The idea is to differentiate tariffs based on a specific factor common to a group of users, as the volume of water consumed or users' living area. This can also also be used for connection fees.
This approach is considered to be a good way to reach the poorest. However, the [[Asian Development Bank (ADB)]] concluded that whereas it helps to sustain existing systems, current approaches do not reach the poorest [http://www.adb.org/Waterdocuments/Policy/consultations/INDconsultation-phase-adb-accountability-mechanism-listening-communities-2005affected-Consultationadb-Report.pdf#page=31]. Tariffs based on volume are interesting, but metering is normally a problem, since it is costly. Customer involvement in the process is also very important. China’s Rural Water Supply program, for instance, has over 90% payment compliance in households with metered systems whereby the salaries of the operations staff are tied to monthly bill collection and raising tariffs if they do not cover operating costs. Cross subsidies have high potential however, particularly for poor slum dwellers, but innovative ways of dealing with the problem of metering are needed.
Regarding sanitation, the BMGF landscaping recognized differential tariffs in sewered systems charging below cost to poor users and above cost to others. These is a typical example of cross subsidies (non-poor users subsidizing poor ones).
Although this is not a finance approach on its own, increased transparency can have a great impact in allowing more efficient use of more available funding.
Corruption is a widespread phenomenon and drains part of the funding that could be used for productive activities, better salaries, etc. Rising transparency requires better procedures and access to information [http://www.irc.nl/content/download/21439/253860/file/How%20to%20hold%20a%20meeting%20tool%20(Stockholm).pdf]. A study comparing productivity among 21 water utilities in Africa found that nearly two-thirds of their operating costs were due to corruption [http://www.wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2002/10/25/000094946_02101104032679/Rendered/PDF/multi0page.pdf].
Fighting coruption corruption has high potential because the part of the sector's funds that are currently lost due to its presence can be used for service improvements or expansion of water and sanitation systems.
=== Franchising ===
====Users pay the cost for operation and maintenance====
Accepted as a rule, but not always covering all costs in sewered systems. Poor often cannot afford the fees. Also used for communal facilities that are managed by group of families, paying monthly rates, for example in Nairobi (http://www.wupafrica.org/). In South Africa differential tariffs are used to support the poor, and no tariff is charged to families using less than 6000 litters of water per month (http://www.joburg.org.za/services/water3.stm). Potential relates to the need to sustain services.
=== References ===
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