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The cost of capital is the financial cost of borrowing money to provide and maintain assets for water, sanitation and hygiene services. It is made up of the interest paid on borrowed money plus any returns on equity to the owners of the system. The cost of capital is often given as the percentage (%) over the loan amount. Typical loans that private individuals get at a bank range from 5 –30 % per year.
If a system is financed through a grant, then there is no cost of capital, but if a government borrows to fund a water and sanitation programme, there is a cost of capital to the government.
===Examples===
Even subsidised loans with interest rates lower than 1% can lead to significant annual expenditures on cost of capital if there is a large loan and a long repayment period as shown by the example of Franceys, Naafs, Pezon and Fonseca, 2011:
'''Figure 1. Yearly interest payments and principal repayment'''
[[Image:CoC fg 1.jpg|thumb|none|600px|Source: Franceys, Naafs, Pezon and Fonseca, 2011, 12]]
As most water and sanitation infrastructure does not have a life span of more than 20 or 30 years. The financial burden of paying the cost of capital often surpasses the life span of the infrastructure it financed. In this example the government is paying the cost of capital for 50 years while the water or sanitations systems that were constructed with the loan probably need to be replaced or rehabilitated after 10 – 30 years.
===Key documents===* Franceys, R., Naafs, A., Pezon, C. and Fonseca, C., 2011. [http://www.washcostircwash.infoorg/pageresources/1490 cost-capital-costs-financing-capital-expenditure-water-and-sanitation The cost of capital : costs of financing capital expenditure for water and sanitation]. (WASHCost briefing note; no. 1c). The Hague, The Netherlands: IRC International Water and Sanitation Centre.This 20-page briefing note investigates the cost of financing capital expenditure, usually referred to as the cost of capital. It explains why it is one of the life cycle cost components that make up the total costs of providing water and sanitation services that last.* Naafs, A. and Rousseau, K., 2011. [http://www.washcost.info/page/1842 Finance and cost of capital: an additional cost made visible.] (WASHCost information sheet; MOZ F-01). [online] The Hague, The Netherlands: IRC International Water and Sanitation Centre. This Information sheet opens the discussion on Cost of Capital. How much is the sector (indirectly) paying for interventions in the past and how much is the sector planning to pay in the future?
==Links==* WASHCost was five:This 20-year action research programmepage briefing note investigates the cost of financing capital expenditure, running from 2008 usually referred to 2012as the cost of capital. The WASHCost team gathered information related to It explains why it is one of the life cycle cost components that make up the total costs of providing water, and sanitation, and hygiene services for an entire life-cycle of a service - from implementation all the way to post-construction. The WASHCost programme was led by IRC International Water and Sanitation Centre with several partners to collect data in the rural and peri-urban areas of Burkina Faso, Ghana, India, and Mozambique. For more information see [http://www.washcostthat last.info WASHCost]
* Naafs, A. and Rousseau, K., 2011. [http://www.ircwash.org/resources/finance-and-cost-capital-additional-cost-made-visible Finance and cost of capital: an additional cost made visible.] (WASHCost information sheet; MOZ F-01). [online] The Hague, The Netherlands: IRC International Water and Sanitation Centre. :This Information sheet opens the discussion on Cost of Capital. How much is the sector (indirectly) paying for interventions in the past and how much is the sector planning to pay in the future? ===Links===* WASHCost was five-year action research programme, running from 2008 to 2012. The WASHCost team gathered information related to the costs of providing water, sanitation, and hygiene services for an entire life-cycle of a service - from implementation all the way to post-construction. The WASHCost programme was led by IRC International Water and Sanitation Centre with several partners to collect data in the rural and peri-urban areas of Burkina Faso, Ghana, India, and Mozambique. For more information see [http://www.ircwash.org/washcost WASHCost] * The Costing Sustainable Services online course was developed to assist governments, NGOs, donors and individuals to plan and budget for sustainable and equitable WASH services, using a life-cycle cost approach. The Life-cycle cost approach is a methodology for costing sustainable water, sanitation and hygiene service delivery and comparing the costs to the level of service received by users. For more information see [http://www.washcostircwash.infoorg/pagenode/2448 22800 WASHCost Online Training] * WASHCost data sets provide access to the validated life-cycle cost and service level information collected in Burkina Faso, Ghana, Andhra Pradesh (India), and Mozambique between 2009 2010. The data has been collated from a number of sources including infrastructure surveys, detailed household surveys and range of specific research undertaken with stakeholders in each country. The data sets are available [http://www.ircwash.org/news/datasets-now-available-wash-expenditure-and-service-levels-four-countries-2009-2010 here]
* Triple-S (Sustainable Services at Scale) is a six-year, multi-country learning initiative to improve water supply to the rural poor. It is led by IRC International Water and Sanitation Centre. The initiative is currently operating in Ghana and Uganda. Lessons learned from work in countries feeds up to the international level where Triple-S is promoting a re-appraisal of how development assistance to the rural water supply sector is designed and implemented. For more information see [http://www.waterservicesthatlast.org/ Water Services That Last]