Transfers

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Transfers refer to funds from international donors and charitable foundations, including non-governmental organisations, decentralized cooperation or local civil society organizations and typically come from other countries (WHO and UN-Water, 2012).

For an overview of transfers available for water, sanitation and hygiene (WASH) projects or businesses in developing countries see Transfers - Available Funds.

Transfers can be made in the form of a:

  • Grant, non-repayable funds disbursed by one party (grant makers), often a government department, corporation, foundation or trust, to a recipient. In order to receive a grant, some form of "Grant Writing" often referred to as either a proposal or an application is usually required. Most grants are made to fund a specific project and require some level of compliance and reporting.
  • Loan, the borrower initially receives or borrows an amount of money from the lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time. Some sources do not include loans as part of transfers as the borrower is obligated to pay back or repay an amount of money to the lender at a later time (EUREAU, 2012).
  • Most commonly used loans in the water and sanitation sector are:
    • Concessionary loan, is a loan bearing no interest or a rate of interest that is below the average cost.
    • Microcredit, is a very small loan extended by a bank or other financial organisations that provide services to poor households (Saywell and Fonseca, 2006).
    • Guarantee, a promise by one party to assume responsibility for the debt obligation of a borrower if that borrower defaults. The person or company that provides this promise, is also known as a surety or guarantor.

Transfer mechanisms

These transfers can be made by:

  • Oversees Development Assistance (technical support and budget support)
  • Carbon credits
  • Direct transfers

Oversees Development Assistance (ODA)

Transfers include official development assistance (ODA). Official development assistance could be considered as an international tax transfer since it is paid for by tax payers from other countries. Aid policies (*) suggest more aid be delivered in the form of budget support, which implies that they would be disbursed in much the same way as national public budget resources (OECD, 2009). Official development assistance is usually seen as part of transfers, as donors are still disbursing most of their aid through projects and programmes rather than through recipient country budget processes.

Another important feature that distinguishes official development assistance from taxes is that they are levied in foreign countries, rather than nationally and the political and administrative process of securing ODA resources is very different from taxes (OECD, 2009).

In many developing countries, transfers remain a major source of financing for sanitation and drinking-water, mostly for capital expenditure (WHO and UN-Water, 2012). Over US$ 8.9 billion in official development assistance (ODA) (part of transfers) was directed to sanitation and drinking-water in 2009 (WHO and UN-Water, 2012). Official development assistance for sanitation and drinking-water accounts for more than 1% of Gross Domestic Product (GDP) in seven developing countries (see table 1).

(*) Defined in the Paris Declaration (2005), the Accra Plan of Action (2008) and the Busan Partnership Agreement (2012).


Table 1. Top WASH recipients by official development assistance (ODA) % of Gross Domestic Product (GDP)

Country Average donor disbursement for sanitation
and drinking water, 2008-2009 (US$ million) 		Donor financing for WASH (as % of GDP)
Timor-Leste 11 1.94
Samoa 9 1.80
Burundi 17 1.31
Nicaragua 74 1.20
Lesotho 21 1.18
Liberia 10 1.15
Haiti 69 1.05

Source: WHO and UN-Water, 2012, page 27


Official development assistance (ODA) for drinking-water and sanitation has risen slowly as a percentage of total development aid since the low point of 2002, but is still significantly below aid for social sectors, such as health and education (see figure 1).


Figure 1. Trends in official development assistance (ODA) for water and sanitation,
education, and health/population/HIV/AIDS, as a percentage of total ODA commitments, 1995–2010

Source: WHO and UN-Water, 2012, page 51

Budget support
Transfers can be made in the form of budget support where funds are transferred directly to the recipient government, thereby enabling the government to manage the aid as part of its own resources and help finance the implementation of their policies (Verhoeven, Uytewaal, E. and de la Harpe, 2011).

With budget support, the funds are channelled through the systems used for a government's own funded expenditures. This happens through the government's finance ministry (or "treasury") via regular government procedures, to the ministries, departments or agencies responsible for budget execution (Williamson and Dom, 2010).
The main types of budget support are (Verhoeven, Uytewaal, E. and de la Harpe., 2011):

  • General budget support (GBS); funds that are not earmarked for a specific sector of government spending
  • Sector budget support (SBS); funds are allocated for use in a specific sector or budget line, e.g. water and sanitation. Sector budget support from donors for WASH was only 3% of total WASH aid in 2010 (WHO and UN-Water, 2012).

Donors can also use transfers to give Technical Assistance (TA) in the form of (OECD, 2010):

  • Grants to nationals of aid recipient countries, receiving education or training at home or abroad.
  • Payments to consultants, advisers and similar personnel as well as teachers and administrators serving in recipient countries (including the cost of associated equipment).

Cardon credits

Carbon credits are a new potential source of transfers that are already being used on a small scale for wastewater treatment projects (E-Source, 2009) and household water treatment initiatives (Water Institute, 2012).

Recovering methane from wastewater treatment plants to generate power not only saves energy costs, it also helps to reduce greenhouse gas emissions, which offers operators in developing countries an opportunity to sell carbon credits under the Kyoto Protocol's Clean Development Mechanism (CDM) (E-Source, 2009). The sale of these credits could be used to finance treatment plants.

The Andean Development Corporation (CAF) is helping Peru's state water utility Sedapal to see how the sale of carbon credits could help finance a pilot project at the Carapongo wastewater treatment plant, in Lima's Ate Vitarte district. Sedapal has bought equipment to convert the methane gas that is produced at the plant. Potential buyers for the carbon credits will be sought through the Clean Development Mechanism (CDM).

Remittances

The largest transfers in the world are direct transfers of money by a foreign worker to his or her home country, also known as remittances. The World Bank estimates in their Remittance Market Outlook that remittances totalled US$ 414 billion in 2009, of which US$316 billion went to developing countries that involved 192 million migrant workers. What percentage of remittances is spend on water, sanitation and hygiene service delivery is unknown.


Examples

Chile: loans for sewerage connection

In a financing model introduced by the Municipal Works Company of Santiago (EMOS) in Chile, poor households can apply for loans to finance the connection costs to the sewerage network (Sijbesma, 2011). Loans can last for a duration of 12, 24, 36 or 60 months. Eligibility and duration are based on the city’s social services department’s classification of each household. Households are expected to repay loans, in addition to meeting their respective monthly tariff. The ultra-poor pay between US$ 5 and US$ 10, in ten installments.

Vietnam: loans for households to construct latrines or connect to a water supply

In Vietnam, the National Social Development Bank administers a government loan scheme where households can take out a loan for a sanitary toilet and/or a water supply connection (Sijbesma, 2011). Each household can take a loan of up to VND 3 million for a toilet, and the same amount for a water supply provision or connection. Together, the sanitation and water loans constitute about 7% of the total loans portfolio of the bank.

Key documents

  • Carbon credits: potential source of funding for wastewater treatment projects, E-Source, 19 May 2009
  • Saywell, D. and Fonseca, C., 2006. Microfinance for Sanitation. WELL factsheet. Loughborough: WELL/WEDC- Water, Engineering and Development Centre, Loughborough University of Technology.
  • Water Institute, 2012. Carbon credits and HWTS: a viable "green" funding mechanism? Webinar, 17 July 2012. Chapel Hill, NC, USA, The Water Institute, Gillings School of Global Public Health, University of North Carolina at Chapel Hill

Links

  • IRC International Water and Sanitation Centre is a knowledge broker, innovator and catalyst of change within the water, sanitation and hygiene (WASH) sector working internationally and in selected focus countries and regions. IRC seeks to extend WASH services to the less privileged, while ensuring that services are based on the sustainable use of water resources, are appropriately managed, and are better governed. IRC works in partnership with governments, the public and private sector, Dutch and international organisations, UN institutions, development banks and non-governmental networks and organisations.
  • Global Analysis and Assessment of Sanitation and Drinking-Water (GLAAS) is produced every two years by the World Health Organization (WHO) on behalf of UN-Water. It provides a global update on the policy frameworks, institutional arrangements, human resource base, and international and national finance streams in support of sanitation and drinking water.
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