Sustainable Development Goals – Rural Water Supply Network

Service Delivery Management Models, Good Political and Water Governance for Strong Rural Water Systems (1/3)

Photo: Lumino Containarised Water Project in Kakamega County, Kenya financed on PPP at US$765,000 serving 8,000 Households

Water has a profound bearing on health, human dignity. Inequalities in access to safe rural drinking as an input for economic growth towards alleviating poverty reinforce wider inequalities in opportunities. This blog explores the economic significance of improved water access, its role as a fundamental input for economic growth, and the challenges faced by Kakamega County’s rural water sector.

A Well Governed and Effective Rural Water Sector has Potential to Spur its Economic Growth and Alleviate Poverty Levels

The case for strengthening the Rural Water Sector in Kakamega County, Kenya continues to be solid; across Sub-Saharan Africa, universal access to improved water and basic sanitation could lead to economic gains of 34.7 billion USD per year. The UN calculates a global cost-benefit ratio of 2.0 times more for improved drinking water. Kenya’s development blueprint, Vision 2030, targets a 10% Gross Domestic Product (GDP) growth rate per year from 2012 to 2030. Water plays a fundamental role in enabling this growth as a necessary input for agriculture, manufacturing, blue economy and so on, in fact 78% of jobs globally are dependent on water. Similarly in Kakamega County, Water is an essential resource for economic growth, health and quality of life. Recognizing this, the County Government of Kakamega aims to ensure access to improved water for all by 2030, in line with Sustainable Development Goal six and its current Governor’s Political Manifesto for the year 2022-2027 affirmed and budgeted for in their County Integrated Development Plan 2022-2027; the main planning document guiding Counties development.

Systemic Challenges in Kakamega’s Rural Water Functionality in the year 2012

Overall and nationally, the strategy for Socially Responsible Commercialisation (SRC) as pioneered by the Water Act of 2002 was successful in urban and peri-urban areas in Kenya but the concept dismally realised its potential in the rural areas where service provision areas are small, water coverage, usage and willingness to pay is low. Towards addressing the challenge, the Community Based Management Model was rolled out with an objective of empowering communities towards enhancing sustainability. There are few cases of the success of the model, Kakamega County faced the following challenges:

Rural Water Knowledge Gap: Kenya’s National Water Services Regulatory Board (WASREB) Impact Report 10 indicated that it is ‘not in a position to provide detailed information on rural areas with regards to rural water supply and sanitation coverage’. This information gap made it impossible to respond to key rural water indicators in Kakamega County and undermined assessing whether investments were translated to impact reflected in increased water coverage. This also explained why despite Kakamega County being predominantly rural, water sector investments were skewed towards the urban water sub-sector that had validated data.
Non-Functionality and Weak Management of Rural Water Supplies: A Water Point Mapping (WPM) Report by SNV Kenya in 2012 revealed that 59% of Kakamega water points had no professional manager. Those managed by voluntary Water Management Committees (WMCs) reported non-compliance, unaccountability and lack of skills in managing and operating the water supplies. This was worrying because in case of a breakdown, the water supplies stood a high risk of complete abandonment. Further 60% of residents in rural areas did not pay for water. The lack of consumer focus and incentives for private sector contributed to the inability to attract alternative financing support. The limited funds, when available from NGOs and public authorities, were depleted in maintenance with no or minimal resources available to expand services to un-served areas.
Equity and Inclusion: The WPM exposed a concern about fair budget allocation and distribution of infrastructure in rural areas. The poor purchased unreliable poor-quality water from vendors at higher rates compared to those with household connections. The glaring evidence that some areas had fewer safe water infrastructure was attributed to politics; areas that voted the government of the day had better allocations.

Understanding the importance of a resilient rural water sector in alleviating poverty sets the foundation for exploring innovative approaches and partnerships in the next blog of “Service Delivery Management Models, Good Political and Water Governance for Strong Rural Water Systems.”

About the author:

Euphresia Luseka is a Water Governance Specialist and Co-Lead of RWSN Leave No-One Behind Theme. She is a seasoned Expert with experience in leadership, strategy development, partnerships and management in WASH sector nationally, regionally and internationally. She has specialised in WASH Public Policy, Business Development Support Strategies and Institutional Strengthening of urban and rural WASH Institutions. Euphresia has several publications and research work in her field.

Credits for the Photos: Euphresia Luseka

“Financial Innovations for Rural Water Supply in Low-Resource Settings”Innovation 5: Development Impact Bonds

This blog post is part of a series that summarizes the REAL-Water report, “Financial Innovations for Rural Water Supply in Low-Resource Settings,” which was developed by The Aquaya Institute and REAL-Water consortium members with support from the United States Agency for International Development (USAID). The report specifically focuses on identifying innovative financing mechanisms to tackle the significant challenge of providing safe and sustainable water supply in low-resource rural communities. These communities are characterized by smaller populations, dispersed settlements, and economic disadvantages, which create obstacles for cost recovery and hinder the realization of economies of scale.

Financial innovations have emerged as viable solutions to improve access to water supply services in low-resource settings. The REAL-Water report identifies seven financing or funding concepts that have the potential to address water supply challenges in rural communities:

Village Savings for Water
Digital Financial Services
Water Quality Assurance Funds
Performance-Based Funding
Development Impact Bonds
Standardized Life-Cycle Costing
Blending Public/Private Finance

Understanding Development Impact Bonds

One type of performance-based funding is a development impact bond (DIB), which involves involve a tripartite contract between a service provider, an impact/angel investor (seeking both financial and societal returns), and an outcome sponsor such as a development finance institution or government (Clarke, Chalkidou, and Nemzoff 2019). Moreover, DIB moves some risks from service providers and primary donors to a third-party investor, while rewarding water development outcomes.

For rural water particularly, bond investors would finance a program aimed at achieving a particular outcome or set of outcomes (e.g., extending household water connections), while service providers (e.g., public utility, private company, nongovernmental organization, or partnership) would be responsible for delivery. If and when the outcomes are verified by a third party, then the outcomes funder (e.g., government agency) should repay the social investor. In general, more successful programs give higher returns to investors.

The rationale for involving the impact investor as an intermediary is to plan the arrangement and provide the service provider with the capital required to execute planned activities (Center for Global Development and Social Finance Ltd 2013). DIBs enable development finance to retain a results-based structure without placing all of the risk on service providers themselves; rather, some risk is shifted to the impact investor (USAID and Palladium 2018). Minimizing overall risk requires careful program design, detailed costing of capital requirements and intended outcomes, and selection of a proficient service provider with a good track record of results.

Figure 1: Structure of development impact bond (Source: USAID and Palladium, 2018)

Examples

As of 2018, seven DIBs have focused on improving agricultural, education, employment, and health outcomes for people and communities, with nearly $55 million set aside for project outcome payments. If outcome targets are achieved, private investors receive all of their upfront investment back; if the service provider achieves outcomes above prespecified target levels, investors receive interest (up to 7–15%); or, they may lose money if outcomes are not achieved. DIB case studies confirm design challenges (Belt, Kuleshov, and Minneboo 2017; Oroxom 2018; Convergence, Palladum, and Bartha Centre 2018; Kitzmuller et al. 2018). In particular, managing stakeholders’ different perspectives and priorities on funding and contract structures has proven difficult (Clarke, Chalkidou, and Nemzoff 2019).

A pioneering sanitation DIB used in Cambodia offers lessons on the benefits and challenges specific to WASH services (iDE 2022).

As shown in Figure 11, the institutions involved include:

1. USAID as the outcome funder;

2. The Stone Family Foundation as the impact investor; and

3. iDE as the service provider (an international nongovernmental organization that has operated in Cambodia for many years, facilitating uptake of sanitation services in rural areas).

Figure 2: Cambodia sanitation development impact bond structure (Adapted from iDE 2022)

The Cambodian DIB launched in 2019 and will run through 2023, with a maximum of $9.99 million in outcome-based payments from USAID back to the Stone Family Foundation (iDE 2022). The DIB aims to improve rural community sanitation services, especially for the poor and hard-to-reach groups (e.g., women, children, people with disabilities, and older people) across six provinces in Cambodia. Specifically, villages must achieve open-defecation-free status, as a

means of reducing disease burdens and preventing drinking water contamination. Outcome payments can be claimed in tranches (every 6 months) dependent on local village government reports collated and submitted by iDE. To mitigate risks, the financing structure relies on a

detailed operational model embedding the cost of services (plus risk premiums). This exercise envelops not just “core” activities but also a number of “soft” (i.e., enabling or supporting) activities. Activities in the latter category include capacity building, communications, engagement

with local authorities, and sourcing materials.

After the first 18 months, the program had enabled 750 villages (out of the targeted 1,600) to be declared free of open defecation (Morse 2021). From the service provider’s perspective (iDE), the DIB provides implementation flexibility and removes some of the project governance, design, and management burden, thus conserving costs. This flexibility is particularly important given the focus on harder-to-reach villages, which benefit from testing and innovative approaches that can be fine-tuned as the program rolls out.

Scale of dissemination

No DIBs have yet been trialed for rural water services in low- and middle-income countries. Given varied values and structural limitations of water development finance institutions, they may not hold universal appeal. One (in progress) seeks to address sanitation in Cambodia.

To access further information on financial innovations for rural water supply in low-resource settings, you can download the complete report HERE.

The information provided on this website is not official U.S. government information and does not represent the views or positions of the U.S. Agency for International Development or the U.S. Government.

References:

New Horizons: towards universal water access by 2030 // De nouveaux Horizons: vers l’accès universel à l’eau d’ici à 2030

by Ton Schouten, Chair of RWSN

The world has signed off on the Sustainable Development Goals. Goal 6 is the big water and sanitation goal and includes targets for water services and water resources: universal access to a safe and affordable water supply, but also targets for water quality, water use efficiency, water related eco systems and water resources.

Le monde s’est engagé sur des Objectifs de Développement Durable. L’Objectif 6 est le grand objectif pour l’eau et l’assainissement et inclue des cibles pour les services d’eau et les ressources en eau : accès universel à un approvisionnement en eau potable sûr et accessible financièrement, mais aussi des cibles sur la qualité de l’eau, l’usage efficient de l’eau, les écosystèmes reliés à l’eau et les ressources en eau.

Continue reading “New Horizons: towards universal water access by 2030 // De nouveaux Horizons: vers l’accès universel à l’eau d’ici à 2030”