Housing Finance has loaned the Embu Water and Sanitation Company (Ewasco) Sh87 million marking the first time the lender has made such a commercial loan.
The housing firm’s $1 million loan to Ewasco is the first under its Commercial Finance Programme and will go towards construction of a 17-kilometre water pipeline that is expected to expand connectivity to 6,000 households and some 100 schools in Embu County.
The listed mortgage company has financed 80 per cent of the project and Ewasco will finance part of the balance $250,000 (Sh22 million) through the German Development Bank, which is subsidising 40 per cent of the remaining cost.
HF said such loans would help seal an estimated Sh280 billion financing gap the public water service providers are expected to have within the next five years as they expand services.
“Lack of access to adequate financing for capital investments and utility expansion remains a key challenge in the water sector in Kenya and a major hurdle to increasing access to improved water services in urban areas. Commercial financiers today have a critical role to play in providing financing infrastructure development,” said HF chief executive Frank Ireri in a statement.
The Water Services Trust Fund, the state body that supports financing for water service providers, said the new model should result in increased connectivity.
USAid Development Credit Authority guarantee will guarantee the seven-year loan.
Improvement in cash flow for the water service providers, helped in part by electronic payment platforms such as M-Pesa, have improved the credit worthiness of the entities.
A 2011 World Bank report on the providers in Kenya said the huge demand for water and sewage infrastructure can be financed by banks, pension and insurers who are liquid and want to diversify portfolios.
The World Bank said improving cash flow would be the incentive for private financiers to lend to the entities.
“As revenues are generated at the water services provider level, Kenyan financiers have indicated that they will lend to water services providers to capture cash flows from consumers directly,” said the report.
The report gave the utility providers ratings that in turn give lenders more data to help make better decisions.
Ewasco had a BB rating at the time, which while not the best still gave the service provider room to access a commercial loan.
“Relatively small improvements in some financial and operating performance indicators should enable the top four BB rated water services providers to access debt from the domestic financial market,” said the report.
“This has wider array of charges that they can offer,” said Kevin Kihara, HF general manager for business development.