understand what constraints poor people face in accessing sanitation, development banks can encourage the formulation of regimes that can go to scale. This should include planning and project design for poor housing areas as well as a reliable downstream management of sewerage and faecal sludge, since poor people are generally the worst affected by deficits in this component.
Challenges
- Operational Costs - The operational costs for on-site systems are often underestimated. Very low initial costs may not be sustainable.
- Transaction Costs - Due to high transaction costs, the interest rate of micro-credit loans is often high and repayment periods are short. Hence micro-credit can reach some poor households without safe sanitation, but it generally cannot reach the poorest households.
Provide and Finance Service to Peri-urban Areas
On-site sanitation might be still adequate in lower-density urban areas and shared facilities might be the only option in very poor and very crowded areas. However, experience from rapidly growing urban areas shows that simplified (condominial) sewer systems and integrated modular (semi-centralised) systems are often a suitable option provided that water supply and land tenure are reliable to a certain extent
In order to implement low cost solutions, often a transformation in the mind-sets of project managers and planning engineers is necessary.
Recommendations for development banks
- Ensure high level in-house knowledge about sanitation - among project managers and engineers
- Facilitate South-South learning - simplified (condominial) sewerage systems coupled with suitable treatment and disposal/reuse systems should be envisaged where appropriate.
- Set adequate standards for project preparation - The standards should be conducive to locally adapted and efficient solutions for the entire sanitation chain.
- Encourage community participation - During the planning and implementation phases of projects.
- Incentives - In order to ensure that households can connect to a working system of simplified sewers, incentives may be required to lower connection costs, e.g. in form of output based aid.
- Monitoring - The evolution of land use rights, the process of slum upgrading and wastewater / sludge treatment and disposal should also be monitored.
- Encourage broad sector dialogue - Support the adjustment of legislation and technical standards in recipient countries.
- Consider Investment - This should also be directed at smaller towns, but particular attention must be devoted to ensure that services are managed professionally.
- Identify viable business models for small emptying service providers - Encourage them to serve areas where services are required. Furthermore they should support utilities in the construction of an adequate number of transfer stations and treatment facilities.
- Investment in public or community toilet blocks - For dense informal urban settlements,
Challenges
- Lack of data - One of the reasons for the limited use of simplified sewerage systems might be the lack of data on its operational costs vis-à-vis those of conventional systems.
- Limited Knowledge - Limited knowledge on how to best reduce and manage operational problems.
- Users must know how to use simplified sewer systems properly - In some societies the necessary community participation is difficult or impossible to obtain. Parallel to this is the problem that decision makers are by nature risk-averse and thus have no incentive to innovate.
- Storm water drainage - Storm water management has great impact on sewerage systems in many areas and thus requires practical and cost-efficient solutions. These include on-site infiltration, rain water retention, preservation of natural drains and separate drainage. The management of storm water drainage should be done in connection with messages raising citizens’ awareness on sanitation and cautioning them not to use it as means of garbage disposal.
The Potential Role of Utilities in Sanitation Provision for Peri-urban Areas and Poor Target Groups
Worldwide, utilities play a major role in service provision and they are the “natural” partners for development banks. They have an interest in selling water. Therefore they should take on the responsibility to ensure that the water they provide is also removed. While some countries have separate mandates for water and sanitation services, most experts agreed that combined service provision is generally more efficient.
Utilities can partner successfully with communities, NGOs and small private service providers in order to improve services to the poor. Regulation and financing mechanisms can incentivise utilities to serve all inhabitants, including the poor. Often, the service to the poor is not fully cost recovering and development banks should be careful not to overburden utilities but preserve their financial viability. Therefore financing mechanisms have to include sustainable funding sources where subsidies or cross-subsidies to the poor are necessary.
Recommendations for development banks
- Encourage utilities to plan - plan for all city areas, including informal housing areas and slums. This planning process should also help to clarify to what extent utilities should provide services beyond the public space and how they cooperate with other actors.
- Utilities should focus on services that they can provide efficiently
- Partner with other actors to foster hygiene awareness and sanitation demand creation.
- Encourage adapted decentralised solutions
- Finance domestic operators of small scale water and sanitation services.
- Invest in support capacity building - Development banks should support a policy dialogue on regulation and foster the transparency and accountability of sector regulation (accounting standards, business plans, milestones, action plans).
- Analysis of benefit flows – this will yield clarity on funding approaches to meet different types of costs. The suggested framework consists of:
– tariffs to cover private benefits (gains in time, comfort, etc.),
– taxes for expenditure
– transfers, if a funding gap still persists.
- Ensure that the distortion of economic decisions is minimised. Among the employed solutions, output based aid for additional house connections in peri-urban areas or trust funds that allocate project specific subsidies among competing single projects are worth mentioning.
- The provision of long-term funding – This is essential where there is no functioning capital market for long term loans. This instrument is still crucial for the investment in public infrastructure.
Challenges
- Groundwater pollution - In dense urban settlements pit latrines invariably lead to groundwater pollution and thus to economic costs for the entire society.
- Direct hardware subsidies - Direct hardware subsidies for on-site facilities may not be very efficient. The demand for highly subsidised facilities cannot be satisfied as long as households hesitate to invest without subsidy.
- Difficult to implement subsidies - Targeted subsidies to the poor are difficult to implement for political reasons: in Lima (Peru) approximately 80 per cent of utilities’ clients are subsidised in some way. This results in public expectation that makes progress in tariff structure reform difficult and slow.
- Timescale - Utilities cannot provide a complete solution to the sanitation shortage. For a comprehensive strategy it is necessary to involve national governments and encourage them to outline long term objectives and implement them.
Resources
The material in this article was taken from the KfW Water Symposium 2009 – Financing Sanitation Frankfurt, 8-9 October 2009: Main Findings and Recommendations for Development Banks.
To View the full text of this symposium please click here
Links
Link to website:
KfW Development Bank:
European Investment Bank:
Agence Francaise de Développement:
Link to Journal Article
Water Intelligence Online © IWA Publishing 2010
KfW Water Symposium 2009 Financing Sanitation
“Improving Hygiene awareness and sanitation” Frankfurt, 8–9 October 2009
