NextBillion - A WDI Publication

For millions of families in Peru, one barrier stands between them and safe water and sanitation at home: access to affordable financing. UNICEF and the World Health Organization report that 17 million people across the country lack access to safe water, and 14 million lack access to safely managed sanitation, with families in rural and peri-urban communities facing the widest gaps. Without affordable financing, households often rely on costly or temporary options, spending time and money each day on a problem that a lasting solution could solve more sustainably.

The financial institutions serving these communities face their own barrier: limited access to lower-cost capital. Without it, they cannot grow their water and sanitation loan portfolios or offer the rates that make borrowing genuinely affordable for households.

Blue bonds address this issue directly. They raise capital from institutional investors, including pension funds, insurers and mutual funds, and channel it through a development bank to local lenders. When designed effectively, they can reduce a lender’s cost of funding, allowing them to offer lower interest rates on the household loans that can put toilets, water tanks and safe water connections within financial reach for more families.

In my work at Water.org, I engage with financial institutions across Latin America, and I’ve seen how steady, well-managed lending systems create space for new ways of financing household water and sanitation solutions. Peru’s two recent blue bond issuances illustrate this clearly. These transactions were built on lending practices that had matured over many years, shaped by the decisions households make every day, and by the approaches used by the financial institutions that serve them. Water.org supported this process by working alongside partners to identify the water and sanitation needs of the communities they serve, developing loan products to meet those needs, and helping to build the bridge between those local lending systems and institutional capital markets.

For more than a decade, we have partnered with Peru’s network of Municipal Savings and Credit Banks (Cajas Municipales de Ahorro y Crédito, or CMACs) to strengthen the systems that help people finance water solutions at home. This support has included training loan officers, refining products so payments align with household budgets, and improving how institutions track and report loan performance. As these systems became stronger, CMACs saw steady demand: Families regularly borrowed to install toilets, showers, water tanks, and household water or sanitation connections. These borrowing patterns created the kind of consistent, well-performing lending portfolios that investors look for.

Development banks play a particularly important role in this structure. Most CMACs are too small to access capital markets directly, and a development bank’s credit rating and established investor relationships help secure more favorable terms than CMACs could obtain on their own. By the time COFIDE (Corporación Financiera de Desarrollo), Peru’s national development bank, began exploring a bond issuance to support this lending, the foundations were already in place. The CMACs had established, well-performing portfolios, and the Peruvian Federation of Municipal Savings and Credit Banks (Federación Peruana de Cajas Municipales de Ahorro y Crédito, or FEPCMAC) had coordinated system-wide reporting practices that made loan performance clear. The opportunity was to scale what was already working, bringing in more affordable capital so these lenders could expand their lending and lower the interest rates families pay on water and sanitation loans. Together, these elements directly informed the structure of Peru’s first blue bond, and created the clarity investors needed to participate with confidence.

The First Blue Bond Issuance: Meeting the Market Where It Was

In September 2024, COFIDE issued a one-year, S/100 million blue bond in Peru’s national currency. Issuing in local currency was a deliberate choice: It matched the currency of the underlying household loans, avoiding the foreign exchange costs that come with borrowing internationally, and allowed CMACs to benefit from more favorable interest rates than international markets would have offered. COFIDE charged a below-market structuring fee — 25 basis points on the first bond and 20 on the second, compared to the typical industry starting point of around 1% — and passed the full benefit of its financing rate through to the CMACs without adding a spread.

Investor response was enthusiastic: Demand reached S/217 million against a maximum offering of S/100 million, meaning the bond was oversubscribed by more than two to one, with pension funds, public sector entities, mutual funds, insurers and brokers all participating.

COFIDE, working with FEPCMAC and Water.org, designed the bond’s structure around the preferences of Peru’s domestic investors. Initial plans called for a three-year instrument, but pre-launch feedback from investors gathered through a roadshow in Lima pointed toward a shorter term. The response confirmed that investors recognized the strength of what Peru and its partners had built: The partnerships between COFIDE, the CMACs and Water.org had created a lending system that was transparent, consistent and ready for capital market financing.

What made that response possible was the quality of the lending portfolios behind the bond. Years of household-level financing through the CMACs had created a consistent data record — including loan types, volumes and repayment patterns — that COFIDE could present transparently to investors. Because CMACs already tracked this information in detail, investors could see clearly how the capital raised would be used, and what kind of borrowers it would reach.

This issuance expanded what CMACs could offer households. With lower-cost capital, institutions could reduce interest rates on water and sanitation loans, making it more affordable for families to install these solutions. Even a modest reduction in interest rates can make the difference between a family moving ahead with a toilet or water connection — or continuing to wait.

The Second Blue Bond Issuance: Continued Confidence

In October 2025, COFIDE returned to the market with a second blue bond, sized at S/120 million, and oversubscribed 1.13 times despite competing with several other bond offerings that came to market the same week. This second issuance reflected continued confidence in the lending portfolios behind the bond. The structure was familiar to investors, the reporting remained clear, and the underlying household loans maintained steady demand from families for financing water and sanitation improvements at home. The first bond’s impact also helped establish that confidence: According to the Andina news agency, it enabled more than 91,000 people to obtain access to safe water or sanitation, while offering investors a clear picture of how households used these loans and the difference they made.

The interest rate for the second blue bond priced at 4.53% through public auction, down from 4.72% on the first bond. That rate is what COFIDE pays to bondholders, so a lower rate means cheaper funding for COFIDE, which it passes to CMACs, who can in turn offer lower interest rates on their own household loans. The fact that investors accepted a slightly lower yield was another indicator of their growing confidence in the bond’s structure and track record. Demand again came from a broad base of domestic investors: pension funds (42%), public sector entities (23%), insurance companies (16%), mutual funds (15%) and financial institutions (4%).

Both bonds supported lending through the same six CMACs, headquartered in Arequipa, Huancayo, Cusco, Ica, Piura and Trujillo. With the second issuance, more households in these communities, particularly in rural and peri-urban areas, can access the financing they need to install safe water or sanitation solutions at home.

Practical Insights for Practitioners

The conditions that made Peru’s blue bonds possible took years to build. But the lessons from these successful issuances are transferable to practitioners and policymakers in other markets. These lessons include:

• Strong lending systems create the conditions for new financing pathways: The blue bonds were possible because the CMACs already had established portfolios with steady demand. The issuances were built on lending activity that was already functioning consistently.
• Market alignment shapes outcomes: Early discussions among COFIDE, FEPCMAC and Water.org explored different structures, but investor feedback pointed toward a one-year bond issued in local currency. Designing with those preferences in mind opened the door to a broader group of domestic investors.
• Clear reporting drives confidence: Because CMACs tracked loan performance in detail, COFIDE could show investors exactly how many loans had been made, how they were repaid and who they reached. That transparency gave investors the information they needed to participate with confidence.
• Collaboration strengthens the entire system: FEPCMAC’s coordination, COFIDE’s leadership in structuring the issuances, and Water.org’s technical support each played a distinct role in building a system that investors could assess and trust.
• Local capital can help reach more households when systems are ready: The blue bonds expanded lending that was already serving thousands of families. Their success demonstrates that, with strong systems in place, financial institutions — whether development banks, savings cooperatives or microfinance lenders — can tap local capital markets to reach more households with lasting water and sanitation solutions.

Learning from Peru’s Blue Bond Experience

Peru’s experience shows what becomes possible when lending systems are steady and well managed. Households use affordable financing to install toilets, water tanks and safe water connections at home. Lenders grow consistent, well-performing portfolios. Investors gain access to assets they can evaluate with confidence. Together, these elements show how local capital can play a meaningful role in getting safe water and sanitation to the families who need it most.

Across the region, I’ve seen how long-term system-building creates space for these financing pathways to develop. In Peru, progress came from developing water and sanitation lending capabilities by emphasizing coordination, loan performance and reporting, so investors could engage with confidence and more families could obtain access to these vital solutions. Other markets can learn from Peru’s approach, as blue bonds continue to emerge as a viable tool for expanding access to safe water and sanitation for families across the region and around the world.

Rocio Cavazos is Vice President, Africa and Latin America at Water.org.

Photo credit: AndreyPopov