Urban Infrastructure, especially water and sanitation investments require long term debt on account of externalities over time and space, severe fiscal constraints on the supply of equity from State and local Governments for new investments and substantial low income population constraining the ability to pay for high financing costs. Municipalities also require short-term working capital in view of the lags between revenue and expenditure flows. Consequently, the need to link city infrastructure financing requirements with domestic capital markets is well understood. Debt finance is a pre-requisite for undertaking essential civic investments, and in the long run, domestic savings through capital markets would have to be, predominant source of supply.

In India, the sources of municipal debt have been limited usually to State Governments or financial institutions on the basis of guarantees issued by the State. However, since the 1990’s, larger cities such as Ahmedabad, Bangalore and State level financial intermediaries such as TNUDF have raised debt for municipal infrastructure by accessing capital markets based on credit ratings through issuing debt instruments of varying tenure on a non-guarantee mode. These have tended to be debt for capital investments. The need for an institutionalised mechanism to raise low cost funds for water and sanitation needs is clear-cut in the lines of US Bond Bank as a potential model.


A pooled entity has been created by GoTN in the name of Water and Sanitation Pooled Fund (WSPF) and registered as Trust under the Indian Trust Act 1882. This trust would identify viable projects and fund them from concept to commissioning on a sustainable basis. The fund would make the Urban Local Bodies (ULB) a part of the active debt markets so as to avail the best interest rates available in the market.

As a pioneering effort for market access, certain ULBs and a few of their projects have been selected to be financed / refinanced by the proceeds of WSPF bond issue. The projects have been selected after careful consideration of their financial viability and commitment towards development.


WSPF is managed by the Trust Manager, Tamil Nadu Urban Infrastructure Financial Services Limited (TNUIFSL). Besides the Trust Manager, the Board of Trustees of the fund comprises the officials of Government of Tamilnadu and TNUIFSL as detailed below:

Chief Secretary


Secretary to the Govt.,Finance Department


Secretary to the Govt., Planning & Development Department


Secretary to the Govt., Municipal Admin. & Water Supply Department


Managing Director and Chief Executive Officer, TNUIFSL

Member - Secretary


The main purpose of the Fund is to channel increased financial resources including private financing, into high priority infrastructure investment, contributing directly to improved living standards of urban population. The objectives of the Trust are:

  • Provide financial assistance for setting up urban infrastructure projects;
  • Mobilize resources from the capital markets under pooled finance structure;
  • Facilitate the participation of private sector in the water and waste water sectors through direct investment and through joint delivery mechanism of Public Private partnerships;
  • Enable ULBs to access debt finance from markets; and
  • Act as nodal agency on behalf of the Central and /or the State Governments for water, sanitation and / or any other infrastructure project.


Bond issue

The GoTN recognising the need for widening the market for urban infrastructure financing especially at the municipal level have taken several policy measures. Accordingly, unsecured non-convertible redeemable bonds under pooled financing framework have been floated for Rs.30.41 crores in the financial year 2002-03. This first bond issue saved a sizable amount in the debt servicing of the ULBs, thereby freeing up the resources of ULBs for further augmentation. USAID has extended guarantee to the extent of 50% of the principal for this bond issue. The WSPF achieves the three fold purposes of funding infrastructure viz., institutionalized mechanism, affordable cost of funding and a non-guarantee mode of raising resources for urban infrastructure. Thirteen ULBs participated in this consortium. This pooled financing structure is the first of its kind in India. The balance outstanding as on 31st March 2007 was Rs. 22.30 crores.


The GoTN nominated the WSPF as the nodal agency for the implementation of the Under Ground Sewerage Projects under the National River Conversation Project (NRCP) in the financial year 2002-03. The WSPF pools fund from various sources to meet the project expenditure. Under NRCP, a sum of Rs. 89.77 crores was mobilized and disbursed upto 31st March 2007.

PFDF Scheme

The Government have designated the WSPF as the State Pooled Finance Entity under Pooled Finance Development Fund (PFDF) Scheme of Government of India. It is proposed to mobilize resources of about Rs.45 crores by issue of tax free bonds under PFDF scheme to fund water and sanitation projects of seven ULBs. M/s. Fitch Ratings India Private Limited has completed the rating of the proposed bond issue and assigned in-principle rating of AA (ind) (SO) which denotes a stable investment grade.


The fact that urban infrastructure investments require long-term finance is well understood. Especially well known is the fact that unless the domestic debt market has sufficient depth, the scope for large volume trades in Municipal Debt instruments is limited. Quite apart from these macro considerations, at a more micro level, capital markets even with sufficient depth could not directly on account of economies of scale service sector specific small municipal projects. Hence, the needs for intermediation like WSPF.