Small towns vary widely, both in terms of economic base and water service delivery models. They are often located on the border between urban/rural or peri-urban/urban, and serve a variety of purposes. In rural areas, they can be market centers a few days a week, placing thus pressure on basic infrastructure for short periods of time. They can be growing, due to inmigration of permanent settlers. In either case, the need for piped water, appropriate sanitation and drainage to support commercial and industrial growth, as well as to meet residential demands is often not met. Water and sanitation provision in small towns tends to be a combination of public-private utilities and small-scale domestic providers, serving their customers through a variety of technologies: piped water, standpipes, hand pumps and or vendors/tankers.
Traditional sources of external finance (ODA grants and concessional sovereign loans) are often inadequate, but the only type of finance available. Small towns lack the scale of larger urban utilities, a feature which attracts both public and sometimes private investment (national and international); yet they are often too large to benefit from the community-based and microfinance mechanisms that are applied with success in rural areas.
This paper reviews some of the creative ideas that have emerged to address the financial constraints to small town water and sanitation service delivery. It emphasizes domestic sources of finance for both hardware and software investments. These ideas involve a range of different stakeholders, including users, informal providers, utilities, governments, NGOs, domestic banks, and donors.