Global Development Alliance for Municipal Finance in the Water and Sanitation Sector

Purpose of Initiative:
This Global Development Alliance (GDA) is designed to help foster reforms in developing countries' municipal financing mechanisms to enable improved access to water and sanitation, using approaches that have proved highly effective for municipalities in the United States. In the United States, financial institutions such as U.S. Bond Banks and State Revolving Funds have created several innovative financing mechanisms to improve and/or expand safe water and sanitation services. Two such financing mechanisms are "revolving funds" and "pooled financing," which are explained below. This GDA has created a knowledge-based professional network, the International Association of Local and Regional Development Funds (IADF), to provide expertise to help developing countries strengthen the 80-100 existing revolving funds as well as create the conditions for establishing new revolving funds and pooled financing mechanisms. IADF's long-term objective is to increase local currency financing available for municipal water and sanitation investments.

The two types of innovative financing mechanisms are revolving funds and pooled financing. Revolving funds are special financing bodies that make loans to many borrowers from an initial supply of lending capital, and then use the repayments from those borrowers to make additional loans, thus "revolving" or reusing their capital. Some revolving funds specialize in lending money to local governments to finance infrastructure construction. Revolving funds lend to many different local governments, creating a "pool" of loans, or investments. By lending to multiple municipalities in a pooled structure, the overall security of the investment is enhanced. This method of financing infrastructure is particularly useful in developing countries where investment markets are nascent. Once a revolving fund has made an initial series of loans, the repayments from local governments can become the source of funds for new loans going to other local governments - the initial capital investment can be used over and over again.

Partners:
Governments : The United States of America (U.S. Agency for International Development: Global Development Alliance and Office of Poverty Reduction/ Urban Programs Team)
International Organizations : World Bank and Inter-American Development Bank (IDB); Private Sector : International Association of Local and Regional Development Funds (IADF) and International Private Water Association (IPWA).

Partnership Targets:
To increase financing available for municipal water and sanitation investments by supporting the creation and growth of revolving funds in the developing world. To achieve this goal the Alliance will:

• Educate sub-national and municipal government officials from developing countries on capital financing techniques and the benefits of revolving funds.
• Encourage and facilitate information exchange between the 60 existing developing country revolving funds and U.S. financial institutions, such as State Revolving Funds, state-sponsored Bond Banks, rating agencies and investment banks.
• Develop a global revolving fund best practices guide.
• Develop action plans in two developing countries to increase municipal investments in water and sanitation and establish revolving funds.

Progress Toward Targets:

Education and Information Exchange:
The Alliance has organized a global conference to be held September 30 and October 1, 2004 in Washington D.C. The purpose of the conference is to share lessons learned, best practices and define next steps. Conference participants will include investors, mayors, treasurers, bankers, and managers of public and private sector financial institutions that are involved with local government finance in developing countries dedicated to improving infrastructure financing in cities and towns. Speakers will include prominent figures from multilateral financing institutions, USAID, regional municipal fund managers from around the world, credit rating agencies, bankers, U.S. bond banks, State Revolving Funds (SRFs), and local government financing agencies from around the world. Over 200 attendees from 30 countries are expected to participate. The Alliance will publish a conference report and next steps early in 2005, and post this information to the IADF website. Managed by IADF, the Alliance website provides access to the IADF newsletter, a worldwide database on existing revolving funds, and information on how to contribute to the database.

Best Practices Guide:
Alliance partners are working on a guide of best practices in revolving fund management, assembled from the experiences of fund managers from countries around the world; this guide is expected to be published in late 2004. The global conference will offer those implementing fully functioning funds and those in the process of establishing new ones to share experiences. IADF will compile all presentations of fund experiences, highlights, and "lessons learned" from the conference. IADF will also coordinate the development and publication of a "Revolving Fund Best Practices Guide" for policy makers and fund managers based on the conference's presentations.

Next Steps:
The Alliance identified Indonesia and the Philippines as the focus countries for development of action plans for establishment of revolving funds. Representatives of these countries will travel to Washington in September to attend the IADF Conference, and will work with IPWA, World Bank, U.S. Government, and other experts to create the first draft of an action plan strategy.

Resources:
To date USAID has contributed financial ($185,000) and technical assistance to the development of the Alliance. The IADF is matching USAID funding with at least $224,000 through its diverse fund raising efforts, while the IDB and the World Bank have provided in-kind support.

U.S. Primary Points of Contact:
U. S. Agency for International Development, Bureau of Economic Growth, Agriculture and Trade, Office of Poverty Reduction, Urban Programs Team: Alexandria Panehal, (Phone: (202) 712-0224; Email: apanehal@usaid.gov)

International Association of Local and Regional Development Funds: Steven Thomas, Executive Director (Phone: (202) 966-0587; Email: sthomas@developmentfunds.org)

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