__NOTOC__<small-title />
The cost of capital is the financial cost of borrowing money to provide and maintain assets for water, sanitation and hygiene services. It is made up of the interest paid on borrowed money plus any returns on equity to the owners of the system. The cost of capital is often given as the percentage (%) over the loan amount. Typical loans that private individuals get at a bank range from 5 –30 % per year.
If a system is financed through a grant, then there is no cost of capital, but if a government borrows to fund a water and sanitation programme, there is a cost of capital to the government.
===Examples===
Even subsidised loans with interest rates lower than 1% can lead to significant annual expenditures on cost of capital if there is a large loan and a long repayment period as shown by the example of Franceys, Naafs, Pezon and Fonseca, 2011:
As most water and sanitation infrastructure does not have a life span of more than 20 or 30 years. The financial burden of paying the cost of capital often surpasses the life span of the infrastructure it financed. In this example the government is paying the cost of capital for 50 years while the water or sanitations systems that were constructed with the loan probably need to be replaced or rehabilitated after 10 – 30 years.
===Key documents===
* Franceys, R., Naafs, A., Pezon, C. and Fonseca, C., 2011. [http://www.washcost.info/page/1490 The cost of capital : costs of financing capital expenditure for water and sanitation]. (WASHCost briefing note; no. 1c). The Hague, The Netherlands: IRC International Water and Sanitation Centre.
:This Information sheet opens the discussion on Cost of Capital. How much is the sector (indirectly) paying for interventions in the past and how much is the sector planning to pay in the future?
===Links===
* WASHCost was five-year action research programme, running from 2008 to 2012. The WASHCost team gathered information related to the costs of providing water, sanitation, and hygiene services for an entire life-cycle of a service - from implementation all the way to post-construction. The WASHCost programme was led by IRC International Water and Sanitation Centre with several partners to collect data in the rural and peri-urban areas of Burkina Faso, Ghana, India, and Mozambique. For more information see [http://www.washcost.info WASHCost]