Dr Amit Chanan highlights the challenges of delivering clean water and sanitation and describes the methods used by IFC to leverage investment.
For the water professionals delivering universal access to clean water, sanitation is a compass that guides our daily efforts. Yet the progress – let’s face it – sometimes feels painstakingly slow.
Water is essential for life, economies and the environment. Achieving this global goal demands significant investment in infrastructure, sanitation and water resource management. However, financing these vital projects remains a major hurdle, especially in developing nations facing limited resources and rapidly increasing demand because of population growth, urbanisation and climate change.
Current estimates suggest that global investment needs in the water sector exceed $1.37 trillion. To achieve universal access to clean water and sanitation by 2030, investments must increase six-fold from current levels. Despite this urgent need, the sector continues to grapple with persistent financing challenges stemming from both structural and institutional limitations. These include high capital costs, long payback periods, constrained revenue streams, political and regulatory risks, and a scarcity of ‘bankable’ projects.
Financing water projects in emerging markets
The financing of water infrastructure faces a range of persistent challenges. High capital costs and long payback periods make water projects less attractive to private investors, while limited revenue streams – often due to subsidised tariffs – undermine the financial sustainability of utilities. Political and regulatory uncertainties, including shifting policies and weak contract enforcement, further elevate investment risks. And the ever-worsening threat of climate change further adds complexity and costs, requiring resilient infrastructure to cope with severe droughts and floods.
Smaller-scale projects, especially in rural areas, struggle to attract finance because of high transaction costs and perceived low returns. Public budgets are often stretched thin across competing priorities, leaving water projects underfunded. Currency and exchange rate volatility pose additional risks for projects reliant on foreign capital. And, most critically, the lack of bankable projects because of weak technical, financial and institutional capacity remains a major bottleneck.
While all of the above factors present real and significant barriers, it is this final challenge – the lack of bankable projects – that should irk us the most. In a world where private sector investors are increasingly ready and willing to deploy capital towards sustainable infrastructure, the absence of well-prepared, investment-ready water projects is a missed opportunity. When financing is available but cannot be deployed because of poor project preparation, the gap becomes not just a matter of resources, but of readiness. In such cases, the lack of bankable projects appears almost inexcusable.
IFC’s role in bridging the water finance gap
Overall annual spending in the water sector for developing countries is about $164.6 billion, which is just about 0.5% of their total gross domestic product (GDP). Roughly 91% of this annual spending comes from the public sector, including public spending by the government and state-owned enterprises. Less than 2% comes from the private sector.
This funding gap is not just a shortfall – it is a structural failure. Public budgets alone cannot shoulder the burden of expanding and modernising water infrastructure, especially in the face of rapid urbanisation, ageing systems, and climate-induced water stress. Without a dramatic increase in private sector investment, universal access to clean water and sanitation simply cannot be reached.
And the paradox is stark: while capital is available, it is not flowing into the water sector at the scale or speed required. Why? Because too few water projects are structured in ways that meet investor expectations. The problem is not just a lack of money – it’s a lack of bankable projects.
This is where the International Finance Corporation (IFC) comes in. As the private sector arm of the World Bank Group, IFC is uniquely positioned to bridge the divide between public need and private capital. Its core approach focuses on unlocking private capital, fostering innovation, and promoting sustainable development in the water sector.
IFC’s model is purpose-built to address the ‘bankability gap’ by structuring projects that align with investor expectations and risk-return profiles, thereby making them more attractive to private capital.
IFC’s innovative funding models
To address the complex financing needs of the water sector, IFC employs a range of funding models tailored to project scale, risk profile and development impact. These include long-term debt financing, such as a $77 million loan to the Central Water Authority (CWA) in Mauritius to modernise and expand the country’s water supply infrastructure for 0.6 million people; and equity investments that provide patient capital to early-stage private ventures, such as the $20 million stake in WaterHealth International (WHI), an Indian company developing rural treatment plants. IFC also uses blended finance to de-risk socially impactful but commercially challenging projects, exemplified by the Vietnam Industrial Pollution Management Project, a wastewater treatment initiative in Vietnam supported through concessional funds from the Global Environment Facility (GEF).
In addition, IFC structures and finances public-private partnerships (PPPs) to leverage private sector efficiency, as seen in a bulk water supply project in Metro Manila, Philippines. It also taps capital markets through green bonds and sustainability linked financing, including a $500 million green bond issued in 2020 to fund climate-resilient water infrastructure in Africa and Asia. To further enhance investor confidence, IFC offers risk mitigation instruments such as guarantees and political risk insurance – critical in projects like the Jorf Lasfar Desalination Plant, Morocco, which is a prime example of the IFC’s role in risk mitigation through financing and risk-sharing mechanisms. These models collectively enable IFC to mobilise private capital at scale while ensuring sustainable and inclusive water service delivery.
As of December 2024, the IFC has invested and mobilised more than $4.7 billion in water infrastructure projects globally, reinforcing its position as a leading investor in the sector. These investments span a diverse portfolio of geographies and project types, addressing critical challenges in water supply, sanitation, wastewater treatment and climate resilience.
Tackling the challenges
Financing water projects in emerging markets is a multifaceted challenge that demands innovative solutions and robust collaborative efforts. The IFC’s model, grounded in financial innovation, strategic risk mitigation, and strong partnerships, offers a scalable and highly effective approach to bridging the persistent water finance gap.
By adeptly aligning project structures with investor expectations and leveraging the power of blended finance, the IFC has consistently demonstrated that even projects traditionally deemed high risk or low return can indeed become bankable. As the world intensifies its efforts to achieve universal access to clean water and sanitation, the IFC’s role in catalysing private sector investment will continue to be essential.
The author:
Dr Amit Chanan is a senior water industry specialist, Global Water Team, World Bank Group
