WELL - Resource Centre Network for Water, Sanitation and Environmental Health

This Briefing Note supports the delivery of pro-poor water and sanitation interventions through viable, innovative financing mechanisms, and strategies to promote these at regional and national level.

Briefing Note Source Material: Maxwell Agbenorheri, TREND and Catarina Fonesca, IRC

Until the 1990s, the water and sanitation sector in Ghana was under public sector management. Deteriorating sector performance has led to a series of reforms, including restructuring, private sector involvement and community management. This new policy orientation, however, is problematic for the poorest and most vulnerable communities which are required to finance the full cost of operation and maintenance (O&M) of their systems.

There are instances in which subsidies have been given in very poor communities and in those suffering guinea worm and burulli ulcer. However, the real challenge is to increase funds available at community level to sustain the level of continuous financing of operation and maintenance. Locally managed micro-financing systems have been suggested as a possible solution to this and as the potential means by which to move the poor permanently out of poverty.

Although microfinance in Ghana is relatively undeveloped, economic reform and financial liberalisation policies now offer increased possibilities for microfinance institutions and products which have the potential to reach the poorest.

Informal financing mechanisms for operation and maintenance in Upper East Region

The women of Zorkor-Kanga in the deprived Bongo district have successfully developed a Susu scheme, an indigenous financial model to pool resources to maintain their water systems. The Susu consists of the collection of regular fixed sums of money from groups of villagers. A loan is then given to one person at a time, until each member of the group is served. About 400 women are involved and 140 homes benefit.

Beginning in 1999, mobilisation of funds has increased using income from ventures such as land preparation, planting, harvesting and housing construction. Beneficiary groups have joint responsibility to pay back the loan with a flat interest rate at the end of the agreed period. In areas of intense poverty, low interest rates are set to entice women to borrow higher amounts to undertake productive activities. By 2004, US$112 was mobilized representing huge savings by one of the poorest communities in the country, enabling the water systems to run continuously throughout the year. Full loan repayments are recorded for each loan cycle.

Pooled resources and revolving funds for capital cost and operation and maintenance

The Association of Water and Sanitation Development Boards (AWSDBs) was established in 1995 in a CIDA-funded rehabilitation project involving 14 communities. A minimum deposit was required for O&M, except from the poorest communities, representing 5% of project capital costs. The communities formed a private association to save the deposit which was then transferred to the watsan sector agency (CWSA). Accumulation of funds has since grown and 22 more communities have joined.

A key strategy for the mobilization of deposits was to establish a reserve fund which is put into short term high return investments. The interest represents a large capital base for member boards in each district for their watsan activities. Credit provision began in 2001 with monies given to 20 water boards for major replacement works. No interest was charged on loans until 1994. Loans granted to member boards have varied from of ¢2m ($220) to ¢50m ($6.000), with an average of ¢14m ($1.555).

The AWSDB's have now begun to ensure profitability by charging commercial rates. However, a low rate of loan recovery (32%) and continuous withdrawal is depleting reserves available for investment and for operational expenses. Low investment means low returns, reducing its ability to support member boards.

GRET, an international NGO, has a Rural Infrastructure Fund (RIF) with a public development bank. This provides medium term loans to local commercial banks to finance investors of piped water systems, providing a guarantee (30%) in case of default. The private sector has installed ten water systems (representing coverage of up to 85%), connecting households with water meters with bills paid monthly.

District Local Governments in South West Uganda devised an innovative method of financing their rural water supply schemes through a user fee payable with the collection of normal taxes, which are means tested, with exemptions for the poorest. Funds are collected centrally at the sub-country office, and audited to minimise mis-use. This scheme is not viable in areas of poor graduated tax collection returns, and is susceptible to possible abolition as a vote winning measure during political campaigns.

CREPA, a regional NGO, acts as intermediary between the water company and households. The connection fee is initially paid by CREPA, but then recouped. This is possible due to savings made by households who formerly paid informal water providers. The advantages of this scheme are that it encourages the savings capacity of women, provides illegal water vendors with alternative employment as bill collectors, and raises awareness about water wastage and consumption by children.

60,000 women's self help groups have been set up in the past eight years under a government programme. A contribution of 25% is required for new water supply systems, added to a government grant. The schemes depend on a local 'champion' in the neighbourhood, with the community providing the labour. Payment is by water tariff depending on usage, the revenue from which is used for O&M. Most self-help groups have also set up micro credit schemes, charging interest at around 12%, for income generation and health related expenses. The repayment rate is high at 95%.

Background Report containing full details of all the materials used in support of this Briefing Note

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