THE PROBLEM

The average municipal waste collection rate in low-income countries is estimated at 36%, increasing to 82-100% in upper-high income countries. Africa and Asia are the continents with the lowest average collection rates. There is a clear need for waste management infrastructure in low-income countries to stop the flow of waste, and in particular, plastic, into nature and our oceans.

Traditional sources of capital for waste management infrastructure investments are insufficient to meet capital requirement needs for our growing waste volumes. Institutional investors, particularly pension and sovereign wealth funds, are increasingly seen as viable actors to fill these financing gaps.

THE SOLUTION

Municipal bonds are a feasible option available to large cities to raise resources for financing long-term projects, such as infrastructure development. Municipal bonds, like other bonds, have the advantage of borrowing on long-term basis (about 10-20 years), while paying for short-term infrastructure project requirements that give rise to revenue. The tax advantages of municipal bonds, i.e., non-taxing of interest income, in particular, make them popular with investors.

Source: https://www.researchgate.net/publication/313367892_Municipal_Bonds_as_a_Source_of_Finance_for_Urban_Infrastructure_Development_in_India

CASE STUDY EXAMPLES

Denver’s Mini-Bond Initiative
Prior to the mini-bond offering, the City of Denver in Colorado,USA, had an infrastructure maintenance spending that fell short by $25 million annually. As a result, Denver decided to tap into the municipal bond market and offer a new type of bond to attract investors and close the financing gap.

Traditional municipal bonds have been sold for $20,000 but Denver decided to sell mini-bonds for $500 each. A 9-year bond with a 50 percent maturity would yield $750 (a 4.8% return), and a 14-year bond with a 100 percent maturity rate would yield $1,000 (likewise a 4.8% return). The mini-bond returns are three times higher than the bank rate of 1.5 percent on traditional bonds, but the city sought to involve more residents into the infrastructure development process.

The mini-bonds financed the “Better Denver initiative,” a program consisting of over 300 projects that had been previously approved by voters. The program was especially successful because it got much local publicity and allowed the introduction of new financial policies that changed the thinking about municipal bonds.

Source: Innovative Finance Solutions for Climate Smart Infrastructure New Perspectives on Results Based Blended Finance for Cities

ALTERNATIVE SOLUTIONS

Green City Bonds
Green city bonds were created to provide a low-cost financing tool for cities and municipalities to address the infrastructure funding gap as well as the climate challenge. Green bonds enable investments in low-carbon and climate-resilient transport, water, power, and building projects while offering the same financial terms as traditional bonds. The advantage of green bonds is the focus on specific green projects and physical assets. Green bonds can be issued by a range of interested parties—including cities and municipalities, as well as city-affiliated entities such as utilities, companies, and development banks.

Source: World Bank's Innovative Finance Solutions for Climate Smart Infrastructure New Perspectives on Results Based Blended Finance for Cities