Urban Innovations and Best Practices: Strengthening Financial Intermediary for Infrastructure Development in Local Authority

Abstract

Since 2006, the Government of Sri Lanka has been implementing a $66.7 million Local Government Infrastructure Improvement Project (LGIIP), including a $50 million loan from the Asian Development Bank (ADB). Conceptually, the LGIIP conforms to government policies regarding decentralization of powers and aims to further strengthen the local authorities (LAs) in the country through institutional strengthening and capacity building of Local Loans and Development Fund (LLDF) and LAs in providing improved basic urban services to citizens, such as water supply, urban roads, drainage and sewerage, solid waste management, and small-scale community buildings. A typical size of subprojects is about $0.5 million. With the LGIIP’s innovative design, LAs are responsible for identifying, preparing, and implementing subprojects, while LLDF is responsible for appraising, approving, monitoring, and evaluating these subprojects. At the beginning, LAs did not have adequate expertise to prepare and implement subprojects; similarly, LLDF did not have adequate capacity to appraise, monitor, and evaluate the subprojects. LLDF was earlier associated with two other ADB projects (only for loan recovery)—one in the urban development sector and another in agriculture. Both projects were not implemented by LLDF, which was brought merely as a debt collecting agency at a late stage. The LGIIP reflects a paradigm shift as it fully involves LLDF and LAs in implementation from the beginning. LAs have developed a sense of ownership of and expertise in implementing the subprojects. LLDF is transforming into an effective implementing agency and gaining valuable experience to become a sustainable financial intermediary in the long run.