Tapping into Global Finance to Expand Access to Clean Water

From climate crises such as flooding and drought, to nature-based solutions for storm-risk management, academics, scientists, and policy experts are among the 16,000 people expected to virtually attend World Water Week, in an effort to tackle issues of ever-increasing urgency. 

“Wake up calls are now loud and clear,” Gilles Kleitz, AFD’s Director of the Department of Ecological Transitions and Natural Resources, will say in his opening remarks on Friday. “Our responsibility as water and nature practitioners is to find a way to drive fundamental change.”

A number of developing countries are far from fulfilling Sustainable Development Goal 6: ensuring access to water and sanitation for all. Although 1.8 billion people have gained access to basic drinking water services since the year 2000, some 2.2 billion people around the world still lack safe and easily accessible drinking water services, according to a 2019 report by UNICEF and the World Health Organization.

A possible solution in waiting: blended finance

A major hurdle to further headway is a paucity of financing, exacerbated by the global climate crisis and the Covid pandemic. At Friday's session, AFD’s Project Team Leader, Clément Frenoux will press for a more innovative approach to finance, to help in the delivery of water and sanitation services. 

“Blended finance can create new markets and opportunities,” he says. 

Blended finance is a mix of different forms of capital, mobilized for development projects, typically in developing countries. They can bridge the financing gap where funds are wanting, particularly in water-related sectors. Not least in countries like Morocco and Cambodia, where prohibitively high interest rates have prevented small businesses from scaling up entrepreneurial activities to extend access to potable water and improve sanitation. 

The benefits of affordable loans can…trickle down 

In 2014, AFD teamed up with the European Union to improve access to water and electricity in Cambodia. 

“At the time when we appraised the project, access to water and electricity was really low in rural areas: just 30-60 per cent, depending on zones for water,” says Anne Chapalain, AFD’s former Country Director in Cambodia. 

Along with EU grants for technical assistance, AFD issued a line of credit for more than USD 15 million to the Foreign Trade Bank of Cambodia (FTB). The FTB could then in turn extend more affordable loans to small and medium-scale suppliers. 

“The loan from FTB has enabled me to build a water treatment facility that takes water from the river to produce drinking water and to extend the pipe network to other villages,” says small water company owner, Sio Leanseang. “The interest rate is low, and I know I can pay it back.”

Unrivalled financial heft

By 2019, 47 small suppliers of water and electricity in 18 provinces gained access to financing, which allowed them to pass on the benefits. Some 40,000 households now have access to improved water services. 

“Before, I got water from the well but it was far from home, and it was hard to carry back,” says Hoeun Morn, who is in her 70s. “Now, there’s a faucet nearby, and I have no problem getting to it. I’m happy, because I have access to clean water, and it helps me remain in good health.”

If innovative approaches like blended financing are the answer, few institutions are better placed to deliver it than Public Development Banks. With their total financing representing an estimated 10% of global investments, PDBs have unrivalled financial heft.   

Untapped resources – that can be scaled up

A new study commissioned by AFD indicates however, that they are underused in the water sector. Though they are active in Europe, PDBs could step in to channel financial assistance at scale in developing countries, particularly for the building, maintenance and rehabilitation of infrastructure. 

PDBs are able to provide a variety of financing services at better terms and conditions than commercial banks, particularly to utilities and local governments. They can also provide services for project preparation and technical support.

“Public financial institutions have proven they can be a catalyst for the financing of water and sanitation investments,” says Gilles Kleitz. “That’s why we decided to launch a Water Finance Coalition, to explore this potential.” Though still in its infancy, the Coalition could help turn the tide, and make clean water more accessible.

With more than two billion people standing to benefit worldwide, the stakes could hardly be higher.