Private Finance for Community Infrastructure
Presentation at the Global Convention on Agenda for Urban Infrastructure Reforms
October 21, 2002, at New Delhi
Meera Mehta Water and Sanitation Program, Africa
Structure of Presentation
• • • • • Why Private Finance? Context of Government Programs Dynamics of Community-based Finance Formal Finance Institutions An Approach Paper for the Government of India
2
Scope of Community Infrastructure
• For civic services such as:
– Water, sanitation, access and streets, streetlights, solid waste, toilets, house connections, landscape, local education and health, etc. – For network services connections to local authority systems
• Rural and urban areas • Through households, community-based organizations or small private service providers
3
Nature of Private Finance
• Private finance for community infrastructure includes: • Finance from community based finance systems
– SHGs, NGO-CBFIs, MFIs
• Finance from formal commercial finance institutions
– Direct to communities or households – Through CBFIs / MFIs / SHGs
4
Need for Private Finance
• Emerging resource gaps in public funding as we move to scale in achieving development goals for civic services • Greater community ownership through enhanced cost-sharing • Rigour in project development and implementation with participation of MFIs and formal FIs
5
Context of Government Programs
• Dominant role of government through a large number of programs by the Government of India and state governments • General recognition of the need to move from supply driven to demand driven programs • Urban poverty alleviation programs have focused on development of women based community structures among the poor and low-income communities
6
Issues in Government Programs -1
• Unsustainable finance rules for community cost sharing:
– Lack fiscal consistency at scale – Credit links often not viable with mandatory credit provision by public FIs – Cost-sharing rules not linked to affordability or WTP – High level of subsidies poses risks in convergence with private finance
7
Issues in Government Programs -2
• Quality of community organization
– Lack of congruence between community groups (NHG/NHC/CDS) and self-help groups (SHGs)
• Issues in flow of funds and disbursements • Slum upgrading:
– many successful examples at settlement level – Problems of city-wide scaling up - multi-year funding, local management capacity and issues related to land tenure 8
Community based Finance Systems -1
• Three emerging models relevant for community infrastructure:
– Mainstream micro-finance institutions – recent growth in numbers and consolidation – Self-help groups – significant growth in numbers with the Bank linkage program – NGO- Community development finance institution – greater link to development activities
9
Community based Finance Systems -2
• Most systems focused on retail lending to members / households:
– relevant for household facilities or for household contributions or entrepreneurs – No history for lending to CBOs
• Lack of local community / NGO /MFI capacity for development of viable community level infrastructure projects
10
Formal Finance Institutions - 1
• Several finance institutions, banks and housing finance companies have been involved with micro-finance, shelter finance for the poor and low income groups, but very limited community infrastructure • “Crowding Out” of formal finance institutions through high level of government / donor subsidies
– Need for „financing space‟ for formal FIs
11
Formal Finance Institutions - 2
• High transaction costs in exploring opportunities and development of initial sub-projects • Possible need to mitigate or provide for policy and political risks that may affect project viability • Lack of credit history with CBO as a borrower
12
Illustrative Examples -1
• Community facilities through CBOs:
– convergence with govt. programs – SPMS (tank projects), SPARC (community toilets), member borrowing from SHGs for community contribution in RWSS schemes in Kerala – Without govt. programs – HDFC and Dhan Foundation for services in urban slums – Citywide slum upgradation –
• SPARC with Citibank in Mumbai under slum redevelopment scheme • SEWA Bank under the Ahmedabad municipal Corporation's Parivartan Progarm
13
Illustrative Examples - 2
• Household facilities with community-wide Improvements:
– Credit for household latrines under the WaterAid activities in Trichy, Tamilnadu – SEWA Bank, Mahila Milan and several other CBFIs lending for household level facilities – Loans by HDFC through IASC for household toilets
• Small Service Providers ???
14
Strategic Directions for Support -1
• Key Issues: – In community projects, key concerns are ability to develop „commercially viable‟ projects and capacity building for CBO management – High transaction costs for all actors involved for exploring opportunities/ project development
• For household facilities, emphasis needed on demand promotion (sanitation, individual connections) • Lack of familiarity with potential borrowers for community infrastructure • Lack of benchmarks for sub-projects
– Sector policies not geared to „space for private finance‟ and small private providers
15
Strategic Directions for Support -2
• Community Support facility:
– Technical assistance for sub-project development – Capacity building support to community groups / small private providers – Benchmarking for project preparation
• Market development:
– Policy analysis and advocacy – Enhancing information about opportunities and risks – Risk management and partial risk guarantees?
16
Approach Paper for GOI
• Objective
– to outline strategic options for private finance for community infrastructure for the poor and low income communities
• Approach
– Review of government programs, MF/CBFI development and role of FIs – Analysis of potential opportunities – Identification of Strategic options and policy
17
Thank You
Please send your feedback to mmehta@worldbank.org
18