Progress-Linked Finance: a study of the feasibility and practicality of a proposed WASH financing approach

This report assesses the feasibility of a financing model, Progress-Linked Finance (PLF), designed to incentivise and support water, sanitation and hygiene (WASH) service providers to meet the needs of poor urban residents in a financially sustainable manner. Under the PLF model, international financing institutions (potentially including multilaterals, bilaterals, and foundations) would enter into commitment agreements with urban WASH service providers, notably utilities and municipalities.
In very simple terms, PLF can be summarised as an agreement of the following type: “If the service provider can demonstrate 3 years from now that they have met conditions A, B and C in relation to financial viability and pro-poor commitment and capacity, the financing institution will provide a grant or loan of amount X for WASH scale-up”. In reality, agreements would likely be more complex, for example entailing a series of agreements involving a number of financing institutions. Central to the model is positive incentivisation coupled with rigorous verification that conditions have been met.
On the basis of desk analysis and wide-ranging interviews with urban WASH financing experts, this initial assessment finds that the PLF concept is broadly feasible. We explore different variants of PLF, and suggest various ways in which the concept might be put into practice.