USAID to provide US$3.2 million guarantee for Urban Local Bodies in Tamil Nadu

August 28, 2002

In a path breaking initiative, USAID and the Government of Tamil Nadu (GOTN) have developed a pooled financing structure for small and medium urban local bodies (ULBs) in the State. This will give the ULBs leverage to access the capital market for financing water and sanitation projects through Municipal Bonds.

Under its bilateral project Financial Institutions Reform and Expansion (FIRE-D) project, USAID has been working closely with GOTN on various urban sector reforms through capacity building of ULBs and innovative ways of resource mobilization for infrastructure.

Government of India's (GOI) latest budget includes a Pooled Finance Development Fund for small and medium ULBs in the country. This concept has been initiated and promoted by USAID in partnership with Ministry of Urban Development, GOI.

The first pooled financing structure of its kind in India has been put together by USAID and Tamil Nadu Urban Development Fund (TNUDF) through a Development Credit Authority (DCA) guarantee of US$3.2 million. The guarantee is intended to provide credit enhancement for pooled financing of water and sanitation projects for 14 small and medium ULBs of Tamil Nadu. Municipal Bonds will be issued by a debt fund named "Water and Sanitation Pooled Fund" and disbursed to the identified ULBs under the pooling arrangement.

At a ceremony in Chennai on August 22, the DCA guarantee was signed by Ms. Santha Sheela Nair, IAS, Secretary, Municipal Administration and Water Supply, GOTN in the presence of the Honorable State Minister for Municipal Administration, Water Supply and Rural Development, Mr. M.C. Sampat.