Enhancing Rural Water Utility Sustainability Through Creative Financing Mechanisms

Methods

This study employs a qualitative approach through a systematic literature review of scholarly journals addressing piped water access in rural areas and the factors affecting its sustainability. The focus on sustainability here pertains to the continuity of piped drinking water services in rural regions. A systematic literature review as a scientific inquiry that offers an overview of the current knowledge on a subject, including key findings and the research’s contribution to theoretical and methodological advancements (Hart, 2018). In the field of education, both reviews and research are conducted to understand what is already known about a phenomenon or topic, and to identify new primary research methods to answer unanswered questions (Newman and Gough, 2020). The importance of conducting systematic, rigorous, and transparent research reviews is strongly emphasized in literature review writing. A systematic review is a group of research approaches that gather primary research findings to answer research questions using explicit, accountable, and rigorous research methods (Newman and Gough, 2020).

This study followed the PRISMA 2020 guidelines (Page et al., 2021). Articles were identified through Scopus using a structured search string. The selection process followed PRISMA flow stages, with 49 records identified, 41 after initial screening, 36 after applying date limits, and 8 final full-text articles included (see Fig. 1). Screening was performed independently by two reviewers, with discrepancies resolved through discussion. Data extraction captured study descriptors, financing mechanisms, and sustainability findings. Risk of bias is conducted for each included study across five domains, namely clarity of aims, appropriateness of methodology, clarity of intervention description, transparency of outcome reporting, and data quality. These are adapting items from qualitative appraisal checklists CASP to the rural water financing context. Each domain was rated Low/Moderate/High risk, with an overall judgment by consensus. No studies were excluded based on Risk of Bias; judgments informed the weighting of findings in the synthesis.

Fig. 1

Article selection process (Author).

Research questions

The research questions were developed using the PICO method popularized by the National Institute for Health and Clinical Excellence. PICO, which stands for Population, Intervention, Comparison, and Outcome, serves as a framework that helps researchers develop research questions for literature review (Schardt et al., 2007). Population refers to the target population, Intervention is the intervention implemented, Comparison is the comparison with other populations that are not receiving the intervention, and Outcome is the impact or result to be observed (Schardt et al., 2007; Tai et al., 2020). In scholarly literature for educational purposes, the Comparison component may not always be included due to potential inequities in the interventions provided (Tai et al., 2020). In this study, the Population is the group or organization providing piped drinking water services in rural areas, and the expected Outcome is the sustainability of piped water services to rural communities influenced by various factors or Interventions. Based on the PICO framework, the research question is: How does creative finance enhance the sustainability of rural water utilities in developing countries? This study aims to analyze how creative financial mechanisms enhance the sustainability of rural water utilities strategies in developing countries.

Article selection process

While extensive literature exists on rural water supply and financing, much of it addresses broad sectoral financing or donor-driven models without specific attention to community-managed piped water systems. Given the increasing policy relevance of creative financing mechanisms for sustainability, this review was designed as a targeted systematic review, applying the PRISMA 2020 framework with clearly defined eligibility criteria. Rather than aiming for exhaustive coverage of all financing literature, the scope was intentionally restricted to studies published between 2009 and 2024, aligning with the post-MDGs era when financing paradigms began shifting toward sustainability and repayable models. This scoping approach prioritizes relevance and timeliness over volume, synthesizing the most recent and directly applicable evidence on financing mechanisms for rural water utilities.

The systematic literature review commenced with a Scopus search using the keywords “rural water utility” OR “rural water” OR “rural water system” AND “Finance” OR “Financing” OR “Funding” AND “sustainability”. The search initially identified 49 document publications. These were then narrowed down to 41 by excluding non-article publications, non-English language articles, and those not accessible. Article publications were chosen due to their stringent writing standards and peer-review processes. The search is then narrowed down again to only cover publications from 2009 to May 2024 which resulted 36 articles. This timeframe is set to capture the recent research on the sustainability of drinking water services in rural areas and relevant financing schemes which reflect recent shifts in global priorities post the Millennium Development Goals (MDG).

Afterwards, the articles were filtered using three criteria. The first criterion focused on studies related to community-managed or specifically governed piped water services in rural areas, aiming to identify factors affecting the sustainability of these services. Only piped water systems, whether utilizing gravity or pumps, were included in the review. According to WHO, safe piped water access means water that is available on-site, whenever needed, and free from contamination. Such water systems meet WHO’s standards as they ensure controlled and treated water distribution to households via pipes. In contrast, non-piped water sources, like public taps and shared wells, often do not meet these safety standards due to issues with accessibility, availability, and source quality management.

The second criterion was that the research had to be conducted in rural areas of developing countries. In the early 2000s, 17% of the global population lacked adequate water access, with the majority in developing countries (Halli et al., 2022). Rural communities with low incomes are particularly affected by water scarcity, facing health issues and significant costs and time burdens to obtain water (Halli et al., 2022). Developing countries often face funding shortfalls for water infrastructure and are impacted by urbanization-driven population growth (Emile et al., 2022). This leads to over-exploitation of water resources without sufficient infrastructure development, causing many water projects to fail (Smith e t al., 2023; Vannevel and Goethals, 2020).

The third criterion was that the articles cover creative financing practices for rural water utilities. Rural water utilities face significant challenges in accessing financing options, which are critical for ensuring sustainable water services. The high initial investment costs for infrastructure development, which are not easily recoverable due to low water pricing and limited community participation, is one of the common challenges faced by RWS related to financing (Mohanty and Rout, 2023; Pham, 2023). In addition to this, RWS usually has restricted access to repayable financing, primarily due to the perceived high risk by financial institutions and the lack of collateral (Pham, 2023).

The articles that met these criteria underwent a full-text review to explore the interrelationships of creative financing affecting the sustainability of rural piped water services. The review results were analyzed to identify areas needing further research. The literature selection process is presented in Fig. 1. The Scopus search yielded about 41 document titles using the keywords. These documents have been filtered for English language, accessibility, and article publication type. The second stage applied the criterion, which eventually resulted in 8 articles for full-text review.

Risk of bias

Risk of bias was appraised using an adapted CASP framework with five criteria: clarity of aims, appropriateness of methodology, intervention description, outcome reporting, and data quality to the rural water financing context. Judgments were categorized as Low/Moderate/High risk. No studies were excluded based on risk.

Theory

Sustainability in community-based RWS systems refers to ongoing efforts to provide clean water and sanitation services that continuously benefit communities (Swastomo and Iskandar, 2020). A combination of installed household connections, effective RWS management, and water tariffs set above operational and maintenance costs increases the likelihood of full functionality by 11% (Daniel et al., 2023). A fully functional RWS is better equipped to provide reliable water access for people.

Another study applied the FIETS sustainability framework, covering Financial, Institutional, Environmental, Technical, and Social factors, to examine how these elements interact in ensuring the sustainability of water, sanitation, and hygiene (WASH) services in Indonesia (Al Djono and Daniel, 2022). A causal loop analysis revealed positive feedback between these factors, indicating that improvements in one factor benefit others. An influence map identified the institutional factor as a key driver with minimal dependence on other factors. Additionally, financial and social factors showed strong connections to institutional aspects, suggesting that strengthening financial and social conditions significantly supports institutional sustainability.

In addition to this, the sustainability of community-managed rural water supply services depends on interconnected environmental, economic, and social factors (Carrard and Willetts, 2017; Daniel et al., 2021, 2023; Valcourt et al., 2020). However, many water service providers in developing countries fail to maintain operations, leading to investment losses and hindering WASH access targets (Daniel et al., 2021, 2023). Literature reviews highlight multiple indicators across environmental, economic, and social dimensions that should be analyzed together rather than in isolation (Carrard, 2022; Carrard and Willetts, 2017; Valcourt et al., 2020; J. P. Walters et al., 2022).

Access to appropriate financial services can enable rural water providers to expand their networks, increase revenue from paid tariffs, and boost production capacity, thereby strengthening service sustainability (Dang Mvongo et al., 2021; Mwagomba and Tilley, 2021; Nelson-Nuñez et al., 2019; Toan et al., 2023). One major challenge in sustaining RWS services is economic viability (Andreah et al., 2023; Espinoza et al., 2022; Narzetti et al., 2023; Smith et al., 2023). Sustainable RWS operations require sufficient funds for maintenance, household connections, and service quality. Successful community-managed systems typically maintain transparent financial records, implement cost-recovery-based tariffs, and secure external funding without relying on grants (Beresford et al., 2023; Machado et al., 2023; Mvongo et al., 2021; Rajput and Sharma, 2023).

Conventional financing mechanisms for rural water utilities have historically relied on donor grants, government subsidies, and post-paid tariffs. These approaches are largely one directional and dependency oriented, with utilities receiving funds without reciprocal obligations or risk sharing. While such models can initiate infrastructure development, they often fail to ensure long-term sustainability, as cost recovery is weak, daily and major maintenance are underfunded, and utilities remain vulnerable to fluctuations in donor or fiscal support.

In contrast, creative financing mechanisms represent new approach to this paradigm. They are defined by three distinguishing features: (1) diversification of revenue sources, combining tariffs, loans, subsidies, and community savings; (2) risk-sharing and repayment structures, such as prepaid tariffs, repayable financing, and blended public-private investment; and (3) an explicit alignment with sustainability outcomes, ensuring that financing not only covers capital investment but also ongoing operation, maintenance, and institutional strengthening. These characteristics mark creative financing as more than extensions of conventional models; rather, they constitute a benchmark shift toward financial resilience and service continuity in rural water utilities.

Study descriptors

The research was conducted by scholars from various countries with diverse affiliations, as depicted in Table 1. The highest number of authors hailed from the United States, with three published articles, followed by the Ghana with two publications. Then authors from Australia, China, and Germany each published one article. Regarding journals, the Journal of Water, Sanitation, and Hygiene for Developments emerged as the most prolific, with three published articles. This data illustrates the global participation and interest in researching the impact of creative financing to enhance the sustainability of rural water services, showcasing contributions from diverse regions and academic institutions.

Table 1

Study descriptors

Research methodology

All eight selected articles were quantitative or qualitative research studies utilizing primary and/or secondary data. A concise overview of the research methods employed in the fifteen articles is presented in Table 2. This indicates a diverse methodological approach employed by researchers in investigating financing scheme and its’ impact to the sustainability of piped drinking water access in rural areas. The combination of quantitative and qualitative methods allows for a comprehensive understanding of the multifaceted challenges and potential solutions related to this critical issue.

Table 2

Methodology used and study overview in the selected articles

Content analysis

The eight reviewed studies were synthesized using the PICO framework, focusing on Population (P), Intervention (I), Comparison (C), and Outcomes (O). Table 3 summarizes the mapping of each study. Most studies focused on community-managed rural utilities, with varying governance: WSMTs (Ghana), public and private operators (Vietnam), confederated cooperatives (Brazil), and hybrid partnerships (Kenya, East Africa). Despite contextual differences, all populations shared challenges of low revenue bases and weak institutional capacity. Creative financing mechanisms included were prepaid tariffs (Ghana), blended/mixed finance (Vietnam, Brazil), community cross-subsidization (Brazil’s SISAR model), external repayable loans (Ghana, Vietnam), professionalized maintenance with pooled subsidies (Kenya). These mechanisms differ from conventional financing such as grants and subsidies, by diversifying revenue sources, introducing risk-sharing, or embedding proactive planning tools.

Table 3

Content analysis summary

Several of the included studies explicitly contrasted creative financing with conventional approaches. In Ghana, prepaid tariffs were shown to outperform post-paid models, as they enabled quicker revenue collection, faster repairs, and reduced service downtime. In Vietnam and Brazil, utilities adopting loans or blended finance demonstrated greater resilience compared to those dependent solely on subsidies, though the success of such mechanisms hinged on the maturity and capacity of local institutions. Similarly, in Brazil, cross-subsidization models such as SISAR proved more equitable and viable than single-community tariffs, as redistributive financing allowed wealthier communities to offset costs for poorer ones, thereby strengthening overall system sustainability.

Across the eight studies, sustainability outcomes clustered around three main themes. First, financial viability improved in five studies, where creative models enhanced cost recovery, reduced dependency, and ensured funds for maintenance. Second, operational reliability was highlighted in three studies, particularly where prepaid tariffs and professionalized financial management contributed to faster response times for breakdowns and routine repairs. Third, equity and service expansion were evident in cases such as Brazil’s SISAR, where cross-subsidization facilitated improved access for marginalized communities.

Taken together, these findings reinforce that creative financing mechanisms represent a qualitative shift beyond conventional approaches. Whereas conventional models rely heavily on donor grants, subsidies, or simple post-paid tariffs, creative financing introduces risk-sharing arrangements such as loans or public-private partnerships, and innovative revenue models including prepaid tariffs or cross-subsidies. These innovations establish clearer and more consistent links to sustainability outcomes.

The content analysis presented in Table 4 provides the discussion outcomes on creative or alternative financing in supporting the sustainability of water service provision by the RWS. This analysis offers insights into the importance of financial resilience in contributing to the sustainability of piped water services in rural areas. Drawing from the findings and discussions presented in the selected articles, there are common findings on how community participation plays an important role in self-sustaining the operational and day-to-day maintenance services. This community participation model is referring to as community financing, where community or households connected to water system pay a sum of water bill based on the metered water usage. Water tariffs set by the RWS management board play an important role to ensure that the revenue stream is sufficient to cover the cost of operational and maintenance. This is one of the biggest challenges faced by the RWS which could lead to unsustainable water service.

Table 4

Research discussion outcomes

In addition to community financing, the research also indicates that several financing options are feasible to obtain to support RWS financial resilience and how it benefits them with improved sustainability. By synthesizing this information, researchers can gain a deeper understanding of the complexities surrounding rural water access and formulate informed strategies for improving its sustainability.

Risk of bias analysis

Five studies were judged Moderate overall risk, typically due to descriptive outcome reporting and limited comparative financial metrics; three studies, including the LCCA analysis, were low risk owing to strong alignment between aims, methods, and transparent reporting of financing elements. The risk of bias analysis of the studies is summarized and presented in Table 5. These judgments were considered when interpreting the magnitude and transferability of reported financing effects across contexts.

Table 5

Risk of bias analysis

Creative financing role in supporting sustainability

Creative financing plays crucial roles in enhancing sustainability of rural water utilities overtime. It addresses the unique yet commonly found challenges of RWS in developing countries, such as limited revenue streams, high operational costs, and dependency on single external funding. RWS often serve dispersed, low-income populations, making traditional financing models like cash basis management or insufficient tariffs unable to cover both operational and maintenance costs. Creative financing mechanisms, such as blended finance, repayable financing, community financing, and results-based funding, bridge these gaps by diversifying revenue streams and reducing reliance on unpredictable subsidies or donor aid. Additionally, creative financing fosters resilience by enabling access to capital for larger infrastructure upgrades and repairs, ensuring uninterrupted service delivery. For example, leveraging local capital markets or public-private partnerships helps RWS in expanding water pipe network to serve more people. Such approaches also incentivize efficiency, transparency, and innovation in utility management, increasing user trust and willingness to pay.

Creative financing also encourages stakeholder involvement and local ownership, which are critical for sustainability. By involving communities in the financial and decision-making processes, these mechanisms build accountability and support long-term viability. Ensuring descent modern technologies, such as metered water, partnership with local banks for cash management, and digitalized financial record, enhances the efficiency and scalability of financial systems and improving revenue collection. In essence, creative financing not only ensures the financial sustainability of rural water utilities but also strengthens RWS capacity to adapt to evolving challenges, including population growth, resource scarcity, and unpredicted big maintenance, ensuring reliable and equitable water access over time.

Factors hindering RWS in accessing creative financing

RWS encounters substantial sustainability challenges tied to financing, which hinder their capacity to maintain consistent and reliable services. Based on the reviewed articles, limited infrastructure financing significantly affects financial sustainability, as utilities often struggle to recover costs due to weak revenue collection mechanisms and non-recovery water tariffs paid for water services. Poor fiscal management and insufficient institutional capacity exacerbate these issues, making it difficult for RWS to attract both public and private investments. Hence, over-reliance on single external funding, such as government grants or donor support, becomes common problem and create vulnerabilities when these sources are inconsistent or insufficient to cover operational and maintenance costs. Moreover, political and economic constraints often limit the ability of utilities to implement robust financial planning or introduce full recovery tariff systems.

From the institution’s perspective, the key challenges faced by RWS to obtain financial resiliency based on the examined papers include poor revenue collection system, non-recovery water tariffs, and lack of RWS’s management team capacity in administrative and finance planning. Poor revenue collection system implies on the inefficiencies in billing and payment systems which lead to delays and revenue losses. It causes instability of cash flow, making RWS difficult to cover routine maintenance and operational costs. Consequently, infrastructure improvement or expansion is nearly unfeasible, or when feasible, it remains at a vulnerable state of falling to failure when recurring expenses are not accounted for. The financial viability of RWS often depends on robust revenue collection systems, which hinge on communities’ willingness to pay, and the reliability of services provided. Community engagement is essential, since a strong sense of ownership and trust among stakeholders enhances payment compliance and fosters long-term support.

Willingness to pay is highly tally with ability to pay for water service. Oftentimes RWS fails to charge full-cost recovery tariffs, which eventually makes them unable to cover the operational and maintenance costs. RWS tariffs are often set lower than the full recovery cost due to socio-economic, political, and institutional drivers. Rural residents generally have lower income which limits their ability to pay tariffs that cover operational, maintenance, and capital costs. Politically and culturally, governments or local leaders may prioritize affordability over financial sustainability, setting tariffs at lower rates to ensure access. Additionally, a lack of data on costs and inefficient utility management can lead to inaccurate tariff-setting processes. Use of inappropriate technology, such as water meter, make RWS’s unable to obtain accurate water usage data, making the bills generally incorrect. Community perceptions where culturally water is often viewed as a right rather than a commodity, also lead to resistance against higher tariffs. While affordable tariffs may increase user compliance, they also undermine financial sustainability by creating a revenue gap that limits RWS’s ability to pay for infrastructure maintenance and improve service quality. This revenue shortfall often leads to system failures, reduced water reliability, and diminished trust in utilities, and further discouraging willingness to pay.

On top of that, financial mechanism options that fit with RWS’s needs are limited. These challenges also imply that there are limited best practices or lessons learned outlining RWS’s risk profile, which makes financial sectors not convinced yet to offer financing products for RWS. When financial options are constrained, these systems rely predominantly on user fees, government subsidies, or donor funding, each of which can be inconsistent or inadequate. User fees alone often fail to cover the full cost of operation, maintenance, and capital replacement due to affordability constraints in rural communities. Government subsidies, while essential, are frequently subject to budgetary pressures and political priorities, leading to unpredictable funding. Similarly, donor funds are often project-based and time-limited, leaving a gap once the initial funding ends.

Hence, improving the institutional capacity of RWS is fundamental to achieving financial resiliency. As depicted in Fig. 2, institutional capacity encompasses financial management, the adoption of appropriate technologies, and fostering community participation. Strengthening these areas creates opportunities for RWS to access diverse financing mechanisms and ensures their long-term sustainability.

Fig. 2

Financing mechanism options to improve RWS financial resiliency.

Creative financing for RWS

Creative financing mechanisms that support service sustainability for RWS leverage diverse and innovative strategies to address financial constraints. This finding is consistent with previous studies that highlights social, environmental, and economic as interrelated aspects affecting the sustainability of piped drinking water services in rural areas (Carrard, 2022). Further, studies also find that institutional capacity, financial resilience, infrastructure, community participation, and policy factors are key factors influencing the sustainability of water services (Valcourt et al., 2020). Improving RWS institutional capacity will eventually improve financial resilience and open pathways to secure sustainable financing mechanisms. In addition to that, previous studies on financing water projects highlight the importance of stakeholder involvement and suggest that an integrated and collaborative approach among stakeholders can significantly enhance the effectiveness of risk management associated to the operational of water utilities (Rahman, 2024; Wardhana, 2024). The importance of risk-based stakeholder management to mitigate risks throughout various stages, including planning, preparation, construction, and operation is crucial to support the mitigate risks associated with the water projects (Wardhana, 2024). Fig. 2 presents the financing mechanism options for RWS.

Community participation is one of the keys to financial resiliency, especially in ensuring timely payment of water bills at recovery tariffs. The higher the sense of ownership, the more likely communities comply with tariff structures. This finding is relevant to previous studies on community participation that can significantly support the sustainability of rural water services, especially to meet its financial needs (Al Djono and Daniel, 2022; Machado et al., 2022). Further, another literature review concluded that alternative financing mechanisms for RWS in the post-construction phase must be adapted to local contexts to ensure sustainable water services for the community (Machete and Marques, 2021). Water tariffs should be set at a full cost recovery level, covering operational and maintenance expenses (Heckel, 2023; Machete and Marques, 2021). Monthly water bills paid by the community under this tariff system represent active community participation in managing rural SPAM. This approach, categorized as community financing, helps sustain operational and maintenance costs. Educating the community about the importance of cost-recovery tariffs through workshops and forums helps address the community and ensures a steady revenue stream. Such engagement builds trust and motivates communities to support system improvements.

Financial management is equally crucial, particularly transparent and accountable record-keeping. Clear financial records build credibility with banks and donors, improving access to funding. This will also help track revenues and expenses, identify inefficiencies, and allocate resources effectively. Strong financial governance fosters trust with the community, encouraging consistent payments. In addition to that, using appropriate technologies enhances both institutional capacity and financial health. Tools like smart meters and leak detection systems help reduce Non-Revenue Water (NRW) caused by leaks, theft, or inaccurate metering.

By integrating improved community participation, robust financial management, and advanced technological tools into their operations, RWS institutions can achieve both financial resiliency and institutional excellence. These enhancements create pathways to secure sustainable financing mechanisms, ensuring that RWS systems can meet present and future water supply challenges effectively. Creative finance, including innovative financial mechanisms and sustainable financing approaches, can support to enhance the sustainability of RWS in developing countries. Table 6 presents the creative financing scheme options available for RWS.

Table 6

Creative financing model scheme for RWS

Community financing involves the direct financial contributions of community members to support the operation, maintenance, and sustainability of the water services. Hence, it became the strongest revenue stream for RWS. When households are willing to pay water tariffs, they provide a consistent revenue stream that helps cover the costs of essential services such as routine maintenance, system repairment, and in some cases, small infrastructure upgrades. This form of financing demonstrates the community’s commitment to sustaining the water utility and can reduce dependency on external funding sources like government subsidies or donor aid. For stronger RWS who are investment ready, private partnerships and repayable financing can be an alternative to finance large infrastructure improvements or expansion. This financing mechanism offers flexibility for time-sensitive needs and independence which encourages professional financial management by the RWS. Subsidies or grant funds will be an alternative for initial settlement of RWS system or to support the poorest community. Blended finance involves collaboration or combines effort from grants, private investment, and other types of mechanism to mobilize additional resources and reduce the cost of capital for RWS infrastructure expansion or improvement. This approach combines resources, often including grants or concessional finance to lower the risk for private investors. In a previous study, it was determined that public-private partnerships for water utility projects are deemed more sustainable and efficient due to optimal risk allocation, resulting in enhanced service levels, efficiency, and performance, as private sector involvement introduces managerial and technical expertise, which aids in lowering life-cycle costs and improving value-for-money (Adhitya Wardhana, 2020).

This study highlights that creative financing mechanisms offer distinct advantages over conventional approaches by diversifying revenue sources, sharing risks, and improving financial resilience of rural water utilities. While only eight studies met the strict eligibility criteria, their geographic and methodological diversity underscores the potential for innovative models to enhance sustainability across varied contexts. The limited sample reflects the review’s scoping nature, which focused deliberately on post-2009 literature and rural piped water systems to ensure policy and operational relevance. Consequently, the findings should be interpreted as indicative rather than exhaustive. Future research can build on this foundation by expanding the search across multiple databases, including grey literature, and conducting meta-analyses where outcome measures allow. Despite these limitations, this study provides a timely synthesis that clarifies how creative financing differs from conventional mechanisms and demonstrates their emerging role in sustaining community-based rural water services in the SDG era.