Asian Development Bank (ADB) concessional loans for water supply and sanitation projects are being lent and re-lent by intermediaries at increasing interest rates and reach end borrowers at relatively high rates of interest. Poor users can often not afford to connect to services because projects are forced to impose high tariffs to be able to repay the loans. These are some of the main findings of a WaterAid study [1] of ADB water supply and sanitation projects in Bangladesh, India and Nepal.

The ADB lends money to central governments, normally to the Ministry of Finance, public and private enterprises. Typically these loans are on-lent twice before they reach the final borrower, a lower level of government or users. Each time loans are on-lent, interest rates are raised and the period for repayment reduced.

To ensure that concessional lending actually benefits the poor, WaterAid calls on the ADB and governments to:

• promote prudent debt management
• increase transparency on debt profiles and lending terms and implications
• ensure local government and citizens’ participation in decisions on borrowing and tariffs
• build capacity of local governments to design local projects
• initiate debt relief on ADB loans
• stop turning grants into loans

Contact: WaterAid, UK, wateraid@wateraid.org, http://www.wateraid.org

Web sites: WaterAid - Financing the sector ; IRC - Financing and cost recovery ; WWC/GWP: Financing Water for All

[1] WaterAid (2007). The true cost of concessional loans : on-lending practices at the Asian Development Bank. (Discussion paper). PDF file [1.62 MB]

Tags: policies & legislation