The Water and Sanitation Pooled Fund (WSPF) in Tamil Nadu issued a pooled bond to facilitate access to long-term domestic capital markets for small and medium Urban Local Bodies (ULBs) to finance water and sanitation services. This enabled a grouping of 13 ULBs to overcome high transaction costs and mobilize funds through a single bond issuance. The WSPF helped spread credit risks and pool the ULBs’ resources to meet funding requirements for market access, thereby achieving economies of scale in the process. The proceeds from the pooled bond issuance were disbursed to ULBs in 2003, and the majority went to refinance outstanding loans at lower interest rates for previously completed water and sanitation projects. The WSPF issuance for this initial bond set a model for future pooled bond use. It was well structured from a credit perspective and achieved a very high AA rating, which enabled it to be sold.
Tamil Nadu, India
Project size (range)
Project size (details)
The Water and Sanitation Pooled Fund (WSPF) in Tamil Nadu
Year of financial closure
The first pooled issue was 2002
13 municipalities in Tamil Nadu
Banks and Pension Funds
Partial Credit Guarantee (PCG) was provided by DCA (USAID)
Other transaction participants
Government of Tamil Nadu
Access to market finance for small cities and small projects has been enabled through a Trust Structure: The existing Tamil Nadu Urban Development Fund (TNUDF) primarily serviced large ULBs with dependable revenues. Many of the small and medium sized municipalities tended to be excluded from accessing financing via the TNUDF. Bond issuance fees, legal costs, and an inability to get a credit rating prevented small and intermediate local governments from accessing capital markets.
Commercial financiers were incentivised: A supportive environment for municipal finance facilitated the use of effective credit enhancements in the transaction, which lowered the risk for commercial financiers. Participating ULBs were legally required to establish an escrow account and there was a State revenue intercept mechanism.
WSPF issued a pooled bond to facilitate access to long-term domestic capital markets for small and medium Urban Local Bodies (ULBs) to finance water and sanitation services. Debt was repaid from project cash flows and general ULB revenues. A multi-layered credit enhancement package was designed to extend the bond's maturity and increase investor confidence. The different credit enhancement mechanisms included a debt service reserve fund capitalized by the state government, the creation of individual ULB escrow accounts, a local debt service reserve fund, a State revenue intercept mechanism, and a partial credit guarantee from USAID.
Suitability for cities in low-and-middle income countries (detail)
Yes. Suitable if municipal or project revenue streams are stable and bond markets are available for municipal offerings.