Improving payment systems

The collection of water bills is a huge problem in many developing countries. Often rates of non- collection can be 40-50%. Any solutions to improve the collection rates can thus immediate have strong positive impacts on the financial performance of water utilities. There are a number of reasons behind the low collection rates. The affordability and ability to pay especially of the poor are one important reason. Especially in case of insecure income in the informal sector to make regular monthly payments can be difficult for many poor families. Another reason is illegal tapping. In many developing countries small communities do illegal tapping from main water pipes. Another issue is the discipline of utilities to manage the process and effectively measure water consumption, monitor and cut-off.

Below an example is shown regarding innovative payment systems by using mobile phones for payment of traditional drinking water services.

Mobile payments of water bills in Kenya, Tanzania, Uganda and Zambia Introduction and objectives

In Africa there were in 2013 more people with a mobile phone connection than with access to drinking water (African continent: 620 million mobile phone subscriptions in 2013). Many water providers have problems with performance and cost recovery. Lack of payments of water bills is a big problem in many countries in Africa. About 500 mln USD per year is not paid. This is why in a number of African countries water providers have started collection of water bills by mobile phone transfers in order to increase water tariff collection (and therefore cost recovery).

Concept

Water utilities are teaming up with network operators and have created mobile paying systems in several towns in Kenya, Zambia, Uganda and Tanzania. Basically invoices are sent to mobile phones and money to pay for the water bill can be transferred by mobile phones. A survey has indicated that most users favor the system because of time savings (not having to travel to banks), cost savings and to a lesser extent to be able to pay on time. Another advantage is that in case billing takes place more frequently (i.e. weekly instead of monthly) people can pay more easily.

Main sponsor and stakeholders

Main players are the local water utilities and network operators and banks. Systems function on local scale in Kenya (Nairobi) and Tanzania and national scale in Uganda and Zambia.

39 Innovative financing and positioning of the water sector

Innovations in payment systems aimed at increasing the collection rates of water utilities are essential for improving the financial performance of the water and sanitation sector in many developing countries. Mobile phone payment systems are one possibility to improve such systems and seem to be promising from the case presented. Improvement of monitoring and water consumption metering systems (also with support of mobile metering devices), stricter penalties to non-payers, smart tariff policies, prevention of illegal tapping etc. are other important possibilities to improve the cost recovery of water supply providers.

4.2.1 Water security: Innovative payment systems

The security of water is seen in many countries as a public good that can be made possible because of public funding. Alternative payment systems are often difficult to organize and

implement because there is a lack of experience with other payment systems. Below an example is shown regarding an innovative payment system in local farmers get incentives to use more sustainable farming techniques so that the water intake, the water pollution and erosion is reduced.

Scale and specifics regarding the business model, financing model

People pay water bills with a mobile phone application. The application is provided by the mobile operator and banks.

Success factors

Trust by the (potential) users in the system is a key success factor. Therefore, users would like to see authorized confirmations when payments are made. Some network operators charged high transaction cost which prevented good penetration. Finally promotion and marketing are very important factors.

Constraints and applicability

Lack of mobile phone penetration and lack of trust in the payment system or mobile phone operators can be important obstacles. These systems will mainly work in areas with high level of mobile phone use and trustable payment and confirmation systems.

Lessons learned

• Implement a trustable system with clear immediate confirmations of payments; • Keep transaction costs (fee %) for mobile operators low;

• Promotion and marketing are key.

Appropriate finance for Sustainable Water Management in the Lake Naivasha Basin Introduction and objectives

Basically the Integrated Water Resources Action Plan is a public-private programme which aims to develop an enabling environment for sustainable water management in the lake Naivasha basin. The ongoing IWRAP (Integrated Water Resource Action Plan) Programme started in 2013 and is a four year programme. Commercial businesses in the basin are often blamed for water pollution and abstraction. Subsequently they also have an interest in sustainable water management to protect their reputation. Finally, international standards generally require sustainable production methods by the farmers producing for the export market.

Concept

The program provides under the so called Payment for Environment Services (PES) scheme incentives to small scale farmers in selected vulnerable areas to change their farming methods to more sustainable techniques. The incentives are in kind (products and time provided by

downstream buyers) and consist of trainings (provided by NGOs). The new farming techniques aim at reducing water intake, water pollution and erosion. The program also developed standards for water use by farming and horticulture/ floriculture.

Main sponsor and stakeholders

Implementation is lead by WWF Kenya in collaboration with CARE and with public and private Kenyan partners. Funding is provided by the Netherlands Embassy in Nairobi.

Scale and specifics regarding the business model, financing model

Revenue collection on water abstraction and discharge is arranged by the government. In-kind support and TA Incentive scheme is organized for the small scale farmers (smallholders). Land use and water management in the upper catchment has a direct impact on the water in the lake.

The Payment for Environmental Services (PES) scheme has two important elements. The first one is revenue collection on water abstraction and discharge by the government. This is in place legally and is optimised by the programme by improving systems for monitoring, management, enforcement and accountability. Secondly, incentives are provided to small-scale farmers in selected vulnerable areas of the upper catchment (land degradation hotspots) to change their farming methods towards more sustainable techniques. The incentives – consisting of the required farming inputs to change farming methods – are provided in kind at a certain value by commercial farmers downstream (the ‘buyers’). Mobilisation and training of farmers is provided by civil society organisations (Water Resource User Associations, WWF and CARE) and the government (Department of Agriculture).

Constraints and applicability

Constraints could be the (non) existence of regulations on water intake of companies and absence of larger companies to provide the in-kind incentives to small scale farmers. This might imply the model is only applicable to reasonably developed water basins with some medium to large companies buying in from small scale farmers.

Lessons learned:

• Incentives could be broadened to grants and credits (credits especially for rising income farmers);

• Transaction costs could be decreased by more incentive payment schemes to implementation;

• Contributions of buyers are now voluntary, these could be made more sustainable based upon fixed levy on products;

• Scheme could be extended to other sectors such as tourism etc.

41 Innovative financing and positioning of the water sector

The case shows that it is possible to create a public –private partnership and financial mechanism at basin level with small holders and other companies involved aiming to reduce water extraction and pollution. Essential elements for such a business model are interest and commitment of the partners, enforced regulation for water extraction and incentives to farmers and other smallholders.