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TCGI is working with Evensen Dodge International in a USAID Global Development Alliance (GDA) designed to:
- mobilize domestic credit for basic infrastructure projects that benefit more people;
- lower costs of issuance to encourage more sub-national organizations seek capital markets financing because of real savings opportunities;
- strengthen investors’ confidence to become increasingly comfortable with sub-national organization’s financial operations; and
- foster broader Capital Markets development.
This GDA program will give special priority to financing opportunities related to water and sanitation. The GDA program recognizes the world-wide trend toward corporatization, commercialization and regionalization of water and sanitation utilities. Therefore the Special Purpose Vehicles (SPVs) that will be structured under the program, will focus on separating water and sewerage utilities from local governments. This way, the financing models that may result from this program will follow structured corporate finance approaches, with the borrower being the utility, not a local government entity. At the beginning loans are expected to be small and will be calibrated to the debt service capacity of the utility. During this phase, small revolving funds and bond banks are most appropriate because (1) they concentrate on fixing the utility and bringing it back to operational health, and (2) they provide loans of a size that can actually be serviced by a recovering utility. These will grow over time, but first, they have to help create bankable utilities.
In addition to treating water infrastructure financing as a priority, geography is also relevant. This program’s modules will include secondary and tertiary cities, towns and slums as a priority and will assemble models that are adapted to non-capital cities and towns. The GDA will encourage the formation of bankable local infrastructure services through commercialization, corporatization, and effective governance and regulation. In addition, the GDA will give some degree of priority to financing mechanisms and arrangements that mobilize resources for commercialized infrastructure providers.
Sub-national organizations’ financing in developing countries is essential to meeting infrastructure and basic services needs. Donor funding will never suffice to meet the growing needs of developing country local governments. The potential impact that this GDA program could bring to selected countries by developing a sustainable sub-national finance market is large because it will empower national and sub-national authorities, private firms, and NGO’s to meet the basic needs of the citizenry and help stimulate economic growth.
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