STRENGTHEN WATER SECTOR GOVERNANCE AND FINANCING … · STRENGTHEN WATER SECTOR GOVERNANCE AND...

STRENGTHEN WATER SECTOR GOVERNANCE

AND FINANCING (DR 1)

EVIDENCE GAPS ANALYSIS FOR THE USAID WATER AND

DEVELOPMENT RESEARCH AGENDA

APRIL 8, 2019

This publication was produced for review by the United States Agency for International

Development. It was prepared by Management Systems International, A Tetra Tech Company, for

the E3 Analytics and Evaluation Project.

Evidence Gaps Analysis Report: Development Result 1 i

STRENGTHEN WATER SECTOR

GOVERNANCE AND FINANCING

(DR1)

EVIDENCE GAPS ANALYSIS FOR THE USAID WATER

AND DEVELOPMENT RESEARCH AGENDA

Contracted under AID-OAA-M-13-00017

E3 Analytics and Evaluation Project

DISCLAIMER

The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency

for International Development or the United States Government.

Evidence Gaps Analysis Report: Development Result 1 ii

CONTENTS

Acronyms ...........................................................................................................................iii

Introduction ....................................................................................................................... 1

Scope and Methodology ................................................................................................... 1

Organization of this Report ............................................................................................. 3

Approach 1: Develop and Strengthen Regulatory Frameworks .................................. 4 Support the Development of National Drinking Water Quality Policies,

Standards, and Regulations ................................................................................................................ 5 Training Programs or Professional Development to Enhance Capacity to

Enforce WASH Regulations .............................................................................................................. 6 Support the Development of Sanitation Waste Management Regulations ............................ 9 Improve Tariff-Setting Mechanisms ............................................................................................... 10 Regulation of Informal Water Markets......................................................................................... 12 Summary of Evidence Gaps for Approach 1 ............................................................................... 14

Approach 2: Increase Domestic Public Sector Resource Mobilization for

WASH Investments ........................................................................................................ 17 Lobbying to Increase Government Resource Allocation for WASH: How Much

Should Governments Spend on WASH?...................................................................................... 19 Strengthen Government Capacity to Budget, Allocate, and Track Funds for

WASH and WRM .............................................................................................................................. 20 Summary of Evidence Gaps for Approach 2 ............................................................................... 22

Approach 3: Increase Commercial Finance for WASH Services ............................... 24 Improve Water Utilities’ Access to Commercial Finance ....................................................... 24 Enable Water Utilities to Improve their Creditworthiness .................................................... 25 Technical Assistance for Microfinance.......................................................................................... 27 Structure Blended Finance Products for WASH Investments ................................................ 28 Summary of Evidence Gaps for Approach 3 ............................................................................... 32

Bibliography ..................................................................................................................... 35

Annex A: Statement of Work ........................................................................................ 44

Evidence Gaps Analysis Report: Development Result 1 iii

ACRONYMS

AMCOW African Ministers' Council on Water

BAT Bottleneck Analysis Tool (UNICEF)

DR Development Result

DRM Domestic Resource Mobilization

DTF Devolutionary Trust Fund

E3/W Water Office, Bureau for Economic Growth, Education, and Environment

(USAID)

IDT Institutional Diagnostic Tool (World Bank)

INTAGRAD Integrated Action for Community Development

KPWF Kenya Pooled Water Fund

MFI Microfinance Institution

MSI Management Systems International

NGO Non-Governmental Organization

ODA Official Development Assistance

PER Public Expenditure Review

PPP Public-Private Partnership

SIP Small and Informal Provider

SDG Sustainable Development Goal

SOW Statement of Work

TA Technical Assistance

TrackFin Tracking Financing to WASH

WASH Water, Sanitation, and Hygiene

WHO World Health Organization

WRM Water Resource Management

WSP Water and Sanitation Program (World Bank)

WSPF Water and Sanitation Pooled Fund

WSS Water Supply and Sanitation

UN United Nations

USAID United States Agency for International Development

Evidence Gaps Analysis Report: Development Result 1 1

INTRODUCTION

The Office of Water in USAID’s Bureau for Economic Growth, Education, and Environment (E3/W)

coordinates the Agency’s implementation of the U.S. Global Water Strategy and the USAID Water and

Development Plan. In support of the Plan, E3/W intends to launch a five-year Water and Development

Research Agenda to be implemented alongside USAID’s forthcoming Water and Development

Implementation Plan (2017-2022). The Water and Development Research Agenda will build on

information from USAID’s centrally-funded water and sanitation and other activities to identify and fill

key evidence gaps and support improved water and sanitation programming in the Agency’s high-priority

countries and aligned operating units.

To inform the preparation of the Water and Development Research Agenda, E3/W requested that the

E3 Analytics and Evaluation Project1 (“the Project team” hereafter) examine the sector evidence base to

identify knowledge gaps around key Agency programmatic approaches and technical interventions.

Annex A provides USAID’s statement of work (SOW) for this activity. USAID will use the results from

this activity to inform and prioritize future learning and research efforts in the water, sanitation, and

hygiene (WASH) sector. These evidence gap analyses do not answer specific research questions and are

not systematic literature reviews. Instead, they are intended to provide E3/W with an overview of the

evidence gaps around selected programmatic approaches that are relevant in USAID programming

under the four development results (DRs) of the Water and Development Plan:

• DR1: strengthen water sector governance and financing

• DR2: increase sustainable access to sanitation and hygiene

• DR3: increase sustainable access to safe drinking water

• DR4: enhance sustainability of water resources

This report discusses the evidence gaps around DR 1 – strengthen water sector governance and

financing – and comprises three programmatic approaches and supporting technical interventions that

are described below.

SCOPE AND METHODOLOGY

E3/W broke down each DR into strategic approaches, which are realized through specific interventions

that are relevant to USAID’s mandate and vision pursuant to the 2017 U.S. Global Water Strategy. The

Project team conducted surveys and informal consultations with Agency staff to prioritize what USAID

considers the most prevalent approaches in practice across its global portfolio. Table 1 lists the

approaches and related illustrative technical interventions selected for the DR1 evidence gap analysis.

While this report addresses each of the three prioritized approaches, it does not necessarily identify

evidence gaps directly related to each of the technical interventions listed below.

1 Management Systems International (MSI, A Tetra Tech Company) is the lead implementer of the E3 Analytics and Evaluation

Project, along with team partners Development and Training Services, a Palladium company; and NORC at the University of

Chicago.


TABLE 1: DR1 SELECTED APPROACHES AND ILLUSTRATIVE INTERVENTIONS

DEVELOPMENT RESULT 1:

STRENGTHEN WATER SECTOR GOVERNANCE AND FINANCING

Approaches Illustrative Technical Interventions

1. Strengthen WASH

regulatory

frameworks

Support development of national drinking water quality standards and regulations

Implement training programs, twinning, or other professional development to enhance

professional capability to enforce regulations

Support development of sanitation waste management regulations

Improve tariff setting mechanisms

2. Increase domestic

public-sector

resource

mobilization for

WASH and water

resource

management (WRM)

Advocate for and track pooled financing and/or municipal bonds to support capital

investments in utilities

Strengthen government capacity to budget, allocate, and track (e.g., Tracking Financing

to WASH [TrackFin]) funds for WASH and WRM)

Advocate for and track streamlined (public sector) loan mechanisms providing utilities

with capital improvements and bridge loans

Technical assistance (TA) to assist the establishment of revolving funds and

development impact bonds

3. Increase

commercial

investments in

WASH and WRM

Improve creditworthiness of utilities through building capacity to develop and

implement improvement plans and upgrade business systems in line with overall

corporate planning

TA to assist utilities’ eligibility for independent credit ratings

Establish financing facilities (e.g., blended finance facilities, bonds, other local debt

financing)

Facilitate and promote Development Credit Authority and other loan guarantee

mechanisms to utilities and firms

The Project team’s lead researcher for DR1 conducted a literature review on each approach and

interviewed six sector expert practitioners outside the Agency to identify evidence gaps and potential

research questions. The researcher then developed thematic findings on the gaps and provided related

research questions for E3/W to consider regarding the focus and priorities of the Water and

Development Research Agenda. The criteria for selecting documents for the literature review were:

• Population: Any study of populations regardless of age, sex, or socio-economic status.

However, populations were restricted to those in low- and middle-income countries.

• Interventions: The study assessed the effectiveness of the interventions directly relevant to

one of the selected approaches.

• Types of studies: Priority was given to studies published in peer-reviewed journals, although

grey literature from reputable sources was also included where relevant. Preferred studies

included meta-analysis or systemic reviews of trends in a given subject area, although studies

with a narrower focus that provided specific insight into a relevant approach or intervention

were also considered.

• Language: The study is in English.

• Cutoff year: The study was conducted no earlier than 2010.

Overall, the researcher reviewed more than 120 documents for the 3 DR1 approaches, including

articles, evaluations, website and blog postings, project documents, handbooks, toolkits, doctoral

dissertations, and workshop reports. The end of this report provides a bibliography of these sources,

which included:

• 47 documents on strengthening regulatory frameworks;

• 20 documents on increasing domestic resource mobilization;

• 36 documents on increasing commercial finance; and

• 23 documents of a more general nature on water governance and finance.


The researcher interviewed six key informants (shown in Table 2) who helped identify relevant gaps and

supplement the literature review.

TABLE 2: KEY INFORMANTS INTERVIEWED

Approach Key Informant Title and Affiliation

1. Strengthen WASH regulatory

frameworks

Jose Gomez-Ibanez Professor of Public Policy, Kennedy School of

Government

Yogita Mumssen Senior Infrastructure Economist, World Bank

2. Increase domestic public-

sector resource mobilization for

WASH and WRM

Bill Kingdom Lead Water and Sanitation Specialist, World Bank

Koji Yamanda Chief Representative, Japan International

Cooperation Agency

Richard Watts Senior Analyst, Development Initiatives

3. Increase commercial

investments in WASH and WRM Kevin Bender

Independent development finance consultant to the

World Bank

The discussion of each approach in this report includes the approximate number of documents

referencing and/or supporting the findings discussed under that approach. In addition, the researcher

developed a “gap intensity” score. The gap intensity score uses a 1-5 scale (with 5 being a very intense

gap and 1 being a mildly intense gap) to indicate the number of documents that refer to a particular

evidence gap. The gap intensity value therefore represents the consensus among authors in this

literature review that certain knowledge or evidence is critical and missing (e.g., over 90 percent of the

documents reviewed identify this as a knowledge gap=5; 80-90 percent=4; 70–80 percent=3).

ORGANIZATION OF THIS REPORT

This report is organized in three sections, one per approach. The discussion under each approach (1)

presents key findings from available evidence on that approach and its related interventions, and (2)

identifies key evidence gaps regarding analytic aspects for the related interventions. At the end of each

section, a table itemizes the evidence gaps discussed in that section along with potential research

questions and presents a corresponding “gap intensity” score.


APPROACH 1: DEVELOP AND STRENGTHEN

REGULATORY FRAMEWORKS

WASH regulation has spawned a vast amount of data

and analyses in the last three decades. The researcher

reviewed 47 documents on WASH regulation (as well

as 23 documents on general WASH governance). The

scope of the literature review was defined by the

illustrative technical interventions itemized in Table 1,

including (1) supporting the development of national

drinking water quality standards and regulations, (2)

capacity development to enforce regulations, (3)

supporting the development of sanitation and waste

management regulations, and (4) improving tariff

setting mechanisms. An additional area of relevance to

USAID’s current portfolio, regulation of small and

informal providers (SIPs), is also included. SIPs are

discussed in this report in two separate categories:

first, as part of water quality regulation under the first

technical intervention in this approach, and second, at

the end of the section as a fifth intervention regarding

overall service delivery and how regulation can

alleviate issues affecting this segment of the market.

Regulation in the WASH Sector. There is a rich

body of literature on the structure, form, and function

of regulation in all infrastructure sectors, including

WASH. Since the early 1990s, over 30 countries have

established WASH regulators, and others have

expanded the jurisdiction of existing regulators (e.g.,

energy) to include WASH. Some of the guidance in selecting a design for WASH regulation is clear and

well known: characteristics of independence, clarity and transparency, and fairness are true of regulation

in all sectors. Most of these regulators are responsible for tariff regulation, monitoring operational and

financial performance, and setting incentives for efficient investment.

The macro issue of regulatory design: trade-offs between efficiency and information

asymmetries. An important area in the WASH regulation literature that intersects with all four

technical interventions USAID identified but is not explicitly contained in these four categories (and

therefore not treated in detail here) is the overarching issue of regulatory design. The literature reveals

three main components in regulatory design for water utilities (as in other network industries):

regulatory incentives – the sticks and carrots used to influence other actors’ behavior; regulatory

governance – the institutions and processes involved in regulatory decision-making; and what some

authors call ‘regulatory fit’ – the coherence between regulatory governance and incentives and the

broader organizational, institutional, and political context of the sector concerned (Jensen 2018). The

effectiveness of the regulatory design in meeting policy goals depends on all three components. There

are significant evidence gaps in the specific balance of these three components in various country

contexts. It is useful to know how practitioners and policymakers should balance the need for efficiency

with the reality of imperfect information in specific country contexts. This gap can only be resolved on a

case-by-case basis as each country is different. Even within a cohort of countries with similar

characteristics, knowledge cannot be easily aggregated. Some case studies exist, allowing for broad

GENERAL TRENDS IN WASH

REGULATION LITERATURE

• WASH regulation lags other

infrastructure regulation (e.g.,

telecommunications, transport, energy).

This is likely due to fewer public-private

partnerships (PPPs) and less private-

sector financing in water. This drives the

urgency for sector regulation.

• There is a growing recognition of the

need for improved regulation of public

and private providers/utilities, not only in

the PPP context.

• Within WASH, sanitation regulation lags

water supply regulation.

• Data and analyses of urban water supply

dominate knowledge of WASH regulation,

mainly in the context of PPPs. WASH

regulations to address rural water service

arrangements, informal providers, and

services to the poor are largely neglected.

• Practitioners repeatedly prioritized the

need for an active database on WASH

regulation for 123 developing countries.


generalization. Ultimately, though, practitioners need country-specific information to design or amend

regulatory structures for water supply. This reiterates the need for International Benchmarking

Network for Water and Sanitation Utilities (IBNET)-style active data on WASH regulation, which makes

it easier for policymakers to monitor the effectiveness and governance of WASH regulation.

Support the Development of National Drinking Water Quality Policies,

Standards, and Regulations

Most countries require some level of water treatment and have standards for drinking water quality

provided by utilities. The World Health Organization (WHO) provides detailed scientific standards to

which countries can adhere. What is not known is the extent to which developing countries follow or

neglect these guidelines. The United Nations (UN) publication Compendium of Global Water Regulatory

Frameworks: Which Water for Which Use presents 46 water quality laws and regulations from 22 countries

(Brazil, Morocco, South Africa, and Kenya are the only developing countries in this cohort) and reviews

how these instruments are being used. The Compendium is an overview and analysis of a variety of

water quality guidelines, standards, and regulatory frameworks for different uses and regions. Its

objective is to improve access to information on water quality requirements for different uses, thereby

promoting efficient use and, ultimately, reducing water use conflicts (UN-Water 2015). The literature

reflects three main knowledge areas in which some work has been done but evidence gaps remain.

Knowledge regarding the intersection of law and science of water quality. One area of inquiry

examines how WHO guidelines are incorporated into law and regulation and whether or to what

extent they are being monitored. A recent study (Sharma 2017) addresses how water quality is

conceived in Indian law, regulations, and judicial interpretations, and how the “science” of quality

standards is determined by a consensus between utilities and regulators. What constitutes “safety” as a

regulatory standard that can be legally enforced varies across countries and regions. This landmark study

raises critical questions regarding a citizen’s fundamental right to clean and safe drinking water and

scientific aspects of drinking water regulation. There are no other studies along these lines from

developing countries. A comparable cohort of water quality regulation and differential adoption of

scientific standards and definitions of safety would be valuable for WASH practitioners globally.

Knowledge regarding regulation of drinking water monitoring requirements. The literature

on factors affecting the monitoring of water quality focuses on a range of factors, including leadership

and commitment of individual staff (Marks 2012). A recent study of 26 water suppliers and surveillance

agencies in 6 African countries showed that in weak regulatory environments, individual commitment of

staff and leaders from these organizations can positively affect water quality monitoring performance

(Peletz et al. 2018). The results from this study indicate that complementary strategies for motivating or

incentivizing water supply and surveillance agency managers may strengthen water quality regulations.

This also points toward a more holistic consideration of the multiple conditions that influence water

quality monitoring and “systems building” approaches for developing water quality monitoring

regulations and standards.

Knowledge regarding water quality regulation of informal providers. In developing countries,

SIPs play a vital role in extending water coverage to segments of the population not connected to the

main utility network. However, SIPs are often not officially recognized or regulated and can operate

outside water quality standards, which may pose public health risks. Sporadic references in a range of

studies note that, while a substantial number of people in the developing world depend on informal

providers for potable water and water for other uses, there is inconclusive data on the quality of

drinking water from these informal providers. Recent case studies from Kenya and Ethiopia (Ayalew et

al. 2014) show that the microbiological quality of water samples varies by water source (municipal


supplied water has lower contamination rates than other water sources), but that SIPs do not cause

deterioration in water quality between the point of collection and the point of delivery. Instead, the

most significant water deterioration in water quality occurs during household storage. The core

guidance from the Kenya and Ethiopia case studies – which is strongly supported by practitioners

interviewed – is that governments need to find innovative and cost-effective ways of regulating water

quality of SIPs. Ayalew et al. 2014 propose a two-prong approach to water quality regulation: capacity

building of SIPs to ensure ongoing water quality, and a marketing campaign to ensure demand for clean

potable water. Trémolet and Halpern (2006) propose a flexible approach to service quality to incentivize

service providers to experiment and cut costs while respecting basic quality requirements. However,

there is lack of evidence on effective arrangements for regulating the quality and pricing of SIP water

services.

KEY EVIDENCE GAPS:

SUPPORT THE DEVELOPMENT OF NATIONAL DRINKING WATER QUALITY

POLICIES, STANDARDS, AND REGULATIONS

Integration of WHO guidelines into legal and regulatory frameworks of countries, and

its implementation – the extent to which this is happening, trends, challenges, and what

donors can support. Implementation data is important in regard to levels of compliance as well as

costs. Ideally, once there is data on a majority of developing countries, costs for units/levels of

compliance can be developed and compared across regions and donors can better support

governments based on cost metrics.

Incentives for utilities to meet water quality regulatory requirements and for regulatory

agencies to perform monitoring functions. Consistent data is needed that empirically

correlates incentive factors with utility performance and is measured over time so the knowledge is

not simply anecdotal.

Types of training and capacity development interventions that would optimize

performance of microbial monitoring and water safety in weak regulatory and low

resource environments. As some data exists in this regard (e.g., the Africa study), it may be useful

to test those hypotheses in other regions to identify which interventions are most effective in

microbial monitoring.

“Systems building” approaches to better understand the multiple conditions and

interrelationships that influence the adoption of water quality monitoring regulations

and standards. Multi-country studies are needed to assess enabling factors, local context, and

culturally sensitive conditions that influence the development and implementation of water quality

regulations, policies, and standards.

Effective arrangements for water quality regulation of informal providers that are

tailored to the contextual challenges of managing the informal sector. This area needs

substantial analytic work to identify a menu of options for formalizing informal water suppliers.

Training Programs or Professional Development to Enhance Capacity

to Enforce WASH Regulations

Recent trends in capacity development for enforcement of WASH regulation. Some donors,

especially the World Bank and UNICEF, have been in the forefront of what could be termed the

“enabling environment” approach to institutional development in WASH. Several important publications


on WASH institutions, including WASH regulation, from the World Bank (Mumssen et al. 2018b) and

UNICEF (Tsetse et al. 2016) discuss evidence on WASH regulatory structures. All three guidance

products approach institutional and capacity development for WASH in terms of enabling environment

that needs to be tailored to the legal and regulatory realities of each country. The key takeaways on

structuring TA to improve WASH regulation are:

• Do not overemphasize “best practices,” as there are no one-size-fits-all solutions. There is a shift away

from what were previously thought to be universal “best practices” solutions, in favor of new

approaches that reinforce endogenous drivers for reform (i.e., incentives arising from internal

political processes in the country) and working with governments to design programs that are

rooted in local political and administrative realities and capabilities. The design of formal

institutional interventions should either complement existing informal institutions (where there

are compatible goals) or create an environment that accommodates informal institutions (should

there be conflicting goals).

• Technical solutions alone are unsustainable. For reform measures to persist, it is essential for

positive incentives to be embedded in policy, institutional, and regulatory structures. Although

addressing technical constraints is necessary and can improve sector performance in the short-

to medium-term, achieving sustainable outcomes of water supply and sanitation (WSS) service

delivery in the long run requires policy, institutional, and regulatory interventions that set the

enabling environment to achieve sustainability.

• Individual policy, institutional, and regulatory interventions must be aligned to ensure sustainability, as

misalignment leads to distortion of incentives. Zimbabwe’s WSS sector reforms process, which led

to the formation of the Zimbabwe National Water Authority, was in part fostered by the desire

of professional staff in the Department of Water Affairs to move into a parastatal. As a result,

the Authority assumed multiple and sometimes inherently conflicting roles encompassing

regulatory and operational responsibilities in both WRM and WSS service provision.

• Design and implementation of sustainable institutional reforms require a nuanced understanding of the

local institutional context. Countries adopt ambitious reform programs to win outsiders’ support

in the short term, but these reforms prove to be difficult to fully implement because of capacity

gaps or contradiction with informal institutions. The result is that of isomorphic mimicry, with

policy, institutional, and regulatory arrangements that de jure are well designed, but de facto do

not function.

• Relatedly, appropriate local capacity (human and financial resources) to undertake reforms is required

to avoid gaps between de jure and de facto reforms. Without a sustainable form of human and

financial resources to undertake reforms, gaps between de jure and de facto reforms become

more likely.

• Building inclusive institutions requires an inclusive reform process. An institutional context is

comprised of multiple institutional structures that exist across many domains such as

marketplace, state, corporation, and civil society, and thus continually face multiple institutional

logics. This interinstitutional nature of institutions implies that a coordinated interaction of all

relevant institutional players is key to achieve sustainability of policy, institutional, and regulatory

reforms. Institutional change requires broad engagement. Multiple leaders are required to

facilitate reforms and distributed agents beyond these leaders are also needed to implement

change on the ground.

• Reform is not an event or a linear process, and its success relies on incorporating a high degree of

learning. A reform requires time and planning, and implementers must anticipate a series of

reform initiatives, interspersed by reversals as well as forward movements, but crucially taking

the time to incorporate learning drawing from both success as well as less successful

experiences, within and beyond the country’s region.


Tools to aid the design of WASH institutional and capacity development interventions.

• The Institutional Diagnostic Tool (IDT) has been specifically designed to help World

Bank task teams map and evaluate institutions in the WSS sector in client countries,

isolate problems (to the extent they can be isolated), determine “entry points,” and design

appropriate activities to address the identified institutional challenges. The IDT is available to

sector practitioners on request as a “Beta test version” with the aim to stimulate discussion

among key stakeholders on possible reform approaches and interventions. The IDT is intended

to be tested in a number of countries, with lessons learned being incorporated into future tool

updates. No studies are currently publicly available that have curated learning from the IDT.

• Within the context of UNICEF’s Strategy for WASH (2016-2030), UNICEF’s

WASH enabling environment analysis is based on a theory of change perspective to

enable task teams to assess WASH sectors in each country by grouping WASH sector

governance functions into: (1) sector policy and strategy; (2) institutional arrangements

(covering sector coordination, service delivery arrangements, regulation, and accountability); (3)

planning, monitoring, and review (separately covering sector planning and sector monitoring,

evaluation, and learning); (4) sector budgeting and financing; and (5) sector capacity

development. The core WASH enabling environment functions are aligned with those used in

the revised and improved UNICEF WASH Bottleneck Analysis Tool (BAT).

The IDT, UNICEF’s WASH enabling environment analysis, and the BAT are currently being used

internally. Once a critical mass of work products are accumulated, there will likely be empirical studies

on the effectiveness of these tools and data to design and implement capacity development interventions

for WASH regulations.

Lack of evidence on the effectiveness of regulatory capacity development interventions.

Many development partners are investing significantly in building WASH regulatory capacity. However,

information on the scope and effectiveness of such interventions is not easily available even within an

organization. The World Bank, for instance, has provided TA and capacity support through training and

twinning arrangements in several countries. The description of these interventions is spread across

various project documents and appraisal and completion reports; these would need to be pulled

together and analyzed to show trends in the development of WASH regulatory capacity. There are no

published or available evaluations on these TA activities. What is needed for WASH is a comprehensive

analysis or, at least, a review/stocktaking of WASH regulatory capacity building efforts and their

effectiveness (to the extent they have been or can be evaluated).2

As noted in a recent study (Crocker et al. 2016) on the related topic of community-led total sanitation

management training, “There is a substantive human resource capacity gap in WASH, which will only

widen with population growth and heightened service quality benchmarks and coverage targets

introduced with the [Sustainable Development Goals]. In response, the need for training in WASH will

also increase. The few published training evaluations in WASH tend to lack rigor, and do not draw on

the extensive evidence that exists outside of WASH. […] A growing need for capacity building in

WASH combined with limited prior evaluation presents both a risk of misdirecting investments in

training and an opportunity to influence training for improved outcomes. We suggest that our

conceptual framework can support design of effective programs and more rigorous training evaluation in

WASH.”

2 For the World Bank and WSP, for instance, there are hundreds of WSS projects with regulatory capacity development

embedded within the loans/credits as TA. References may also be in country strategies and other country- or region-level

documents.


KEY EVIDENCE GAPS:

IMPLEMENTING TRAINING PROGRAMS OR OTHER PROFESSIONAL

DEVELOPMENT TO ENHANCE CAPACITY TO ENFORCE REGULATIONS

Effectiveness of donor approaches to capacity development interventions to support

WASH regulation. While there is significant donor activity in capacity development interventions

to support WASH regulation, the bulk of this activity is not evaluated or analyzed in terms of its

impact on WASH regulation. A stocktaking assessment of donor activity by sub-sector (e.g., WSS,

sanitation, WRM) and how donors have evaluated their TA could result in a mixed bag. Various

donors are likely to use different evaluation criteria, thereby making comparison difficult. A separate

effort may be needed to standardize the criteria to compare similar interventions.

Linkage between intervention types and regulatory performance. A critical mass of analytic

work is needed to develop indicators of regulatory performance that are critical to successful WASH

regulation. This would require establishing baselines and measuring periodically. While broad criteria

for good regulatory performance exist, more specific criteria for WASH regulation can be

developed.

Effectiveness of new tools used in the WASH context (e.g., IDT, BAT). Empirical studies

on how these tools are affecting WASH regulation are not publicly available.

Support the Development of Sanitation Waste Management

Regulations

In the WASH literature, sanitation regulation is the most neglected functional area and regulation of the

sanitation function of utilities and other providers is largely missing. One key reason is that the

jurisdiction of sanitation is often shared by several agencies (e.g., health, water, environment) so there is

a fracture in government roles and responsibilities. A recent study using bibliometric analysis reviewed

14,645 pieces of literature between 1992 and 2017 with references to sanitation (extracted from the

Social Sciences Citation Index and Science Citation Index Expanded databases) and sorted them into 20

thematic categories (Zhou et al. 2018). These categories included public health, waste management,

engineering, science and technology, food, environment, and hygiene, but not law and regulation. The

only review of sanitation regulations is from the Stockholm Environmental Institute in 2005;3 the cutoff

for this review is 2010. Thus, there is a lack of literature assessing how to effectively develop or

implement sanitation waste management regulations

Lack of adequate institutional response to sanitation. In many developing countries, the legal and

regulatory parameters for sanitation are found in the Health Act. The actual formulation of sanitation

regulations may have fallen through the cracks in most countries owing to the multiplicity of functional

jurisdictions. A Water Aid (2011) report reached the following conclusions about sanitation regulations

and compliance in developing countries: (1) most developing countries lack agreed minimum standards

for sanitation, and definitions of “safe” and “improved” sanitation are still evolving; (2) explicit policies,

standards, roles, compliance mechanisms, and implementation frameworks are missing for sanitation,

which generally straddles laws and regulations in health, environment, water, and other sectors; and (3)

there is a lack of inter-sectoral coordination toward a holistic sanitation framework.

3 Stockholm Environment Institute. 2005. A Review of Sanitation Regulatory Frameworks.


Need for improved inter-sectoral coordination for sanitation regulation. One possible initial

solution is to develop a stylized template linking the spectrum of sanitation laws and regulations in a

specific country and identifying missing links in policy, implementation, legal parameters, regulation,

accountability, compliance, and coordination.4 This tool should also recommend a coordinated legal and

regulatory framework for sanitation, cross-reference sector laws and regulations (and simplify as

needed) and, most importantly, mandate coordination by outlining roles and actions in each sector

regulation/laws. A demonstration template specific to one country could motivate others to break the

sector regulatory silos to achieve improved sanitation outcomes.

KEY EVIDENCE GAPS: SUPPORT THE DEVELOPMENT OF

SANITATION WASTE MANAGEMENT REGULATIONS

Regulation of sanitation is a neglected area, due largely to the large number of agencies with

overall jurisdiction but unclear distinction of roles and responsibilities.

Establishing minimum standards in sanitation regulation. There is a lack of knowledge on

which countries have what regulatory standards and on global trends. There is a need for a baseline

state of play in regard to sanitation regulations.

Incorporating such standards and arrangements into law and regulation. It is critical to

develop a knowledge base on how countries have (or have not) incorporated sanitation standards

into their legal and regulatory environments. Evidence is also needed on the key constraints and

challenges to implement sanitation regulations, along with data on costs, compliance, and donor

activity.

Inter-sectoral coordination toward a holistic sanitation framework. Data on sanitation

institutional intersectionality is critical – how many agencies are involved, roles, funding, hierarchies,

decision-making issues and challenges, and bottlenecks in implementation. Moreover, a coordination

framework among various agencies to implement, monitor, and sustainably achieve sanitation

standards needs to be developed. Guidance products are needed to advise governments on an

optimal coordination framework for streamlining sanitation regulations and their implementation.

Improve Tariff-Setting Mechanisms

There is abundant literature on tariff methodologies for water utilities. However, it is mostly focused on

PPP contracts, which has likely driven most of the analysis. The decision is between the rate-of-return

method (cost-plus) and the price cap (performance-based) method of setting tariffs. Most developing

countries use the rate-of-return method. The tariff generally covers only operational costs, unlike in

developed countries, where tariffs generally fully reflect capital and operational expenditures. This

evidence gaps analysis focused only on water utilities and did not cover tariffs for rural schemes.

Key lessons learned from developing country experience with tariff setting. The biggest

hurdle to effective tariff setting in developing countries is lack of data. The absence of unit costs and

standardized accounting norms is a key impediment to effective tariff setting. The guidance is to use

4 Two of the 12 OECD Principles of Water Governance speak to this issue. Principle 1 provides that the legal, regulatory, and

institutional frameworks clearly delineate roles and responsibilities of each agency regarding water and sanitation. Principle 3

encourages policy coherence through effective cross-sector coordination, especially between policies for water and the

environment, health, energy, agriculture, industry, spatial planning, and land use. The OECD adopted the Principles of Water

Governance on May 11, 2015.


simple cost-plus methods initially, while providing TA to utilities to gather empirical cost data. If there is

political will, an incremental shift toward price caps can then be considered (Camos and Estache 2017).

Providing incentives to private operators through regulation worked in Burkina Faso, where the water

agency contracted with Veolia, a private operator. The operator’s remuneration was pegged to certain

service and business improvements stipulated in a performance agreement, which was cross-referenced

and tied to the management contract itself. Significant improvements ensued. However, this was

regulation by contract. Regulatory agencies can also provide incentives to utilities with or without an

operator. Another regulatory innovation (not yet published or finalized) comes from Egypt, where the

government is drafting an amendment to the water law to allow for two types of tariffs: economic (cost

reflective) and social, to be supported by a subsidy (Mumssen et al. 2018b). Increasingly, governments

are requiring water utilities to impose cost-reflective tariffs; a trend toward a split between economic

and social tariffs is likely.

Structured guidance on tariff-setting methodologies. There is sufficient evidence and guidance

on water tariff-setting options and outcomes. Key takeaways from a recent World Bank publication on

WASH institutions and regulation (Mumssen et al. 2018b) include:

• WSS regulators in developing countries have typically used the cost-plus method, but some

switched to price-cap or incentive-based methods in the 1990s, only to revert back to simpler

cost-plus approaches to setting WSS tariffs (Camos and Estache 2017).

• Some hybrid methods have also been tried, in which some costs (uncontrollable) are

automatically passed through while others are subject to review because the utility is expected

to control such costs (Camos and Estache 2017). This could be construed as incentive-based

tariff methods as the utility has an incentive to control costs that are not passed through. There

is not enough data globally on how WSS utilities are using such hybrid incentive-based methods.

• Generally, the higher the risk or perception of institutional risk, the more attractive a cost-plus

regime appears (Estache and Wren-Lewis 2009).

• Tariff methodology is also determined by the gaps in the cost information that is available to

regulators who must have both the data and the ability to use regulatory accounting practices

(including valuing the regulatory asset base) needed to compute tariffs and rates of return

required for various scenarios (e.g., basic operations, investments, social concerns).

• Thus, some practitioners argue for a phased approach. The simplest solution is to allow

authorities to buy time to put all the regulatory tools in place (e.g., accounting system, asset

valuation, cost of capital assessment, efficiency measurement methodologies and matching

databases). These are needed to compute a fair average price or subsidy, which can be done

with a modest amount of basic cost accounting data. The approach also reduces the risk of

possible artificial cost inflation to justify higher prices and profit sharing between authorities and

operators (Camos and Estache 2017).

• The key is for regulators to keep an eye on credit worthiness and the ability of utilities to access

some form or degree of commercial finance. The SDG target of universal access will only be

met if utilities can gradually begin to supplement current financing (through transfers, tariffs, and

taxes) with some level of commercial borrowing and decrease reliance on public resources over

time.

Innovative WASH regulation to support the WSS ecosystem. The World Bank works with

water regulators in several countries to support a transition to tariffs that reflect costs to the entire

WASH and WRM ecosystem. For example, in 2016, Peru’s water regulator, in consultation with the

2030 Water Resources Group, enacted a new tariff regulation under which industrial users pay their

share of the operating and capital costs of projects that make available the groundwater they use.

Known as “Compensation Mechanisms for Ecosystem Services,” this innovative tariff is one of the first


of its kind worldwide. Since this is a frontier area of tariff regulation, there are not many examples or

available analysis yet and thus there is an evidence gap on this tariff method.

Need for targeted TA for cost-reflective tariffs. Cost-reflective tariffs are at the center of

sustainable WSS provision in developing countries. No amount of increases in government budgets and

donor assistance can substitute for basic sustainability of water utilities through tariffs and business

efficiency. Countries must move from covering all operational costs to covering capital investments

through tariffs. Governments and donors can ease this transition through targeted subsidies and financial

in-flows, but also through TA in using regulation as a tool for sustainability. As discussed above, specific

guidance in the literature on tariff setting includes supporting efforts to collect unit costs, improving

accounting standards, developing toolkits for tariff methods, promoting legal tariff reform to allow for

social tariffs and requiring utilities to set cost-reflective tariffs, and improving performance and utility

management.

KEY EVIDENCE GAPS: IMPROVE TARIFF-SETTING MECHANISMS

This area is relatively well researched and there exists a solid knowledge base on WASH

utility tariffs, especially in the context of PPP transactions.

Regulation of tariffs for sustainability. Evidence is needed on how WASH utilities can transition

into utilizing tariffs as a tool toward sustainability.

There is an absence of unit costs needed for tariff setting. Data and protocols for water

sector unit costs by region need to be collected at the country level (may be similar in neighboring

countries).

Empirical data on hybrid tariff-setting methods, design, application, and effectiveness.

The extent to which incentive-based tariff methods are being tried in WSS. Not much is known

about hybrid tariff methods where utilities cannot pass on controllable costs to tariffs. This has

worked well in the energy sector and it would be useful to better understand how it can benefit

WASH utilities.

Regulation of Informal Water Markets

While SIPs are highlighted under the water quality regulation section, there are also significant evidence

gaps on the regulation of informal providers more broadly to assist in the realization of the SDGs and

intergeneration equity, which is relevant to USAID’s current portfolio. The literature on regulating

water SIPs is limited and some of it is outdated (i.e., prior to 2010 and not included in this analysis).

Regulation of SIPs is a window into training and support for best practices. There is sufficient

knowledge and guidance on regulatory options to improve SIP services. Once SIPs are regulated, training

and operational support may be useful to improve their delivery and efficiency. Many donors are

interested in providing such support but are currently unable due to the invisibility of SIPs in the supply

chain.

Still, the existing knowledge on regulating SIPs is not insignificant, as detailed in a recent World Bank

publication (Mumssen et al. 2018b) that captures guidance on key regulatory options for SIPs. These

known and unknown evidence categories are discussed below. While practitioners have developed

guidance in this area, there are not enough relevant and recent studies that measure whether and how

effectively this guidance has been applied in dialogue with governments and in designing projects and

operational outcomes.


Regulatory mechanisms used to better serve the poor (specifically the urban poor) include:

• Price and service or quality differentiation: relaxation in quality of services to ease access of the

poorest, coverage targets tied to locations rather than statistics, and use of public information

campaigns (Baker and Trémolet 2000a; Stallard and Ehrhardt 2004).

• Tariffs and subsidies: tariff reform to remove disincentives to serving the poor and better

targeting of subsidies to reach the unconnected poor, including possible focus on connection

subsidies and direct transfers to consumers (Franceys and Gerlach 2008; Trémolet and

Browning 2002).

• Provision of output-based aid: regulation (by contract, agency, or other) could allow for

performance-based instruments to subsidize, for example, the costs of installing

water connections for the poor, a practice used in many countries including Colombia, Kenya,

Morocco, the Philippines, and Uganda. This supports incentive policies while ensuring –

through appropriate financial modeling – sustainability of the interventions.

• Incorporating alternative service providers: light-handed regulation that replaces price and quality

regulation with public performance data (Trémolet and Browning 2002) or demand minimum

requirements such as licensing, drinking water tests and/or maximum prices, relaxing

exclusivity rights of utilities, assisting providers to obtain legal rights, and addressing land

tenure issues.

• Customer and civil society: including the use of participatory and survey techniques to increase

customer involvement, and accessible and inclusive regulatory processes (Brocklehurst 2002;

Stallard and Ehrhardt 2004).

• Service obligations and universal service obligations: the use of obligatory service (compulsory

service to all wishing to connect under the current tariffs) and universal service obligations

(which extends this to promoting socially desirable consumption through tariff control)

(Franceys and Gerlach 2008).

• Regulation of non-networked services: A World Bank study (Sy et al. 2014) showcases

experiences in Bangladesh, Indonesia, Peru, and Tanzania regarding the role of regulation and

access to onsite sanitation as a way to achieve progress towards universal access. Each

country tailored regulation appropriate to specific needs and resources, reiterating that “one-

size-fits-all” best practices are not useful especially in dealing with country- and situation-

specific challenges of regulating SIPs to meet off-grid needs of the unconnected poor.

A good example of pro-poor regulation incorporating alternative service providers can be found in

the institutional changes for pro-poor financing in Zambia. In 2003, Zambia established the

Devolutionary Trust Fund (DTF) to improve WSS coverage in peri-urban and low-income areas,

administered by the National Water Supply and Sanitation Council. The DTF is a basket of three

funds: the General Fund for Water, the General Fund for Sanitation, and the Performance

Enhancement Fund targeting WSS service. DTF’s General Funds target low-cost, high-impact projects

such as water kiosks, water meters, improvements on pipelines, and sewerage pipes. Experience with

DTF has been very positive. It has proven effective in distributing governmental and external funds to

improve the WSS sector in peri-urban Zambia. Source: Mumssen et al. 2018b

Changes in law and regulation to recognize and register SIPs. In most developing countries,

small-scale water services supplied by SIPs are not within the purview of regulatory review. Recent

research shows that bringing SIPs into the fold would allow for regular and random testing that could

dramatically improve quality and services. Governments could subsidize the cost to make it less onerous

on SIPs and less expensive for the government and municipality than investing in expansion of the piped

network. Evidentiary needs here include understanding what it would take to incorporate SIPs into the


country’s WASH regulatory framework. This may, in some cases, include legal and institutional changes.

Also, it is necessary to assess the costs and benefits of regulation and support of SIPs, as well as the

health and human detriment costs resulting from keeping SIPs informal and unregulated.

Severe data deficits in identifying demand of off-grid poor households. Practitioners agree that

the most challenging knowledge deficit in most countries is the lack of reliable baseline data on the

number, consumption, and ability to pay of off-grid households that rely mostly or entirely on SIPs for

drinking water (Camos and Estache 2017). Large donor institutions such as the World Bank are focusing

on supporting systematic data collection through ongoing country measurement tools. This is an area

where donor coordination would be useful. Relatedly, there is little reliable data on SIPs in most

countries. Without data on SIPs, especially in large urban areas, the task of designing regulatory options

often does not get addressed. As noted above, guidance on regulatory options for SIPs exists but has

not often been applied due to the data invisibility of SIPs and informal sector participants.

KEY EVIDENCE GAPS: REGULATION OF INFORMAL WATER MARKETS

Paths to registering informal providers. Lack of evidence regarding the legal and regulatory

changes needed to register and “formalize” SIPs, while also taking into consideration the costs and

economic impact on these SIPs.

Structuring pricing and subsidies for informal markets. Lack of evidence on the types of

delivery systems and pricing of informal WASH providers, as well as the effective arrangements to

regulate informal providers for improved quality and service.

Comprehensive assessment of donor and government efforts to regulate SIPs and

lessons learned. Need a stocktaking of what types of support exist in working with informal water

providers, develop a typology of assistance thus far, and based on that, what the next steps should

be, how to evaluate such programs, and lessons learned.

Summary of Evidence Gaps for Approach 1

Table 3 summarizes the evidence gaps in strengthening WASH regulatory frameworks in regard to the

related technical interventions discussed above and presents potential research questions to address

these gaps. Overall, four categories of evidence gaps emerged:

1) Well-resourced in data and analysis: Tariff-setting methods appear to be the most well-

resourced in terms of evidence and learning. The prospect of private-sector financing drove

governments and donors to fund more research into tariffs, PPP contractual models, and regulation.

Unit costs and accounting requirements remain a challenge at the utility level in many countries.

There is also a gap in evidence and learning regarding hybrid tariff methods that can provide utilities

with incentives to control costs and improve performance.

2) Significant in guidance and learning but missing empirical data on application of the

guidance. There is significant contribution of practitioners on the incorporation of informal water

providers into some type of formalization. However, as a category, these are small, one-off studies

from 2000-2009. Based on the significant guidance, it is not clear how countries have applied the

guidance and the overall impact on WASH regulation.

3) Significant donor action but not curated and publicly available. There has been significant

donor TA (e.g., training, twinning, studies, knowledge exchanges) to develop WASH regulatory

capacity. However, the bulk of this activity is not compiled and analyzed for its overall impact on

WASH regulation. Most World Bank water projects have a TA component, with hundreds of such


activities in a given year. Based on country and sector needs, there may be an analysis undertaken

periodically for reporting purposes. But the literature lacks a comprehensive compilation of WASH

TA and its impact on regulation for one or more donors.

4) Poorly resourced in evidence and data. WASH drinking water quality and sanitation

regulations fall into this least resourced category in WASH regulation, as they have the most severe

evidence gaps and need the greatest attention from donors.

TABLE 3: EVIDENCE GAPS AND POTENTIAL RESEARCH QUESTIONS FOR

STRENGTHENING WASH REGULATORY FRAMEWORKS

Intervention Evidence Gaps Potential Research Questions Gap

Intensity

Support

development

of national

drinking water

quality

standards and

regulations

Incorporation of WHO

guidelines into legal and

regulatory frameworks of

countries, and its implementation

– extent to which this is

happening, trends, challenges, and

what donors can support

What is the current status of drinking water quality

regulations in developing countries? By region? Least-

developed countries? Middle-income countries?

5

How are countries interpreting WHO minimum

quality standards of safety? What constitutes safety as

a regulatory standard that can be legally enforced?

4

Incentives for utilities to meet

water quality regulatory

requirements and for regulatory

agencies to perform monitoring

functions

What are effective approaches for strengthening

and/or improving WASH regulation on minimum

standards of drinking water quality?

4

What are best practice examples of regulations for

monitoring water quality? 3

“Systems building” approaches to

better understand factors that

influence the adoption of water

quality monitoring regulations and

standards

What are examples of successful development and

implementation of water quality regulations and what

enabling factors make this success possible?

4

Effective arrangements for water

quality regulation of informal

providers that are tailored to the

contextual challenges of managing

the informal sector

What are the optimal approaches for regulating

informal water suppliers while maintaining

affordability?

4

Implement

training

programs to

enhance

capacity to

enforce

regulations

Effectiveness of donor

approaches to capacity

development interventions to

support WASH regulation

What types of TA, training, and knowledge support

are being provided to water regulators in developing

countries? What are lessons learned? What tools are

being used/tested by donors to improve WASH

regulation? What are the preliminary results and

learning?

4

Linkage between types of

interventions and regulatory

performance

How are water regulators performing (WASH

regulatory performance data on a set of regulatory

governance indicators) in developing countries? How

can WASH regulators achieve optimal balance

between efficiency and information asymmetry?

5

What legal and regulatory framework enables WASH

regulators to adapt to change and develop capacity? 3

What types of incentives have WASH regulators used

that have been most successful with water utilities? 3


Intervention Evidence Gaps Potential Research Questions Gap

Intensity

Support

development

of sanitation

waste

management

regulations

Minimum standards for

regulation

How are developing countries regulating sanitation

(database of WASH regulations for sanitation –

typology of sanitation regulations based on indicator

clusters)?

5

Incorporating standards and

arrangements into law and

regulation

What are key constraints to effective sanitation

regulation in developing countries? 5

Inter-sectoral coordination

toward a holistic sanitation

framework

What will it take institutionally to regulate sanitation

holistically with coordination across sectors? 4

Improve tariff

setting

mechanisms

Regulation of tariffs for

sustainability

What are emerging trends in WASH tariffs? In public

utilities? What percentage of WASH utilities have 100

percent operating cost recovery? What percentage of

WASH utilities are starting to cover capital costs?

4

Data and protocols for unit costs

in water sector by region

How can WASH regulators help water utilities move

toward cost-reflective tariffs? 3

Empirical data on hybrid tariff

setting methods, design,

application, and effectiveness

What are the trends in hybrid tariff setting in

developing countries where utilities can pass through

some (uncontrollable) costs to consumers but not

others?

3

Support

regulation of

informal

providers

Path to registering informal

providers

What legal and regulatory changes are needed to

register and “formalize” small and independent

providers?

4

Structuring pricing and subsidies

for informal markets

What are the types of delivery systems and pricing of

informal WASH providers across the developing

world?

5

What are emerging and contrasting trends in informal

water delivery (based on a comprehensive dataset)?

How can the informal sector be regulated for

improved quality and service levels?

3

Comprehensive assessment of

donor and government efforts to

regulate SIPs and lessons learned

How have countries tried to regulate SIPs and what is

the learning from the outcomes in the past decade? 4


APPROACH 2: INCREASE DOMESTIC PUBLIC SECTOR

RESOURCE MOBILIZATION FOR WASH INVESTMENTS

Pressure to meet SDG targets has made it more

urgent to mobilize additional public domestic

resources for WASH investments, especially

since government revenues will fall short of

required levels. The researcher reviewed 20

documents (plus 23 documents on general

WASH governance and finance) to assess

knowledge gaps in public domestic resource

mobilization (DRM). Broadly, DRM in the WASH

literature involves (1) optimizing resources

currently allocated to the sector, and (2)

leveraging scarce public resources to attract

private resources into the sector. The scope of

this literature review was defined by the

illustrative technical interventions itemized in

Table 1, but focuses only on strengthening

government capacity to budget, allocate, and

track (e.g., TrackFin) funds for WASH and WRM.

An additional area of relevance to USAID’s

current portfolio, lobbying to increase

government resource allocation for WASH, is

also included.

What constitutes DRM in WASH? The Organization for Economic Co-Operation and

Development defines three basic sources of revenue for water investments: taxes (i.e., government

budget allocated for WASH investments), tariffs (i.e., fees paid by water users), and transfers (i.e.,

overseas development assistance) – the “three Ts.” Sustainability can best be achieved by balancing all

three without over-reliance on any one. Some have suggested a fourth T – transactions that strategically

use transfers and taxes to create pooled portfolios to attract more capital for investment in the sector

(Money 2018a). The literature on WASH finance broadly embraces a variety of knowledge categories:

spending and budgetary allocations, WASH budget tracking, rationalizing expenditures for higher impact,

leveraging public resources through blended finance, pooled finance, microfinance, accessing commercial

finance, and accessing credit and capital markets. A broader WASH finance perspective comprises all

these strategies, as both DRM and commercial investments are part of a spectrum of strategies and

development actions to increase financing in the sector. This literature review did not yield any clear

distinctions between DRM and increasing commercial investments. Unlike WASH regulation, which has

clear technical content and is a settled area of WASH practice, increasing DRM and commercial

investments for WASH is evolving. So are strategic approaches to address the shortage of financing to

close the WASH infrastructure gap.

Distinguishing DRM from strategies to enhance commercial financing to the sector. WASH

finance is an organic whole comprising public finance (government and concessional donor finance) and

private capital. The lines between them are becoming increasingly blurred as public finance is used to

leverage private finance (termed “blended finance”). DRM can be viewed as actions, policies, choices,

and strategies to enhance the amount of financing available to WASH from domestic (non-donor)

EMERGING TRENDS IN DRM FOR WASH

• There is a lack of consensus among practitioners

regarding what constitutes DRM. For most, DRM

refers to a range of government and donor

actions designed to optimize and mobilize WASH

financing.

• Most practitioners generally refer to DRM as

comprising three Ts: taxes, tariffs, and transfers.

Others do not include transfers within DRM.

• Some practitioners have added a fourth T:

transactions, referring to various blending

mechanisms structuring transactions that

leverage public funds to pull in private finance.

WASH financing is, thereby, expanded.

• Practitioners have recently included optimization

efforts – operational and capital efficiency – in the

evolving definition of DRM.

• WASH budget tracking tools and exercises have

become important components of DRM.

• Practitioners would appreciate clearer DRM

vocabulary.


sources. Commercial investments are a cluster of modalities and instruments that are structured to pull

in private financing for WASH in varying degrees of private ownership.5

Table 4 provides a conceptual delineation of frequently used definitions of WASH finance and highlights

their fluidity and evolving nature.6 For analysis and discussion, this report distinguishes between

domestic public sector approaches and all commercial approaches. Thus, Approach 2 focuses on public-

sector DRM interventions such as budget monitoring and tracking, while all commercial finance –

including blended finance and microfinance interventions – are discussed under Approach 3.

TABLE 4: SPECTRUM COMPRISING DRM AND COMMERCIAL WASH INVESTMENTS

DRM: Supply-side actions involving (mostly)

public finance to optimize and leverage WASH

budgetary allocations

Commercial finance: Demand-side actions (to

enable/prepare) by utilities and providers to

access (entirely or mostly) private financing

Increasing WASH allocations, evaluating/re-allocating

subsidies Accessing domestic commercial loans for WASH

Tracking/monitoring WASH budgets (e.g., Water,

Sanitation, and Hygiene Finance, TrackFin, Public

Expenditure Reviews [PERs])

Accessing capital markets and institutional investors

Assessing and improving operational and capital

efficiency Structuring blended finance facilities

Establishing revolving funds for microfinance Attracting PPP (project finance)

Issuing diaspora bonds for WASH Accessing microfinance through microfinance

institutions (MFIs)

Structuring blended finance mechanisms Accessing risk mitigation products (guaranties, etc.)

Structuring sovereign wealth funds for domestic

WASH projects Enhancing credit worthiness of utilities

Need for foundational concepts, data, and knowledge on DRM in WASH. WASH

practitioners note the need for a common vocabulary for DRM in WASH, including definitions and

typology of instruments. Equally important is foundational data on how these instruments are being used

in WASH sectors in developing countries. Development partners need to know how countries are using

DRM instruments and with what level of efficacy. Experts interviewed noted that DRM concepts and

metrics need standardization, and there is lack of a clear consensus on the term DRM and disparity of

usage among donors. While WASH budget tracking is fairly well documented in most developing

countries based on the government’s budgetary norms, most donor-generated instruments are either

not used or not yet captured in WASH knowledge products. It would be useful to provide practitioners

with a reference guide of all DRM instruments and how selected countries are using them for WASH

investments.

DRM knowledge base – what is known and what is missing. A review of the DRM literature and

interviews with key experts revealed a knowledge base comprising two categories of information. First,

there are sporadic efforts in countries to lobby for increased spending in WASH. The information in this

5 Still, this is an artificial construct and does not neatly separate the two categories. For instance, commercial loans would fall in

the commercial investment category, but government guaranties and risk mitigation products to alleviate the full commercial

risk can, arguably, be construed as DRM since it uses scarce public funds to attract commercial funds in WASH. 6 Blended finance is included in both columns: in DRM, as blended finance facilities are set up by donors and public-sector

agencies and leverages public money; and in commercial finance, to leverage private finance. Microfinance is also reflected in

both columns: in DRM, as revolving funds set up by governments to provide micro loans; and in commercial finance, as MFIs are

private entities.


category is episodic and reflects reporting on specific laws passed in response to WASH lobbying, but

there is no established category of knowledge products nor any empirical data on how lobbying efforts

have resulted in increased WASH spending. Second, there is a more established knowledge category

comprising tools used for tracking and monitoring WASH financing. In this category, the available tools

are known but only a few have been studied in terms of efficacy. Thus, this is an evolving knowledge

area, as discussed below.

Selection of tools – what is available and what is highlighted in this report. A study of WASH

sustainability tools included a review of more than 220 potential tools and found that there are currently

25 tools with clear content and a methodology for understanding, measuring, or predicting sustainability

(Schweitzer et al. 2014). Altogether, these sustainability tools have been applied 92 times in 52

countries. Most tools address the technical, institutional, and management areas that affect sustainability.

Of these, Track-Fin, DFID’s Value for Money tool, the World Bank’s PER of WASH Sector, World

Bank/WSP’s Sector-Wide Investment and Financing Tool, and UNICEF’s Fiscal Space Analysis focus on

WASH finance and budgetary tracking and monitoring and are discussed below.

Lobbying to Increase Government Resource Allocation for WASH:

How Much Should Governments Spend on WASH?

Many practitioners feel there should be a global consensus on how much (as a percentage of GDP)

governments should allocate to the WASH sector to meet SDG targets. While there is some data on

actual outlays for WASH (WHO 2017a)7 and official development assistance (ODA) trends for WASH

(Winpenny et al. 2016), it is not clear what the objective bases for WASH allocations are – whether

countries use a population-based formula, recurrent costs of utilities, or recurrent and capital costs

combined. Practitioners believe there is domestic and international advocacy and lobbying for increased

WASH allocations globally, but there is not much consensus on metrics for such allocations. Lobbying

for increased allocation or “topping up” WASH budgets with earmarked spending for urgent priorities

has been successful in some cases. In November 2015, India introduced the Swachch Bharat Cess (Clean

India tax) by levying a 0.5 percent tax on all taxable services, with revenues to be used for sanitation

funds, initiatives, and products (Center for Policy Research, 2016). Many donors are supporting local

organizations that lobby for enhanced WASH finance; however, there is no published source of

knowledge and learning on what types of donor activities are ongoing and their effectiveness.

KEY EVIDENCE GAPS:

LOBBYING TO INCREASE GOVERNMENT RESOURCE ALLOCATION TO WASH

There is currently no analytic work in the WASH literature on formal and informal lobbying

efforts by NGOs to increase WASH funding.

Lack of evidence on lobbying efforts in countries to increase WASH spending, donor

efforts in this area, and efficacy of such efforts. These efforts are useful to catalogue and

probably exist in most developing countries. Currently, these are reported in newspapers and not

generally found in practitioner literature.

Stocktaking of the types of lobbying efforts being pursued in developing countries to

increase WASH funding allocations, including types of modalities being proposed (e.g., new

taxes, special earmarked funds for WASH). Countries can learn from each other if there is a publicly

7 The WHO GLAAS (2017) report provides a summary table of indicators for WASH financing under the following metrics:

context (coverage), WASH budgets, expenditures, external support, and improving the use of existing financial resources.


available template of options that WASH agencies and stakeholders can lobby their governments for.

Such a template should also report on actual gains and successes of such lobbying efforts.

Extent to which donors can directly and indirectly support lobbying efforts in developing

countries for WASH funding increases. Relatedly, there is a need for data on what types of

donor efforts and TA are currently being provided to support WASH financing lobbying efforts.

Strengthen Government Capacity to Budget, Allocate, and Track

Funds for WASH and WRM

In the last decade, there have been several efforts

and exhortations to develop a generally agreed

upon framework to report on WASH financing by

country (Trémolet and Rama, 2012). The 2012 UN

Global Analysis and Assessment of Sanitation and

Drinking Water report noted a lack of data on

WASH financing, which led the WHO to establish

TrackFin in 15 countries (to be expanded).

TrackFin will provide data on total WASH

expenditures, types of expenditures, funding

channels, how funds are distributed, who pays for

WASH services, and how much.8 Among donors,

WASH Alliance uses a five-step budgeting and

tracking method in several countries (Jaćimović and

Fonseca 2012, Dutch WASH Alliance 2016). This

includes service monitoring, budget monitoring,

advocacy, and capacity development. USAID

supports countries in WASH budget monitoring via

capacity development. The most recent stocktaking

of WASH finance tracking models was undertaken

in 2012. More and updated analysis is needed to

understand how these different tracking tools are

performing and what has been learned thus far.

What is known so far: TrackFin update. The pilot exercises confirm that although WASH sector

financing information exists, it is fragmented across the sector and involves many actors. Significant

effort is needed to compile and consolidate what is available. The process of mapping WASH sector

financing actors and data sources is fundamental to enable comprehensive analysis of the entities

financing the sector and through which channels. Among the various refinements and adjustments being

made is new software to better link the different types of data being collected. Issues of defining sector

boundaries are also being addressed to reach a global consensus. Another area of consensus that will

need to be reached is a classification of WASH uses, actors, and financing flows.

8 The long-term goal of the TrackFin initiative is to develop a common approach to generating consistent, reliable, and

comparable financial data in the WASH sector. This, in turn, will facilitate improved decision-making at the national level, as well

as benchmarking within and across countries. The approach has been successfully piloted in Brazil, Ghana, and Morocco.

SAMPLE OF WASH FINANCE TRACKING

AND MONITORING TOOLS

• The WHO began TrackFin in 2012 in 15

countries. It is a methodology to identify and

track financing to the WASH sector at the

national or sub-national levels in a consistent and

comparable manner.

• USAID uses TrackFin to track resources and

investments in the WASH sectors of selected

countries (Kenya, South Africa, Senegal,

Mozambique, Nigeria, Cambodia, Nepal).

• DFID’s Value for Money Tool

• WSP’s Sector Wide Investment and Financing

Tool

• UNICEF’s Fiscal Space Analysis

• World Bank’s Public Expenditure Tracking

Surveys and PERs

• WSP’s financial and institutional mapping as part

of the World Bank’s Poverty Reduction Strategy

Papers

• Simavi and WASH Alliance-led WASH budget

tracking in Kenya, Uganda, Tanzania, and

Bangladesh.


Initiative at the country level is needed to move the TrackFin process forward. The more

countries regularly producing WASH accounts, the greater the value added for all. In time, it is

envisaged that all countries taking part in the initiative will be able to use an identical set of harmonized

WASH accounts tables and indicators. This will permit international comparison and facilitate

production of national WASH accounts. Moreover, by regularly producing WASH accounts, countries

will be in a better position to benchmark results and obtain a clearer understanding of how disparities

occur (WHO, 2017b).

DFID’s Value for Money (VFM) tool for WASH investments. A synthesis report on DFID’s VFM

tool for WASH summarizes the VFM methodology and its efficacy based on country studies in

Bangladesh, Ethiopia, Mozambique, Pakistan, and Zambia (Trémolet et al. 2015). VFM is measured on the

basis of a set of standard indicators, which can help program implementers and their funders assess

whether a program is making the best use of available resources. Crucially, a VFM analysis is not

necessarily about saving money and reducing unit costs; it is about maximizing actual outcomes and

impacts. While a program’s VFM could sometimes be improved by reducing the costs of certain inputs,

greater and more sustainable outcomes can also be delivered by spending more on certain inputs. Some

of the main data challenges of the VFM exercise were the diverse formats of reporting input and output

costs and levels, missing data, lack of culture of reporting outcomes, and lack of baseline data gathering

at program outset. Key learning from this synthesis included: (1) standardizing reporting and monitoring

formats, especially in multi-donor projects; (2) developing clear log frames; (3) improving monitoring

throughout project cycle; and (4) incorporating outcome indicators. Other challenges noted in the 2016

impact review by the United Kingdom’s Independent Commission for Aid Impact in regard to VFM were

that DFID is currently not able to uniformly calculate its return on investment in WASH and may need

to take additional steps towards results-based contracting and replacing UNCIEF with other commercial

and NGO providers. However, these reports do not assess the impact of VFM tools on governments’

ability to increase financing for WASH.

World Bank/WSP’s Sector-Wide Investment and Financing Tool (SWIFT): SWIFT is a

computer-based decision-support tool for water supply and wastewater financing (Schweitzer et al.

2014). It was developed in response to the demand from African governments for a tool that can help

create long-term financial plans and budgets and support decision-makers in analyzing the financial

viability of WASH sector programs. Designed for application at the country level, SWIFT uses financial

plans and budgetary information to identify gaps in financing, better understand resource flows, and

model scenarios for future spending. The SWIFT tool, adapted to country-specific situations, allows for

an annual iterative input into financial planning and budget design efforts. While it has been tested at

various stages in Uganda, Mozambique, and Kenya by World Bank WSP staff,9 the tool is not publicly

available and no studies were found that capture learning from this tool.

UNICEF’s Fiscal Space Analysis. Donors and governments have incorporated fiscal space analysis in

most sectors to help make difficult choices between categories of spending to allow for critical growth-

inducing infrastructure and social spending. By this approach, fiscal space is interpreted as the distance

between actual debt levels and a theoretical higher level of debt that is nonetheless safe. Fiscal space

suggests how much wiggle-room national governments have to increase growth-enhancing spending,

such as infrastructure investment, without raising taxes. While this tool is listed in the menu of WASH

sustainability tools in the UNICEF guidance note (Ortiz et al. 2011), there are no publicly available

examples of fiscal space analysis in WASH. Most published studies of fiscal space analysis are in the

health sector. Given the tight fiscal space in most developing countries and competition among sectors

for a limited share of government budgetary allocations, it would be prudent for WASH practitioners to

9 A draft working paper providing a model overview can be found at: https://www.ircwash.org/resources/sector-wide-

investment-and-financing-tool-swift-model-overview-working-paper-draft

https://www.ircwash.org/resources/sector-wide-investment-and-financing-tool-swift-model-overview-working-paper-draft

https://www.ircwash.org/resources/sector-wide-investment-and-financing-tool-swift-model-overview-working-paper-draft


develop a clear methodology for fiscal space analysis in WASH that argues for (1) re-prioritizing WASH

within the existing allocation of general government expenditure; (2) identifying additional revenue

sources, including through innovative sources of funding; and (3) exploring efficiency savings in WASH. It

appears that the “tool” exists in name only as far as WASH is concerned; work is needed in

constructing a methodology for WASH, testing in countries, and extracting learning from it. This piece

of the evidence base is mostly missing at this time.

Valuable institutional assessments of WASH finance exist but are not published. The World

Bank’s Water Practice and WSP routinely undertake reviews of the water sector in member countries

under the rubric of country-level assessments. These include Public Expenditure Tracking Surveys, PERs,

Poverty Reduction Strategy Papers, and various country-level reports (e.g., Country Assistance

Strategy). The World Bank’s WSP has also undertaken WASH financial and institutional monitoring

studies in 10 countries (Ethiopia, Uganda, Kenya, Mozambique, South Africa, Benin, Burkina, Mauritania,

Senegal, and Yemen) and more may be underway. These were carried out in the context of Poverty

Reduction Strategy Papers. No single document reviews all the WASH finance and tracking tools and

assesses their effectiveness. There are likely one-off reports of WASH budget analysis workshops

organized by donors, such as one in Tanzania, where participants prioritized the following steps: focus

on allocation and actual transfers between central and state governments; use oversight bodies; conduct

analysis of actors and allies; engage communities and social media; simplify budget information for

communities; make budget analysis a people’s tool; track and capture VFM; evaluate impact on sector

performance; engage with audit institutions; and monitor, capture, and attribute change (Farrow 2018).

KEY EVIDENCE GAPS: STRENGTHEN GOVERNMENT CAPACITY TO BUDGET,

ALLOCATE, AND TRACK FUNDS FOR WASH AND WRM

Completion and analysis of TrackFin data for all countries. There is a lack of evidence on

how WASH budget monitoring and financial tracking can be synchronized and linked, as well as on

the effectiveness of mapping and tracking efforts.

While several tools on WASH finance and budgetary tracking and monitoring exist,

there is a lack of assessments of these tools and their impact on WASH financing. A

simple stocktaking of all WASH finance tools would be helpful, updating past studies to see which are

still in use and which were retired. Currently, the literature contains various pieces focusing on

specific tools. Also, the assessment is generally limited to advocacy and description of the tool and

recent outputs. None focus on efficacy, impact on WASH finance, or the government’s ability to

budget, monitor, and track WASH financing more effectively.

More analytic work is needed on how WASH finance tools affect sector performance.

There is a need to select a set of performance indicators and analyze across countries how/whether

the use of WASH finance tools moves the needle on these performance indicators.

Lack of data on community participation in using these tools, whether communities are

engaged via social media in themselves tracking revenue transfers from center to states and

municipalities and the spending levels of WASH.


Table 5 summarizes the evidence gaps in increasing public DRM for WASH investments and presents

potential research questions to address these gaps. WASH finance is constantly evolving as the financing


landscape is always shifting and new priorities emerge. As a result, the tools that donors have used to

better understand the financing needs of the sector and monitor available resources are also evolving.

Currently, there are two key types of evidence gaps in this area:

1) Donor activity and tools: Ongoing donor activity and existing tools being used are fairly known

and documented, but the outcomes and learning from these activities and tools are not published

and disseminated. DFID has produced more than other donors in this area. The evidence gaps here

are a more comprehensive compilation of who is doing what and what is the learning.

2) Impact of WASH finance work on improved resources for WASH: This is a significant

evidence gap at this time as there are no studies on whether DRM tools and efforts have been

effective in raising more funding for WASH.


INCREASING PUBLIC DRM FOR WASH INVESTMENTS

Interventions Evidence Gaps Potential Research Questions Gap

Intensity

Lobbying to

increase

government

allocation to

WASH

Stocktaking and assessment of

lobbying efforts for WASH

funding increases

What kinds of lobbying efforts are NGOs

and stakeholders in developing countries

pursuing to increase WASH funding?

3

What are donors doing to support lobbying

efforts by NGOs to increase WASH

funding? How successful have such efforts

and TA been?

3

Improve

WASH

budget

tracking

Completion of TrackFin data

for all countries

How can current efforts to monitor WASH

budgets and financial tracking be

synchronized and linked?

4

What is the effectiveness of existing

mapping and tracking efforts: Public

Expenditure Tracking Surveys; PERs; WSP

mapping; Water, Sanitation, and Hygiene

Finance?

5

WASH finance tools

assessments and their impact

on WASH financing

Does the use of finance tools affect how

governments set WASH or WRM budgets? 5

What is the learning from the various

WASH finance tools? 5


APPROACH 3: INCREASE COMMERCIAL FINANCE FOR

WASH SERVICES

Governments want water utilities to access local

commercial finance to meet SDG targets. The

researcher reviewed 36 documents (as well as 23

documents on general WASH governance and finance)

to assess evidence gaps in commercial finance for

WASH services. Utilities and service providers in

most developing countries have found it difficult to

access local bank loans because of rigid

collateralization requirements and short lending

tenors. The World Bank’s WSP and other donors

recently sought to restructure transactions between

water utilities and local banks to allow banks to lend

to utilities. The scope of this literature review was

defined by the illustrative technical interventions

itemized in Table 1. This includes (1) improving water

utilities’ access to commercial finance, (2) improving

the creditworthiness of water utilities, and (3)

structuring blended finance mechanisms.

An additional area of relevance to USAID’s current portfolio, microfinance as part of commercial

finance, is also included. Knowledge of WASH finance has shifted drastically with the advent of new and

innovative forms of leveraging available resources, especially in the context of blended public and private

finances. As a result, some substantial earlier work is no longer relevant and was not used in this gap

analysis.10

Improve Water Utilities’ Access to Commercial Finance

All three sets of key stakeholders – government, utilities, and banks – must collaborate to create water

finance markets that are calibrated to local conditions and supported by the government, at least

initially. Recent guidance on how to create such markets involving upstream work with all three

stakeholders provides a step-by-step list of actions for each stakeholder (Bender 2017). For utilities, this

means improving their cost recovery, efficiencies, and creditworthiness; improving feasibility studies; and

developing a pipeline of bankable projects. For the government, it means creating an enabling

environment for banks to participate, such as formally separating utility and government accounts;

alleviating lender concerns by ring fencing the water sector so utility revenues remain with the utility;

legally separating the government and utility; allowing asset ownership by the utility; and assuming

regulatory authority to increase tariffs. For banks, it means becoming familiar with water as an asset

class and comfortable with de-risking measures.

10 The African Ministers' Council on Water (AMCOW) commissioned the production of country status overviews to better

understand what underpins progress in WSS and what member governments can do to accelerate that progress in Sub-Saharan

Africa. AMCOW delegated this task to the WSP and the African Development Bank, which implemented it in close partnership

with UNICEF and the WHO in more than 30 countries across Sub-Saharan Africa. See World Bank, Water Supply and

Sanitation in Ethiopia: Turning Finance into Services for 2015 and Beyond. An AMCOW country status overview; (Nairobi

2011). Accessed at: https://openknowledge.worldbank.org/handle/10986/17768.

EMERGING TRENDS IN WASH

COMMERCIAL FINANCE

• Governments and donors are pushing

the frontiers of public and private

finance to increase WASH investments.

• Water utilities are beginning to access

commercial bank loans (which they

could not do before) because of higher

creditworthiness and a host of de-

risking tools.

• Blended finance is increasingly being

tested for WASH – via pooling bankable

projects and risk management tools –

and the initial results are promising.

• Blended finance in WASH is new. With

more experience, water utilities can

better access capital markets.

https://openknowledge.worldbank.org/handle/10986/17768


Learning from donor experience with improving WASH access to commercial finance. The

World Bank has produced several knowledge products that capture the market-building process

involved in creating water finance markets (Bender 2017). A combination of output-based grants, partial

risk guarantees (such as USAID’s Development Credit Authority), and TA seems to mitigate credit risk

and improve WASH access to commercial finance – whether micro loans to communities or

commercial loans to water utilities. An important knowledge contribution in this area is commercial

borrowing toolkits for banks, water service providers, and local governments that break down the steps

in creating water finance markets in developing countries (supported by WSP in Kenya). The guidance

note (Bender 2017) presents key steps for each stakeholder and lessons learned. It underscores the

importance of collaboration among key stakeholder groups and the need for a catalyst or change agent

to start the process. Important lessons from the WSP in Kenya include government actions needed to

stimulate viable water finance markets. These include legal and regulatory actions separating utilities

from government, asset ownership by utilities, and, most importantly, ring fencing utility revenues so

they cannot be appropriated by the government. Still unknown is whether other developing countries

have successfully created water finance markets with local banks.

KEY EVIDENCE GAPS:

IMPROVE WATER UTILITIES’ ACCESS TO COMMERCIAL FINANCE

The extent to which developing countries have successfully created water finance

markets with local banks. Evidence is limited to Kenya, and more evidence is needed on other

countries to better understand how to address and remove barriers.

Data on types of government policies (e.g., banking, municipal reform) that result in

greater access of water utilities to commercial finance.

Regulatory adjustments needed to better prepare banks and utilities to grow

commercial water finance markets. Additional empirical work on the constraints to access

commercial finance is also needed.

Utility best practices in terms of how long-term planning of water utilities can be

adjusted to incorporate financial data that helps bankers and lenders increase access to

commercial finance.

Enable Water Utilities to Improve their Creditworthiness

Credit ratings and indexing (benchmarking) enable water utilities to access credit. They are critical since

they remove asymmetrical market knowledge and improve the negotiating position of utility borrowers.

Previously, most utilities in developing countries had little or no commercial financing as they (1) were

entirely financed by the government, or (2) received concessional loans from the government that were

essentially “pass-through” financing from donors to utilities through central or state governments. Some

countries tried to establish a level of performance-based eligibility for donor funds by requiring utilities

and municipalities (water service providers) to meet certain business and financial standards. Replicating

commercial standards may have increased the accountability of borrowers slightly, though, ultimately,

the government was responsible for repayment. Governments and donors are now trying to create local

water finance markets by directly brokering relationships between local banks and water utilities and

supporting these new relationships. Support is needed in three key areas: (1) TA (e.g., real-time

consultations, toolkits), (2) risk mitigation products, and (3) enabling tools like creditworthiness rating

and indexing systems that strengthen utilities’ bargaining position while preparing them to better

negotiate in financial markets.


Available evidence on how credit rating systems for water utilities can work. Governments in

the Philippines, Kenya, and other developing countries are establishing credit rating systems to provide

reliable information to lenders by partnering with credit rating organizations. One lesson is that credit

rating systems vary in structure and scope and will have to be adapted to the specific country situation.

A second finding is that regulators play a critical role in the credit rating process. They have the

necessary financial and performance data (or can require utilities to provide it) and can work with

lenders to structure a system that both satisfies the market and is attainable. In the Philippines,

regulators classified all water districts using a crude but credible scale of credit worthiness (less worthy,

very worthy, etc.). This facilitated performance benchmarking. Less creditworthy utilities were given TA

to improve their credit status. Kenya has made important advances in expanding the creditworthiness of

water utilities. The country (1) produced the first shadow ratings in 2011 (nonpublic internal assessment

of possible bond rating), (2) created a creditworthiness index of 43 Kenyan utilities to allow

benchmarking of key operational and financial performance, and (3) added a governance index in 2014 to

track water utility governance using basic indicators like supervision, information and controls, financial

management, service standards, human resources, and community participation (Bender 2018).

Evidence gaps in creditworthiness of water utilities. The literature does not reflect much

developing country experience regarding expanding the creditworthiness of water utilities. While Kenya

has made advances, it is not clear why other developing countries have not taken the initiative to

prepare their water utilities to enter the financial market. This is an emerging knowledge and practice

area, and the toolkits prepared by the WSP in the Kenyan context can be helpful to other countries.

The greater need in this area is TA to governments to press their water utilities to use existing tools to

enter financial markets with the backing and support of the public sector. Once water utilities from

different developing countries have moved forward on the path to creditworthiness, meaningful lessons

about the process can be extracted.

KEY EVIDENCE GAPS:

ENABLE WATER UTILITIES TO IMPROVE THEIR CREDITWORTHINESS

More examples from developing countries of building creditworthiness of WASH

utilities – challenges and solutions. This is an emerging area with more guidance products than

analytic products assessing how the guidance is being used.

Understanding why Kenya was able to move forward with a WASH municipal and utility

credit rating system while other countries have not tested it. Whether this has something

to do with the broader enabling environment and/or specific government policies needs to be

understood.

The challenges and constraints for governments to incorporate utility credit ratings into

legal and regulatory structures, especially regarding banking laws. Utilities will need to

meet the due diligence requirements of the country’s banking laws.

More global and cross-country comparative work on a typology of banking legal

requirements versus creditworthiness levels and challenges in meeting those standards.

This type of data would allow practitioners to assess key challenges and design advisory and guidance

products and TA accordingly.


Technical Assistance for Microfinance

Donors and governments have worked with community groups and MFIs to process loans and grants

through revolving funds to provide affordable financing to families and communities for WASH products

and services. There is some information on microfinance for WASH (from one-off news reports and

blogs) but few empirical multi-country studies and analyses of features and processes used by MFIs. The

World Bank recently closed two microfinance projects in Kenya and Bangladesh, which were both

deemed successful in meeting objectives in the project completion reports. A recent study on MFIs in

WASH noted that the MFI model works well and has resulted in increased household incomes,

improved health benefits, and an impressive 99 percent repayment rate for approximately $120 million

in loans in 4 countries (Fonseca and Pories 2017).

Innovative methods in microloans for sanitation. Many families cannot afford the micro loans

provided by MFIs. In Ghana, Simavi and its local partner, Integrated Action for Community Development

(INTAGRAD), developed an innovative loan structure of which one-third is meant for the construction

of a latrine and the remaining two-thirds is meant for income-generating activities at an affordable

interest rate. To ensure funding was spent on latrine construction, the credit was disbursed in three

tranches; the second tranche was released only after the latrine was built. To improve the financial

viability of the loans, they were provided to community savings groups. This created a system of mutual

guarantee among the members and diminished the risk for INTAGRAD (Fonseca and Pories 2017).

Training and TA for success of WASH microfinance. BRAC has worked in 177 sub-districts in

Bangladesh (supported by the Dutch Government and the Bill and Melinda Gates Foundation) and

reached over 32 million families. The NGO has improved people’s hygiene and sanitation situation

through a combination of loans, grants, and its own finance. BRAC invests in training of sanitation

entrepreneurs and training and awareness raising for participating families. It also provided more than

170,000 loans to poor households for hygienic latrines (99 percent have been repaid) and 1,750 interest-

free loans to rural sanitation center entrepreneurs (100 percent have been repaid). A household-level

life cycle costing study found that without the grant for latrine construction, hygienic latrines would not

have been affordable to the ultra-poor; they would have had to spend almost 6 percent of their

reported income ($0.30 per person per day) on those latrines (BRAC 2016).

High return on investment for MFIs and donors. Grameen Koota, an Indian MFI, disbursed

276,525 WSS loans between 2011 and 2014. This amounted to 53.8 percent of all WaterCredit (by

Water.org) loans in India during this period. These loans unleashed more than $36.6 million worth of

financing for WSS improvements – 103 times greater than the external subsidy provided to catalyze and

foster this growth. Their original target had been exceeded by more than a factor of five, and the return

on investment for Water.org was more than four times greater than the next best partner. Grameen

Koota concluded that its training of NGO partners was key to its success. Grameen donates five

percent of its profit after tax to training and awareness raising of partner NGOs (Foster 2016).

REVOLVING FUNDS FOR MICROFINANCE: HOW IT WORKS

Water.org, through its WaterCredit program, provides capacity-building grants and TA to NGOs

and MFIs to create, pilot, and scale water and sanitation financing. These NGOs and MFIs then

leverage funding from banks and capital markets to disburse loans to people in need. Borrowers

pay water and sanitation service providers for products and services. Going forward, this approach

has the potential to scale through financial institutions such as small banks, regional rural banks, and

cooperative banks. Water.org has provided $11.3 million in subsidies to MFIs and NGO partners

worldwide. These have disbursed over $120 million in loans, reaching 2.4 million people.


Training materials and approaches for MFI. Several donors actively support MFIs, including the

World Bank, regional development banks, and international NGOs such as Water.org and MicroSave

(both lead in capacity development for MFIs).

MFIs must have access to technical capacities to

understand the feasibility of setting up WASH

infrastructure (e.g., groundwater levels,

availability of public sewerage facilities) and the

types of products available in the market to fulfill

different WASH needs. Although in-house

capacities may be limited, it can be helpful to

engage external agencies. Understanding these

aspects helps MFIs tailor products and enter into

service contracts with WASH manufacturers and

service providers. The World Bank’s WSP helps

catalyze markets by targeting TA to key

stakeholders (governments, businesses, utilities,

and MFIs). It also strengthens the broader

operating environment for service delivery by

building the capacity of entrepreneurs, supporting

research and development of new low-cost

technology, and generating demand through

education and marketing. The WSP demonstrates

the viability of water and sanitation microfinance

and is supported by a robust database of water

and sanitation loan performance.

KEY KNOWLEDGE GAPS: TECHNICAL ASSISTANCE FOR MICROFINANCE

How to incorporate savings, remittances, and other financial products in financing.

Savings from the community can and has been mobilized in some countries (as seen in Bangladesh)

but not at all in many others. It would be useful to learn how MFIs can attract community savings.

Remittances are another major source of MFI financing, and more work is needed to understand

what types of government policies can provide incentives to remittance recipients to invest in MFIs.

The extent to which governments and donors can support the initial stages of market

formation without distorting the MFI market. For instance, governments (and donors) could

test certain guarantee products to see if it boosts MFI market formation and growth.

Other types of financial products MFIs can use and that can scale easily.

Low-cost technologies that can bring to market WASH products with MFI financing.

The intersectionality of technology and finance is an important area that can benefit from additional

evidence.

Structure Blended Finance Products for WASH Investments

It is estimated that an additional $1 trillion of private finance can be accessed by pooling investments and

using public finance to make investments more secure and digestible for private investors. This

leveraging of public finance to structure funds to attract private capital that would not otherwise invest

SAMPLE OF WASH MICROLOAN

ACTIVITIES AND PROJECTS

• Ghana: Simavi and INTAGRAD provide

innovative loans for latrines combined with

income-generating activities to make them

more attractive and affordable to households.

• India: The government levied a 0.5 percent

tax on all taxable services to support

sanitation products/finance.

• Bangladesh: BRAC provided more than

170,000 loans for latrine purchase.

• MicroSave and Water.org advise MFIs to

develop and manage WASH finance products.

• Water.org offers five WASH financing

toolkits.

• Kenya: The World Bank’s Micro Finance for

Water Services Project uses micro loans to

expand services to rural and peri-urban

communities.


directly in developing countries is known as blended finance.11 Blended finance addresses barriers to

investment in developing countries – specifically, the lack of creditworthy borrowers who would

otherwise not be able to access capital markets. Blended finance is still very new. So far, only a few

trends have emerged. First, while ramping up, only approximately $15 billion was mobilized between

2014 and 2016, compared with the SDG requirement of $2.5 trillion per year. Second, it is mostly for

investments in middle-income countries, with only $2.9 billion to least-developed countries. Finally,

investments have been made mostly in the banking, financial services, and energy sectors.

Blended finance: What it is and how it works. Practitioners loosely use the term “blended

finance” to refer to a combination of public and private resources as a finance tool for development.

While there is no standard definition of this term, there are some criteria for blended finance, including

the use of public resources (1) as a starting point to pull in private resources, and (2) to de-risk the

investment that would not be investible otherwise. The Water Finance Facility is a player in the blended

finance space and works to mobilize domestic investment in water projects through the local bond

market. The blended finance fund works with utilities to improve their creditworthiness, build

investment-worthy projects, and provide loans for capital investments. By applying financial structuring

skills and with support from donors and development finance institutions, the Facility can de-risk

portfolios of loans to creditworthy water and sanitation service providers so domestic institutional

investors (i.e. pension funds, insurance companies, commercial banks, mutual funds, and hedge funds)

can invest. Long-term local currency finance is the optimal funding solution to cover the capital

investments needed for improved services. The Water Finance Facility engages at an early stage, assisting

water utilities with scoping and implementation of capital investment projects funded by the loans.

The Kenya Pooled Water Fund is an example of blended finance in WASH. The Kenya

Pooled Water Fund (KPWF) is a non-profit company established to provide water utilities with access

to capital market financing for their water and sanitation infrastructure needs. Pooling of loans lowers

risk exposure to the bondholders; additionally, a reserve account and guarantees will serve as credit

enhancements, thus making the bonds more secure. A key benefit of KPWF bond financing is that

longer-term financing lowers the annual cost of financing (by comparison with short-term commercial

bank lending), allowing for lower tariff increases to service debt. KPWF is implementing this as an annual

program whereby a bond will be issued to domestic pension funds and other institutional investors; and

the bond proceeds on-lent to water service providers. The loans will be paid back by the water service

providers as the investors receive their return on investment.

KPWF allows small projects to be pooled to raise money from capital markets through pooled bonds,

which are asset-backed securities. Public financing supports institutional and capacity building of the

utilities; de-risks the pooled portfolio; and builds utilities’ creditworthiness by setting up reserve

accounts, collateralizing cash flows, transferring central revenue, and offering partial credit guarantees,

first loss facilities, and subsidies. KPWF is on track to issue its first bond in the current fiscal year

(Obulutsa 2018).

Tamil Nadu’s Water and Sanitation Pooled Fund has demonstrated success in raising

WASH financing in India. Another blended finance project is the water and sanitation pooled fund of

the government of Tamil Nadu in India. The pooled fund helps municipalities in Tamil Nadu access

11 The OECD is currently trying to harmonize definitions as part of its ongoing work on Total Official Support for Sustainable

Development. The term “pooling” is often used interchangeably with “blended finance,” since most blended finance mechanisms

involve pooling. However, in developed countries, municipalities can pool their own resources and issue a bond without public

resources (i.e., without blending). It may also be possible to structure blended finance in the developing country context for a

single (high-profile) project as a one-off without pooling. In other words, it is possible to “pool” without “blending” and “blend”

without “pooling.” In the developing country context, however, blended finance has, thus far, involved pooled portfolios of

projects to be viable.


finance for local infrastructure investments. In 1996, the Government of Tamil Nadu created Tamil

Nadu Urban Infrastructure Financial Services Limited (TNUIFSL), an asset manager jointly owned by the

Tamil Nadu government and private financial institutions, to access finance from private capital markets

for local infrastructure investments. However, tapping capital markets remained challenging, especially

for smaller projects. To overcome this challenge, a blended finance fund was created, with the

intervention of KfW. KfW disbursed a EUR 10 million concessional loan to the Government of India.

The amount was channeled to fund the subordinated tranche (35 percent) of the Water and Sanitation

Pooled Fund (WSPF), a special purpose vehicle managed by TNUIFSL designed to disburse loans to

urban local bodies (World Bank 2016b).

The KfW-funded tranche was combined with the Government of Tamil Nadu’s equity support as cash

collateral (10 percent) to provide an additional cushion against potential losses. The WSPF issued two

bonds in 2012 and 2013 to mainly local and state institutional investors, including public and private

pension funds. The combination of the KfW concessional loan (interest rate of 0.75 percent) and

interest on the bonds (the first bond issued at 10.6 percent) permitted on-lending on a revolving basis to

municipal projects at a sustainable level. In addition, to facilitate financing for local infrastructure

projects, the intervention achieved meaningful outcomes. The ex-ante assessment projects a strong

development impact of local infrastructure projects funded with loans from the WSPF. In terms of

longer-term impact, the issuance of bonds via the WSPF has enhanced the local bond market. This was

measured by high secondary market activity, indicating liquidity of the issuances and a positive impact on

local currency bond market development.

What is known about blended finance. A recent study that reviewed three blending facilities (the

Dutch Growth Fund, EU Blending Facilities, and the World Bank Global Financing Facility for Health),

provides the most significant evidence base on blended finance (Pereira 2017). This study recognizes

two types of blending: (1) public-public blending, which combines ODA with recipient government

resources, and (2) public-private blending, which combines ODA and government finance with private

resources. The emerging lesson from the KPWF is that (1) it allows more financing for WASH, (2) the

pooling aspect reduces cost through economies achieved across the project cycle, (3) it fosters a “hard

credit culture” and creditworthiness, and adoption of market standards, and (4) it improves service

delivery. However, pooled funds work in countries with established capital markets. Pooling acts as a

“market maker” by strengthening domestic capital markets, which must be already established and

somewhat strong for pooling to work. Institutionally, pooling can involve (1) a special purpose vehicle,

which is the intermediary between local authorities or utilities and financiers, or (2) a “club deal” in

which two local authorities issue bonds without creating a special purpose vehicle. Some of the

challenges of pooled finance are that it needs strong political support, professional talent in fund

management, some legal and regulatory changes, buy-in from the private sector, and good preparation

to create bankable projects.

Further work is needed in blended finance. While blended finance is increasingly examined, a

majority of the work so far has focused on describing the potential for blended finance and case studies.

However, less has been written on lessons learned, best practices, and challenges in applying blended

finance to specific geographies and contexts – for instance the water context – and to what extent

applying blended finance has resulted in the intended development outcome. Most of the literature on

blended finance focuses on the financing aspects of blended finance transactions. What is also needed is

an understanding of the role of public policy in creating, monitoring, and evaluating blended finance

projects for development impacts. To address these shortcomings, more evidence-based policy analysis,

data, and transparency are needed, particularly in the following areas:12

12 OECD-WWC-Netherlands Roundtable on Financing Water Second meeting 13 September 2017, Tel Aviv.


• What are the key constraints of blended finance in the water sector? Does it work equally in

countries with differing income contexts?

• What sources and types of commercial finance should be mobilized for blended finance in the

water sector?

• How can the development impact of blended finance be ensured in the water sector?

• What are the main policy challenges facing governments and development partners in

implementing blended finance for water in developing countries?

Scaling up blended finance approaches in WASH. Effective coordination and knowledge

management will be needed to scale up blended finance in WASH (Leigland et al. 2016). Governments,

donors, and service providers will need to focus on designing policies that stimulate and catalyze – not

crowd out – private financing, support preparation of bankable projects, and cost-reflective tariffs,

among other means of building and sustaining private financing in WASH.

KEY EVIDENCE GAPS: STRUCTURE BLENDED FINANCE PRODUCTS

Key policy challenges and constraints to implementing blended finance in WASH.

Structure for viability gap financing has to be identified and tested. Some non-commercial

aspects will require some level of viability gap funding for poor communities.

Methods and means of incorporating long-term investment planning into the pooling

process. It is anticipated that long-term water investment planning will improve once utilities believe

there will be a dependable source of financing. Long-term investment planning will need to be

incorporated into the pooling process. Methods and means of doing this need to be studied.

Effects of upward tariff adjustments so participating utilities can ensure sufficient cash

flow. Whether regulators should make it mandatory when utilities are in the pooling process will

need to be studied. Since this means changes in WASH regulations, analytic and advisory work is

needed to provide detailed guidance on (1) what these regulations should contain and how they can

be incorporated into the existing regulatory framework, and (2) application in the pooling process –

meaning how this would affect the pooling process, whether it slows it down – is another element to

consider in the pooling process.

Standardizing the process methodology to adapt across countries and reach a common

definition of ODA for accounting purposes to avoid double counting in ODA reporting.

Assessment of appropriate monitoring and evaluation methods for pooled funds so

effectiveness and impact can be meaningfully measured.

Role of community-based organizations providing WASH services needs to be assessed

in the context of pooled water funds.



Table 6 summarizes the evidence gaps in increasing commercial finance for WASH services in regard to

the related technical interventions discussed above and presents potential research questions to address

these gaps. Overall, three categories of evidence gaps emerged:

1) Well-resourced literature with identifiable data gaps: Research and learning on microfinance

belongs in this category – there are solid case studies and learning from MFIs, and practitioners have

identified specific areas of evidence gaps.

2) Significant guidance products with few applications (published): Access to commercial

finance and improving creditworthiness of water utilities have benefited from toolkits that provide

excellent learning products. However, the knowledge curve is still in the upstream mode in terms of

how these toolkits are being used by utilities and the impact in terms of improved business practices

and greater access to WASH finance.

3) Mostly in upstream stage with significant knowledge work needed: Blended and pooled

financing products and processes are still in the upstream stage of knowledge generation, curation,

and management.



INCREASING COMMERCIAL FINANCE FOR WASH SERVICES


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https://www.unescap.org/sites/default/files/Financing%20Water%20SDGs-9_11_18.pdf


ANNEX A: STATEMENT OF WORK

Scoping Research for the USAID Water and Development Research Agenda

I. Introduction

The Office of Water in USAID’s Bureau for Economic Growth, Education (E3/W) coordinates USAID’s

implementation of the U.S. Global Water Strategy and the USAID Water and Development Plan. In

support of the Plan, E3/W intends to launch a five-year Water and Development Research Agenda that

would be implemented alongside USAID’s Water and Development Plan. The Water and Development

Research Agenda will build on USAID’s centrally-funded water and sanitation research activities –

including a series of post-activity (“ex-post”) sustainability evaluations, impact evaluations (on WASH-

nutrition linkages and service delivery), systems analysis, and implementation research on rural sanitation

and hygiene innovations – to identify and fill key evidence gaps and support improved water and

sanitation programming in the Agency’s high priority and aligned partner countries.

The Research Agenda is intended to serve as a plan and platform for guiding internal and external

implementation research and for disseminating findings to inform current and future USAID

programming, as well as providing thought leadership to shape the water and sanitation sectors more

broadly.13

USAID anticipates that the Water and Development Research Agenda will be oriented towards

identifying and prioritizing implementation research that:

1) tests core assumptions at the foundation of USAID’s Water and Development Plan to inform

future strategies and programming;

2) identifies evidence gaps that inform common approaches in Water and Sanitation programming,

as catalyzing opportunities to address these gaps and spur innovations in programming

approaches, technology, financial products, and governance and policy;

3) seeks to understand persistent barriers to sustainable water supply and sanitation service

delivery at the global, regional, national, and subnational levels; and

4) demonstrates USAID thought leadership and delivers widespread benefits through knowledge

generation and sharing within and beyond the countries where USAID works.

E3/W has requested that the E3 Analytics and Evaluation Project14 (“the Project team” hereafter)

conduct initial research and deliver products examining the sector evidence base that will inform E3/W’s

subsequent development of this Water and Development Research Agenda.

II. Purpose, Audience, and Intended Use

Purpose and Intended Use

The purpose of this activity is to identify the critical evidence gaps to support the key technical

approaches in which the Agency intends to invest to implement the Water and Development Plan. The

13 Within USAID, the research agenda would be led by E3/W’s Research, Evaluation, and Monitoring team with input from

across the Water Strategy Working Group. Dissemination of research findings would be closely coordinated with E3/Water’s

Communications and Knowledge Management Activity. 14 Management Systems International (MSI, a Tetra Tech company) is the lead implementer of the E3 Analytics and Evaluation

Project, along with team partners Development and Training Services, a Palladium company, and NORC at the University of

Chicago.


activity will conduct gap analyses and present key findings and considerations as E3/W initiates

development of the Water and Development Research Agenda.

Audience

The primary audience for the products to be prepared under this activity include E3/W staff including its

Research, Evaluation, and Monitoring team, and other Agency staff and key stakeholders who will be

involved in the process to develop the Water and Development Research Agenda.

III. Existing Information Sources

Prior to the implementation of this activity, E3/W will provide the Project team with the following

documentation to inform its development of the work plan:

• The 2017 U.S. Government Global Water Strategy15

• USAID Water and Development Implementation Plan 2017-2022

IV. Specific Support Tasks

The Project team will work closely with E3/W staff over the period of performance for this activity to

carry out the key support tasks outlined below:

Task 1: Key Principles to Guide the Research Agenda Development Process

As an initial task, the Project will prepare a brief summary of key principals that E3/W may consider as it

begins to develop the Water and Development Research Agenda. These considerations, which may be

sent as a bulleted list, will be based on the Project team’s brief review of existing development-related

research and learning agendas from USAID and other development partners (e.g., the USAID

Biodiversity and Development Research Agenda)16 and any literature around lessons learned and best

practices for developing decision-relevant research agendas (including USAID’s recent Landscape

Analysis of Learning Agendas).17 The key principals can be delivered as a brief narrative or bulleted list

(approximately one page), and should include links to other relevant identified research agendas and

documentation.

Task 2: Evidence Gap Analyses for Key Approaches Under Each Development Result

The second and main task for this activity is to conduct gap analyses of the existing evidence related to

selected key approaches under the four development results (DRs) of the Water and Development

Plan:

1. Strengthen water sector governance and financing

2. Increase sustainable access to sanitation and hygiene

3. Increase sustainable access to safe drinking water

4. Enhance sustainability of water resources

In its work plan, the Project team should propose a process to prepare these gap analyses in a way that

reflects existing research and literature but does not require the significant level of effort or time that

would be necessary for conducting in-depth literature reviews on each topic. This may include an

examination of existing literature reviews, syntheses, meta-analyses, and other robust evidence (e.g.,

studies in peer-reviewed journals, impact evaluations). The gap analyses should focus on (1) what key

15 See: https://www.usaid.gov/sites/default/files/documents/1865/Global_Water_Strategy_2017_final_508v2.pdf 16 See: http://pdf.usaid.gov/pdf_docs/PA00KB5X.pdf 17 See: https://usaidlearninglab.org/sites/default/files/resource/files/landscape_analysis_report_04_10_17.pdf

https://www.usaid.gov/sites/default/files/documents/1865/Global_Water_Strategy_2017_final_508v2.pdf

http://pdf.usaid.gov/pdf_docs/PA00KB5X.pdf

https://usaidlearninglab.org/sites/default/files/resource/files/landscape_analysis_report_04_10_17.pdf


technical approaches USAID and its development partners (and, to a lesser extent, other donors) are

using or anticipates using in support of each DR, and (2) what are the gaps in the existing research to

support the use of these approaches.

Separate to this activity, USAID’s Water, Sanitation, and Hygiene Partnerships and Learning for

Sustainability (WASHPaLS) activity is conducting literature syntheses on topics related to DR2, and the

Project team will be provided with products from those syntheses so that it can integrate relevant

findings and evidence into its research.

To complete Task 2, USAID expects that the Project team will first review documentation provided by

E3/W and other suggested sources to map the key technical approaches that USAID and its

development partners are using in support of each DR. E3/W and the Project team will closely

collaborate to finalize the selected key approaches on which these gap analyses will focus. The Project

will submit a brief memorandum based on its consultations with USAID listing the selected approaches

and brief justifications for inclusion or omission of specific approaches, as necessary, for E3/W’s approval

prior to conducting the gap analyses on these approaches.

The Project team will also conduct in-person and remote key informant interviews and group

discussions, as needed, with relevant individuals that may include staff from USAID/Washington

(including E3/W) and field missions, government partners, other donors, and civil society organizations.

The team will use information collected from these interviews to iteratively inform the development of

the gap analyses, including identifying the key technical approaches that will be examined through the

analyses, clarifying the existing evidence and gaps as well as key research questions around those

approaches, and triangulate preliminary findings from the team’s gap analyses. Prior to conducting these

interviews, the Project team will consult with E3/W to identify the relevant interviewees and their

contact information, develop semi-structured guides for conducting the interviews, and finalize the

selection and scheduling of the interviews. Individuals from high priority countries designated by the

under the Water for the World Act18 should be well represented in the interviews.

The Project team will present preliminary findings from these gap analyses to E3/W staff for feedback

and validation and to inform its ongoing research agenda development process.

Task 3: Key Considerations for Evidence Gaps

Following completion of the gap analyses, the Project team will prepare four brief reports (which should

be up to 10 pages each of main body text) that briefly summarize the gap analysis findings on the

selected key technical approaches for each DR, and provide key considerations around the identified

evidence gaps as E3/W proceeds with the development of the research agenda. These briefs will be

informed by the gap analyses and key informant interviews, and should be organized topically around the

four DRs. The primary audience for these reports is E3/W and other USAID staff who will be involved

in the preparation of the research agenda.

Task 4: List of Potential Experts for the Research Agenda Advisory Panel

As a final task, the Project team will provide E3/W with a list of 20 relevant experts (annotated by their

expertise and mapped to the identified evidence gaps) who USAID could approach to provide

consultation, peer review, and guidance during the development of the research agenda. This deliverable

will be in the form of a simple list of names noting their relevant expertise for each technical approach

or evidence gap, and their contact information (if available).

18 These high priority countries include Afghanistan, Democratic Republic of Congo, Ethiopia, Haiti, Indonesia, Jordan, Kenya,

Lebanon, Liberia, Nigeria, South Sudan, Uganda, and West Bank/Gaza.


V. Deliverables and Reporting Requirements

The Project team will be responsible for the following deliverables under this SOW:

Deliverable Estimated Due Date

1. Draft Work Plan including estimated budget o/a February 9, 2018

2. Revised Work Plan

10 business days following receipt of all

written comments from USAID on the

draft work plan

3. One-page summary of key principles for the

development of the Water and Development

Research Agenda

To be proposed in the work plan

4. Memorandum of proposed key approaches on

which the gap analyses will focus To be proposed in the work plan

5. PowerPoint presentation of preliminary findings

from the gap analyses organized by the four DRs To be proposed in the work plan

6. Four reports on key considerations for identified

evidence gaps, organized by the four DRs. To be proposed in the work plan

All documents and reports will be provided electronically to USAID. All debriefs will include a formal

presentation with slides delivered both electronically and in hard copy for all attendees.

VI. Team Composition

In its work plan, the Project team will propose a staffing plan for this activity including specific positions

and CVs for proposed individuals to serve in those positions. Illustrative positions anticipated for this

activity are described below.

Senior Sector Advisor. A senior advisor with at least 10 years of demonstrated experience relevant

to the DRs will provide technical guidance to the core team carrying out this activity.

Researchers. A small team of approximately four junior- to mid-level researchers with relevant subject

matter expertise in the four DRs and at least three years of research experience will support this

activity.

Activity Coordinator: An activity coordinator will provide technical management to ensure the

successful completion of all tasks and products under this activity, including coordination with the core

team members and serving as the primary technical point of contact for E3/W. The activity coordinator

may also provide research and writing support for the scoping activity.

Home office support from the Project team is also anticipated for this activity, including technical

guidance, quality assurance, administrative oversight, and logistical support as needed.

VII. USAID Participation

E3/W expects a highly collaborative and interactive process with the Project team for the

implementation of this activity. Key E3/W staff will work closely with the Project team to provide

guidance and feedback on the selection of the key technical approaches on which the gap analyses will

focus, select key informants for interviews, and discuss how the gap analysis findings may inform the key

considerations to be presented in the four reports to be prepared by the Project team.


A designated E3/W representative will serve as the Project team’s point of contact and regular check-in

calls are anticipated throughout the implantation of the activity. The Project’s Contracting Officer’s

Representative will provide final approval of all required deliverables.

VIII. Schedule

The Project team’s work plan will include a detailed schedule and proposed delivery dates for this

activity. The expected period of performance for the activity is January to May 2018, assuming USAID

approval of this SOW by the end of January 2018.

IX. Estimated Budget

The Project team responding to this SOW will provide a detailed estimated budget in its Work Plan for

USAID’s review and approval prior to commencing implementation of the activity.

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