Indonesia’s water, sanitation and hygiene sector is benefitting from an innovative financing scheme that has contributed to considerable gains for the country in access to both water and sanitation services. SWA’s ‘Building Blocks’ helped to set the context for Indonesia’s last two strategies for achieving universal access to water and sanitation services. The strategies focus on sector planning, capacity, coordination, and monitoring, as well as innovative approaches to sector financing. At the centre of Indonesia’s current strategy is a significant expansion of ‘NUWAS’, Indonesia’s innovative performance-based financing scheme, which incentivizes local governments to prioritize water, sanitation and hygiene, and encourages local service providers to expand services.
The NUWAS scheme reflects SWA’s ‘sector financing’ Building Block. It is incentive-based financing at scale, using grants to support local governments. It transfers funding from central to local governments, but according to a set of specific desired outcomes. The scheme applies to both water and sanitation, with payments targeted on a variety of outcomes to strengthen the sector and increase access to services for the poorest. Performance-related payments are verified by technical inspections and household surveys only once work is completed. To date, NUWAS has helped to increase piped water supply, expand off-site sanitation infrastructure, develop and upgrade on-site sanitation systems, reduce non-revenue water, and increase the energy efficiency of services.
An effective sector finance strategy has proved crucial for a healthy, equitable water and sanitation sector – supporting public health, the economy and helping tackle the climate emergency.
By 2019, the grants had effectively enabled more than 1.2 million household water connections (about 6 million people), contributed to new septic tanks in 52,000 households, and connected over 18,000 households to the sewerage system. Under the scheme, all infrastructure developed should meet a set of minimum standards, and grants specifically target lower-income households in Indonesia – helping to ensure no one is left behind as the country’s sector progresses. The payment-by-results method can be adapted further, too. By developing other results criteria, it has the potential to incentivize even more specific support for vulnerable and marginalized groups (for example, by specifically rewarding improved access for disabled people).