Rapid urbanization in India has increased the demand for urban water supply and sanitation WSS services. The 74th constitutional Amendment gave urban local bodies (ULB) the responsibility to provide these services. The sources devolved to ULBs are, however, not sufficient, and still depend on higher levels of government. Hence ULBs have to look for alternative sources for financing their infrastructure costs. Market-based financing of the urban WSS sector has emerged as a viable alternative to finance infrastructure investment. FIRE (D) project is working with national, state, and local governments in India to develop a market-based bond market. AMC is the first municipality which has implemented municipal bonds in India in 1998.

• Rating agencies provide investors with an independent third party evaluation of the credit strength or weakness of a particular bond issue.
• Rating agency rates the creditworthiness of a particular dept offering, essentially addressing the ability and willingness of a government issuer to pay its depts.
• Rating includes legal, administrative framework, economic base of service area, municipal finance, existing operations, management capacity, project viability, financial structuring, etc.
• CRICIL developed a methodology to carry out credit rating for ULBs.
• AMC issued a bond worth of Rs. 1,000 million to partially finance water supply and sewerage projects.
• Before issuing a bond, AMC had instituted significant fiscal and management reforms. Due to these measures AMC was able to turn around its financial position from one of cash deficit to one of cash surplus.

• The debt market in India for municipal securities has grown considerably since the issuance of Ahmedabad Bonds.
• Since 1998, other cities that have accessed the capital market through municipal bonds without a state government guarantee include Nashik, Nagpur, Ludhiana and Madurai. In most cases, bond proceeds have been used to fund water supply and sewerage schemes or road projects.
• India's city governments have thus mobilized about Rs. 4,450 million from the domestic capital market through taxable bonds.
• Credit rating of ULBs has improved the cost recovery and financial management of ULBs as well as led to better management of service delivery systems.

Examining the financial viability of ULBs before issuing a bond made the procedure sustainable. Other than AMC, Municipal corporations like Hyderabad, Chennai, Nashik and Vizag have issued municipal bonds for water supply, sewerage and road projects.

For further details, contact:

Mr. Chetan Vaidya
Principle Advisor
AMC, KUIDFC, Indo-US FIRE (D)