Balancing Financial Risks with Social and Economic Benefits: Two Case Studies of Private Sector Water, Sanitation, and Hygiene Suppliers in Rural Vietnam

Abstract

This paper examines the financial health risks that private sector water, sanitation, and hygiene (WASH) businesses in rural Vietnam face. It investigates the challenges faced by water operators and sanitation suppliers involved in donor-funded development projects aimed at supporting poor and vulnerable households. Through surveys and focus group discussions with 15 suppliers who worked in public–private partnerships, this research examines the financial risk factors affecting water and sanitation suppliers and their impact on financial viability through two case studies. For water operators, the risks primarily involve infrastructure management, operational costs, and revenue instability. In the sanitation sector, risks center around fluctuating material prices, limited business expansion capital, and household affordability. This study highlights the dual role of government and donor subsidies, which enhance service accessibility but potentially distort market dynamics. It also underscores the need for targeted financial and policy interventions, including better access to microfinance, regulatory improvements, and human resource development. The findings aim to inform strategies for government, donors, and private sector actors in similar WASH development contexts to enhance financial sustainability, ensuring inclusive WASH services in underserved areas. This paper contributes to policy discussions by proposing mechanisms to balance public–private collaboration while fostering market resilience and equitable access to WASH services in emerging economies similar to that of Vietnam.

1. Introduction

The financial sustainability of private sector participation in water, sanitation, and hygiene (WASH) services is a critical issue, particularly in rural Vietnam, where access to basic services remains uneven. The existing literature on WASH financing has examined key financial risks faced by WASH enterprises, including construction and operational costs, financing challenges, low tariffs, weak consumer demand, and the role of subsidies in expanding service coverage (Nguyen et al., 2018; World Bank, 2009; Willetts et al., 2015). While these studies highlight financial barriers to WASH service provision, there is still a gap in understanding the specific types of financial risks private suppliers encounter and how these risks impact their overall viability, especially in developing economies where economic and regulatory challenges contribute to financial instability.

Vietnam presents a unique case due to its growing private sector involvement in WASH services, particularly in rural areas where the government has encouraged private investment while maintaining control over tariffs and operations. Although private water and sanitation enterprises have expanded service provision, they continue to face financial risks such as inadequate cost recovery, regulatory uncertainty, and limited access to commercial financing (ADB, 2021; EMC, 2014). Additionally, low consumer demand, affordability constraints, and reliance on subsidies further complicate efforts to establish a financially sustainable market.

Drawing on findings from a 4-year donor-funded WASH project in rural Vietnam, this paper examines the financial challenges and sustainability risks faced by private sector WASH providers. Using two case studies—one water supplier and one sanitation service provider operating under a results-based subsidy model in a public–private partnership—it addresses the following research question: What are the financial health risk factors for private sector WASH businesses operating in rural Vietnam, and how do they affect their financial viability?

This paper is structured as follows. The next section reviews the literature on financial viability in the WASH sector, with a focus on Vietnam. This is followed by the research methodology, then the case study findings that explore how project-based water and sanitation providers experience and perceive financial risks. While the case studies may limit generalizability, the insights inform broader policy discussions on supporting private sector engagement while ensuring equitable access. The final section presents policy recommendations for balancing financial sustainability with the social and economic benefits of WASH services in underserved areas.

2. Literature Review

Financial viability is central to sustainability, encompassing economic, social, and environmental dimensions (Purvis et al., 2019). In the WASH sector, it ensures sufficient income to cover operations, debt, and growth while maintaining service levels (Faz & Breloff, 2012). This is particularly critical in developing economies, where financial sustainability is challenged by instability, regulatory constraints, and inefficiencies (Koleda et al., 2010). According to the World Bank (2009), the key indicators of financial viability include revenue adequacy and cost efficiency, which depend on reducing non-revenue water, effective tariff design, billing systems, and service expansion.

In developing countries, financial risks in WASH projects are heightened by economic instability, inflation, construction cost overruns, and limited private capital. Regulatory limits on tariffs and returns, fluctuating demand, and project delays further undermine revenue. Operational challenges such as frequent maintenance, inadequate technical solutions, and environmental compliance add to financial pressures (World Bank, 2009).

In addition, results-based funding in WASH development is increasingly adopted in WASH as a performance-linked approach that shifts delivery risk to suppliers and focuses on outcomes (Albertson et al., 2018a; National Audit Office, 2015). It aims to improve efficiency, expand supplier markets, and address complex development goals (Albertson et al., 2018b). However, evidence remains mixed. Evaluations point to increased commissioning complexity, higher delivery costs, and limited innovation due to suppliers’ risk aversion and potential payment delays (Clist, 2017; Howard & White, 2020). Other barriers include unreliable pricing benchmarks and the need for local operational capacity.

Economic sustainability in WASH is often assessed through life-cycle costs, willingness to pay, and affordability (Nguyen et al., 2018). Life-cycle costs cover all expenses over the system’s lifetime but are often difficult to calculate due to data gaps. In Cambodia, operators reported low-cost recovery during the monsoon season, despite steady household water use (Pham, 2023). This points to seasonal and external factors affecting financial sustainability.

Willingness to pay for clean water remains uncertain due to irregular consumer payments, contributing to revenue instability. Consumers fail to make regular payments, making revenue forecasting difficult (Pham et al., 2021). Pham et al. (2021) found that households report a lower willingness to pay than what they actually spend on water, indicating discrepancies between consumer perception and actual affordability. Affordability is influenced by water tariffs and connection fees, with small-scale suppliers struggling to balance cost structures and financial sustainability (Pham et al., 2021).

Revenue instability is also driven by irregular consumer payments. While households may report low willingness to pay, actual spending can be higher, suggesting a gap between perception and affordability (Pham et al., 2021). Tariffs and connection fees influence affordability, with small-scale providers often struggling to balance cost recovery with service provision.

Environmental and operational factors also impact financial viability. Water sourced from distant areas raises pumping costs, while infrastructure damage from roadworks and leakage increases non-revenue water (Willetts et al., 2015). Dispersed rural populations require costly infrastructure investments, and electricity shortages can cause service disruptions (Gero & Willetts, 2014).

Key financial risks include non-revenue water, hours of supply, staff productivity, and operation and maintenance (O&M) costs. Non-revenue water, due to leaks, illegal connections, and billing issues, can account for up to 40% of losses in developing countries, severely impacting profitability (Kingdom et al., 2006; Appiah et al., 2017; Olwa, 2012). In South Africa, a 36.8% non-revenue water level led to a 12% drop in profitability (McKenzie et al., 2012).

Extended hours of supply improve revenue potential, with studies showing a 25 percent profitability increase per percentage rise in supply hours (Khatri & Vairavamoorthy, 2009). However, unreliable infrastructure and electricity often hinder continuous service. Staff productivity is also crucial. Excess staffing reduces efficiency—each additional staff member per 1000 connections can lower profitability by 7.4 percent (Mugabi et al., 2007). In Kenya, bloated staffing structures were a major driver of inefficiencies.

O&M costs are among the most significant financial burdens. A 1% increase in O&M costs can reduce profitability by up to 35% (Banerjee et al., 2010). High electricity costs, poor metering, and subsidies for low-income consumers further strain utility finances. According to ADB (2010), financial viability requires that revenues not only cover O&M but also support long-term investment and service expansion.

Ameyaw and Chan (2015) identified several financial risks in water supply public–private partnerships in Ghana, including the misallocation of commercial risks, construction cost and time overruns due to poor coordination, inadequate design, delays in planning approvals, and low tariff enforcement and poor revenue collection due to government failing to enforce realistic tariffs or ensure payment guarantee. Public resistance to water pricing—linked to concerns over affordability, staff retrenchment, or privatization—can result in project renegotiation or cancelation, as observed in other contexts (Cuttaree, 2008). High levels of water theft further exacerbate financial losses. These risks are compounded by weak regulatory environments and political interference, which undermine investor confidence (Ameyaw & Chan, 2015).

The Vietnam Context

Vietnam, with a population of 97.4 million, made substantial gains in WASH access between 2000 and 2017 with improved water access rising from 65 percent to 95 percent and basic sanitation from 52 percent to 84 percent (UNICEF, 2020). However, challenges persist. As of 2020, only 50 percent of the rural population had access to clean water, up from 17 percent in 1993 (World Bank, 2025). Rural and low-income populations continue to lag behind urban and wealthier groups.

Public WASH funding in Vietnam has largely prioritized infrastructure, with hygiene promotion receiving only 0.01–0.02 percent of total funding. As of 2022, around 16,573 centralized rural water supply schemes served 44 percent of the rural population, while 56 percent relied on small, household-based systems. Despite recent funding cuts, the government remains committed to equitable access. Private sector involvement in urban water supply is growing, driven by incentives, but rural and remote areas still depend heavily on donor support due to fragmented services and high maintenance costs (Baum, 2020; UNICEF, 2020).

Private sector participation has increased, especially in high-density areas, but sanitation services remain limited, particularly in remote and mountainous regions where high transport and supply chain costs hinder market activity (Gero & Willetts, 2014). Gero et al., 2013, found that access-to-market challenges are prevalent among WASH enterprises in Vietnam, Indonesia, and Cambodia, though financial and human resource constraints are more commonly reported by sanitation enterprises than water enterprises. In Indonesia and Vietnam, access-to-market difficulties are more significant in the sanitation sector due to lower demand and the monopolistic nature of water services (Willetts et al., 2016). However, competition and unfavorable location remain concerns for some enterprises.

Operational issues for water suppliers in Vietnam include high material and equipment costs, water scarcity, rising electricity and maintenance expenses, and aging infrastructure prone to leaks and damage from roadworks (Willetts et al., 2015). Some enterprises also face difficulties in managing water storage. Financial barriers remain significant: high interest rates and limited credit access constrain investment, and delayed customer payments affect cash flow (Gero & Willetts, 2014). Sanitation enterprises, particularly masons in Vietnam, report financial difficulties primarily related to late customer payments. These businesses also face a lack of technical and business skills, as well as challenges in finding adequately trained staff (Willetts et al., 2016).

Financial sustainability in both the water and sanitation sectors are closely linked to regulatory enforcement, operational efficiency, and the availability of financial support mechanisms (Gero et al., 2013). While formal policies allow provincial governments to support water enterprises financially, implementation is inconsistent. Practical issues around tariff setting, land ownership, and asset management remain unresolved, creating further obstacles for private operators (Gero & Willetts, 2014).

Nguyen et al. (2018) found that construction costs pose a major financial risk in Vietnam’s private–public partnerships, with cost overruns from delays, design modifications, and fluctuating material prices reducing financial viability (Zhang et al., 2015). Financing costs also play a critical role in WASH development projects, as complex financial arrangements introduce risks such as loan defaults and fluctuating interest rates, increasing project costs and reducing profitability (Xenidis & Angelides, 2005). Additionally, revenue risks arise from uncertainties in demand and regulatory frameworks, where factors like tariff adjustments, return rate restrictions, and insufficient service demand negatively impact cash inflows and financial sustainability (Salvador et al., 2016; Zhang et al., 2015).

In summary, although Vietnam’s private sector engagement in WASH is expanding, significant challenges remain, particularly in rural and remote areas where infrastructure limitations, financing constraints, and weak regulatory enforcement hinder service provision (Pham et al., 2021). Addressing these issues requires stronger government support, improved tariff structures, and enhanced financial management to ensure long-term sustainability and growth.

3. Research Problem

Against this landscape of growing interest in leveraging private sector involvement to expand access to equitable WASH services in Vietnam, particularly in underserved rural areas, limited evidence exists regarding the financial viability and risks faced by private WASH suppliers operating in these contexts. An evaluation was conducted on a 4.5-year donor-funded WASH development project (the Project), implemented through a partnership between the Vietnamese government and private sector WASH operators under a results-based subsidy scheme. Under this model, poor and vulnerable households were incentivized to build latrines or connect to piped water systems at a subsidized rate, with subsidies provided by both donor funding and government contributions. The evaluation found that the majority of the 118 participating WASH suppliers did not earn direct profits from their involvement in the Project (Pham et al., 2021). Instead, their participation was driven by long-term strategic goals such as market expansion, brand visibility, and building relationships with key local stakeholders—particularly government agencies and the Vietnam Women’s Union, who played a central role in mobilizing households to take up services. Many suppliers were motivated by prior involvement in development initiatives and a desire to maintain a presence in the WASH sector.

Insights from the evaluation raise critical questions about the sustainability of these private sector suppliers when engaged in rural WASH service delivery, especially when targeting low-income communities. With persisting gaps in water and sanitation access in rural Vietnam and the essential role of private providers in addressing these needs, this study extends the evaluation to explore the financial risks of and business impacts on WASH suppliers. It examines how operating in resource-constrained rural settings affects their businesses’ financial viability and what conditions are needed to support and sustain their role in the sector.

4. Methods

The WASH suppliers in the Project were invited to participate in this extension study conducted in late 2022, and the suppliers who agreed to take part in the Project were asked to invite other suppliers who engaged in pro-poor development projects to participate.

The suppliers first completed a survey independently before participating in a focus group discussion. There were two separate focus groups—one for water suppliers and another for sanitation suppliers. The survey, developed by the author and translated into Vietnamese for accessibility, asked the suppliers to self-assess financial risks they encounter in their businesses, the impact of these risks on business viability, and potential policy solutions. The survey was developed based on Nguyen et al.’s (2018) findings, which identified four key areas of cash flow risk in public–private partnerships in Vietnam: construction costs, operation and maintenance costs, financing costs, and operating revenue. These risk areas informed the section of the survey focused on financial risks, where respondents were asked to rank each risk according to its perceived impact on business sustainability. Other sections of the survey collected general business information, including operational and financial characteristics; details of business activities (distinguishing between water and sanitation service providers to better understand their respective financing structures and operational challenges); and respondents’ recommendations for policy and government support to mitigate financial risks and enhance the sustainability of WASH services for poor and vulnerable households in rural Vietnam.

The focus group discussions followed the same structure as the survey, complementing the data and ensuring consistency across findings. Both the survey and focus groups were conducted in a single four-hour workshop, facilitated by the author in Vietnamese.

Data analysis was conducted following the completion of the focus group discussions. Survey data were analyzed using descriptive statistics, while focus group transcripts were thematically coded using NVivo software. In light of the small sample size, the presentation of findings and conclusions in this paper is primarily informed by the qualitative data, with the survey results incorporated where relevant to support interpretation.

Limitation of This Study

Only 15 suppliers participated in this study—2 water suppliers (out of 4 involved in the Project) and 13 sanitation suppliers (out of 114). Due to the small sample size, the findings are presented as case studies and draw primarily on the focus group discussions. Survey data were analyzed descriptively and, where relevant, were incorporated into the case study results.

A key limitation of the case study approach is the lack of external validity, meaning that the findings cannot be generalized. The policy recommendations are based on participants’ insights and are relevant to the context of the suppliers involved in this study. Caution should be taken when applying these findings to other settings.

5. Case Study 1: Water Service Providers in Rural Vietnam

Representatives from two water service businesses participated in the survey and focus group discussion. Both operated in rural areas facing water scarcity, specifically in Nghe An (Central Vietnam) and Ben Tre (Southern Vietnams) provinces. The respondents were male, had university degrees, and occupied management positions as directors and deputy directors. One representative was in the water business for over a decade, while the other was a newcomer with less than three years of experience. Their businesses maintain a relatively small workforce of 10 to 20 employees, with one company employing a family member. Both focused solely on piped water services, generating monthly revenues between USD 8000 and USD 43,000. As part of government financial support, both companies received exemptions from land use levies or lease land with exemptions. Additionally, they received additional financial assistance, including interest rate subsidies on commercial loans and subsidies on water prices.

5.1. Results of Survey and Focus Group Discussion with Water Service Providers

5.1.1. High Financial Risks

The most significant financial risks for the two businesses include high investment costs related to construction and infrastructure and low revenue which is not sufficient to pay back the high capital cost. Low revenue stemming from low water demand and consumption is also a major concern, as many households rely on alternative sources, reducing potential revenue for suppliers. Decree 117/2007 (Article 42.2) required households connected to a water supply network to pay for a minimum of 4 m³ of water per month, even if their actual usage was lower or nil. This regulation ensured baseline revenue for water operators to help cover the costs of maintaining the piped system. However, this provision was later abolished under Decree 124/2011.

Associated with this high investment cost are challenges in obtaining favorable commercial finance and credit, making it difficult for operators to sustain financial stability. Government policy encourages private investment in the water and sanitation sectors while retaining the ownership of assets and maintaining significant control through tariff regulations and operational funding. However, this level of government oversight creates a challenging environment for private sector participation. It also limits access to commercial finance, as lenders perceive the risks as too high.

According to the respondents, the financing gap in the water sector is substantial, with government and official development assistance (ODA) funding alone being insufficient to meet essential investment needs. Additional private sector funding is necessary, but the current institutional and legal framework in Vietnam does not provide enough confidence to attract investment from domestic and international capital markets.

The key barrier to obtaining favorable finance is lenders’ lack of confidence in operators’ revenue sources, largely due to government delays in implementing necessary tariff increases. As a result, few utilities were able to secure commercial financing. The difficulties in obtaining government guarantees, along with weak capacity in structuring and managing public–private partnerships, further hinder access to external funding. Although there has been theoretical support for enterprises to access preferential loans and credit at low interest rates, such as through the Government Bank of Investment and Development, in practice, the two operators reported significant challenges in securing this financing. They reported that a major obstacle is the requirement for collateral, as water system assets and land are often not considered eligible.

Asset valuation and management is another high-risk issue requiring long-term financial planning to ensure continued service provision. A critical issue facing the water sector is the absence of clear mechanisms for determining asset prices and a lack of consistent regulations on asset management. The international private sector remains hesitant to invest due to uncertainty in the regulatory framework and the absence of reliable data on asset conditions (ADB, 2021). The lack of transparency in enterprise selection and informal asset valuation processes create additional challenges, particularly when private enterprises take over existing systems. Formal rules governing the ownership of water system assets remain unclear, leading to inconsistencies in management and accountability. This finding was also noted in Gero and Willetts (2007). One operator who has been in business for ten years avoided making necessary repairs and investments for their business due to short-term financial incentives.

Significant weaknesses persist in the availability of reliable data on companies’ assets and operational performance. Additionally, gaps remain in compliance with legislation designed to protect contractual obligations, further deterring private sector interest in investment and management, similar to that found in ADB (2021). The failure to attract substantial private sector engagement in the water sector can be attributed to fundamental uncertainties around asset ownership, the absence of reliable information on infrastructure location and functionality, and ongoing ambiguities in the regulatory framework regarding responsibilities (ADB, 2021).

5.1.2. Moderate Financial Risks

Low water pricing and tariffs are the most prevalent risk facing the two operators, which they attributed to government regulations. They spoke about the misalignment between water tariffs and business needs. However, both water companies were able to recover at least operation and maintenance costs. However, they could not achieve full cost recovery when depreciation, replacement, and financing costs were included.

Low tariffs have been a persistent financial risk for these water supply services, despite legislation allowing water companies and local governments to adjust rates. The focus group discussions also revealed frequent delay tariff adjustments at the local level of government, even though consumers are willing to pay for improved services. Local governments’ reluctance to raise tariffs in accordance with national policies has undermined efforts to make the water sector financially sustainable and attract private investment (ADB, 2010). The failure to enforce regulatory frameworks has also negatively affected the financial viability of water companies (ADB, 2021). This finding is similar to that obtained by Harris et al. (2003) who found that governments often fail to enforce realistic tariffs or guarantee payments, resulting in issues such as low tariffs and the under-collection of user fees, leading to underfunded operations.

The respondents noted that sufficient information exists at the national level for the government to determine appropriate water tariffs. However, they felt that inequitable treatment between state-owned and private enterprises was an ongoing concern, particularly in the division of responsibilities between them. Supervision and regulation by Provincial Centre for Rural Water Supply and Sanitation (PCERWASS) have been inconsistent and, in some cases, entirely absent, further complicating effective water service management (Gero & Willetts, 2007). There is also a common perception that rural water tariffs should be lower than urban rates because there are poorer households in rural areas. This expectation further challenges the operators featured in this case study.

The two operators set their tariffs at the lowest end of the proposed bands, as their customers expect the most affordable pricing. They noted that a uniform tariff set at the provincial level does not account for variations in operational costs, creating a barrier to greater private sector engagement. Despite government commitments to bridging the gap between production costs and income through affordable tariffs, provincial authorities have not effectively implemented these policies (Gero & Willetts, 2007).

According to one operator, given the current tariff levels, water utilities are not attractive to private investors. While most water companies, like his, recover their operation and maintenance costs, budget constraints often result in poor service quality, characterized by low water pressure, intermittent supply, and substandard water quality. WSP (2014) found that few utilities have achieved full cost recovery, limiting their ability to invest in long-term improvements. UNICEF (2020) found that the consequences of low tariffs and weak accountability offer water companies little incentive to maintain distribution networks, leading to infrastructure deterioration.

Many of the development projects that the operators have participated in, similar to the Project, also provided subsidies to households to connect to pipe water systems. The operators noted that dependence on subsidies for households and businesses introduces uncertainty, as fluctuating support levels can impact financial planning. One of the two businesses was not yet financially self-sufficient and continued to rely on government subsidies. Although local governments advocated for increased cost recovery through user charges to reduce reliance on subsidies and fund capital investments, the reality is that low tariffs and resistance to tariff increases force these operators to continue depending on ODA projects or government support. This view is similar to UNICEF’s (2020) finding that tariffs set by Provincial People’s Committees (PPCs) have been too low to generate sufficient funds for long-term asset management. As a result, water and sanitation companies remain dependent on government financing and must navigate bureaucratic processes to secure funding. Fragmented water supply remains a significant challenge in remote areas, where donor assistance continues to play a crucial role. Maintenance costs in these regions are high and steadily increasing, further complicating efforts to achieve financial sustainability as found in Baum (2020).

The financial sustainability of rural schemes, like the two operators, is undermined because households are either reluctant or unable to pay for water supply. The evaluation of the Project revealed that many households chose to connect to piped water system because of the subsidized connection fee. However, they were using multiple water sources to minimize their water tariff costs. Some preferred the taste of rainwater over piped water, while others expressed concerns about the chemicals used in water treatment (Pham et al., 2021). This practice limited the revenue stream for water service providers, rather than expanding it as intended (Pham et al., 2021). As noted by the suppliers in this study, there should have been a stronger focus on household education within the Women’s Union’s mobilization efforts. Many suppliers were initially motivated to join the Project to leverage the no-cost marketing support. However, this marketing proved to be ineffective and had the unintended consequence of failing to educate households on the benefits of using piped water.

In recent years, private sector businesses have been encouraged to participate in water supply services, particularly in high-density areas, through incentives such as preferential land access and loan subsidies—this is the case for both operators. Willingness to pay is assessed at the start of the scheme and initially found to be positive. However, once the schemes are implemented, many people either do not use them at all or use them only sparingly, often supplementing their water supply with unimproved sources. This behavior leads to unintended overcapacity in the schemes. Unpaid bills or unwillingness to pay results in direct revenue losses, while high operational costs further strain financial resources. It is important to note that the issue appears to stem from the motivation to connect—driven largely by reliance on subsidies—and low demand, which is influenced by low awareness of piped water quality or entrenched cultural norms. This differs from the public resistance linked to concerns over water pricing or privatization observed in public-private partnership projects such as those noted by Ameyaw and Chan (2015) and Cuttaree (2008) in other contexts.

To offset financial risks, some operators attempt to diversify into non-core businesses. This approach can divert focus from essential water service operations and increase the likelihood of poor investment decisions (ADB, 2010). This presents a regulatory challenge for both central and local governments, as there is no requirement for these companies to ring-fence their water business accounts, leaving their core operations vulnerable to financial instability (ADB, 2010). According to WSP (2014), concerns have been raised that equitized companies continue to diversify into non-core businesses, exposing them to high financial risks. Without safeguards to separate water business accounts, unsuccessful investments could negatively impact essential water and wastewater services (WSP, 2014).

For the two operators, the absence of clearly defined and verifiable performance indicators in their non-core businesses highlights gaps in management skills and capacity, which in turn hinder financial performance. Additionally, they reported that the lack of incentives to expand service coverage, driven by low tariffs and weak demand and consumption, as well as water theft which has not been dealt with systematically by regulations and laws, reduces their ability to achieve efficiency gains or improve overall performance.

5.1.3. Pro-Poor Businesses and Financial Viability for Water Suppliers

Both respondents indicated that their businesses were financially viable for the next 1–5 years and they would continue providing water and sanitation services to poor and socially disadvantaged households in rural areas beyond the Project. However, they acknowledged that poor and vulnerable households form a part of their customer base, yet they also pose financial risks to sustainability. Meanwhile, local governments view these households as a priority group for social welfare and economic development, entitling them to targeted support within broader socio-economic planning. This presents a policy dilemma: how can it be ensured that water supply units sustainably serve poor and vulnerable households while maintaining the financial viability of businesses to continue providing services? Strengthening government regulatory measures to support these households, particularly in the WASH sector, is essential. Additionally, water supply companies should be supported in managing the financial risks associated with serving low-income customers. One operator noted that allowing water supply units to negotiate higher tariffs for non-poor customers, rather than applying the same tariff band across areas, would help offset lower preferential rates for disadvantaged households. Given that water services require significant investment and cannot easily be withdrawn once established, it is also crucial to enhance the capacity of water service providers to manage diverse customer bases effectively. Strengthening customer management strategies will enable service providers to balance financial sustainability with inclusive access to water and sanitation.

5.2. Discussion: Comparative Challenges Faced by Private Water Suppliers in Rural WASH in Vietnam and Cambodia

These findings align with the challenges reported by private sector operators in Cambodia within a similar rural development project context (Pham, 2023). Pham (2023) found that Cambodian private sector water suppliers also faced high upfront capital investments and operational costs, which posed significant barriers to achieving financial viability. Suppliers in Cambodia also encountered difficulties in recovering capital investments, particularly when demand for piped water remained low due to continued reliance on alternative sources such as rainwater or wells (Pham, 2023). Cambodian suppliers faced similar issues with underutilization, especially during the rainy season, despite the availability of subsidized connections (Pham et al., 2021).

Government regulation emerged as a critical factor in shaping financial outcomes for suppliers in both countries. In Vietnam, tariff setting and asset ownership remain under strong government control, constraining operators’ ability to adapt pricing structures to actual cost recovery needs. This regulatory rigidity not only restricts revenue potential but also limits access to commercial financing, as financial institutions remain reluctant to invest in sectors where revenue streams are insecure, and policy frameworks are unstable. While Cambodia’s water sector has seen some reforms intended to reduce political influence over tariff setting, only one out of nine suppliers surveyed in Pham’s (2023) study reported having autonomy over their pricing, and tariff caps and administrative requirements continue to hinder their business confidence.

Access to finance remains a persistent challenge in both settings. In Vietnam, weak capacity to structure public–private partnerships, combined with the lack of government guarantees and delayed tariff adjustments, has contributed to low levels of commercial investment in the rural WASH sector. Cambodian suppliers reported similar difficulties, particularly in meeting the collateral requirements set by commercial banks. Many relied on personal savings or informal loans, limiting their ability to scale or absorb operational shocks (Pham, 2023).

Notably, both groups of suppliers expressed motivations that extended beyond short-term profitability. In Vietnam, businesses viewed participation in the WASH project as an opportunity to build brand visibility, expand market reach, and strengthen relationships with government and community organizations. This strategic orientation was echoed by Cambodian suppliers, several of whom indicated a willingness to expand coverage and continue service provision despite modest returns, particularly when supported by donor subsidies or NGO partnerships.

Overall, the Vietnam water suppliers in this case study reflect a more constrained operating environment due to tighter state control and fewer institutional incentives for private actors. In contrast, while Cambodian suppliers still face systemic barriers, there appears to be greater scope for financial viability when supported by external funding and flexible regulation (Pham, 2023). Both contexts underscore the need for more enabling policy environments, access to affordable financing, and long-term strategies to stimulate demand and ensure that private sector engagement in rural WASH is both sustainable and equitable. This will be further discussed in the final section of this paper.

6. Case Study 2: Sanitation Service Providers in Rural Vietnam

Thirteen sanitation suppliers participated in the survey and focus group discussion, all operating in rural areas with water scarcity challenges across Nghe An (Central Vietnam), Hoa Binh (Northern Vietnam), Ha Tinh (Central Vietnam), and Ben Tre provinces (Southern Vietnam). Nine persons were male; four were female. Most completed upper or lower secondary school or technical college, while only two held university degrees. Their roles vary, including being business owners, managers, and builders.

The respondents’ experience in the sanitation business ranged from under three years to over a decade. They maintained a small workforce of 1 to 10 employees, with more than half (7 out of 13) employing family members. The majority (10 out of 13) operated masonry businesses, earning monthly revenues between USD 200 and USD 500, with one exception reaching USD 3500.

Their business models varied, with six operating as specialized service providers focusing on a single product or service. Four followed a network model, coordinating with other enterprises to deliver sanitation services. Two operated as one-stop shops, offering comprehensive sanitation solutions. One followed a franchising model, where a larger enterprise engages small businesses or individuals to implement its service. Unlike the water sector, these sanitation businesses tend to adjust their prices based on supply and demand dynamics. Their business model is also common in this sector which typically has distinct supply chains for sanitation products and sanitation services. Common business models include the one-stop-shop model, which offers all services under one provider; the micro-franchising model, where a larger enterprise works with smaller businesses to scale services; and the network model, in which multiple SMEs collaborate to deliver sanitation solutions (SNV, 2012).

6.1. Results of Survey and Focus Group Discussion with Sanitation Service Providers

6.1.1. Lack of Access to Capital and Finance

The most common risk cited by these sanitation businesses is the lack of capital for start-up and business expansion and low demand for sanitation products and services. The small size of businesses placed them at a disadvantage when seeking loans from commercial banks and credit institutions. Accessing favorable loan conditions such as no collateral, low interest rates, and longer repayment terms is challenging, limiting their ability to expand services to new areas and reach poor and vulnerable households. The lack of capital is viewed as a financial risk by the suppliers and has the highest negative impact on cash flow. This lack of access to finance is also reported as a problem in EMC (2014).

Another problem is that despite offering credit to their customers, most of the suppliers interviewed were required to pay their own suppliers and agents in cash. The limited cash flow created a significant barrier for businesses seeking loans and expanding their operations, as they struggled to meet repayment obligations. Consequently, some shop owners became hesitant to extend credit to their customers, reducing the attractiveness of purchasing sanitation products.

6.1.2. Low Customer Demand

Low demand for sanitation products and services ranks second in terms of negative impacts on cash flow and profitability amongst suppliers. Household demand for sanitation products and services was generally low across most areas. There are several contributing factors. While local governments and mass organizations, such as the Women’s Union, played a role in raising awareness about sanitation, their efforts were primarily focused on household education rather than promoting mason services or sanitation suppliers. Masonry businesses reported that the limited promotion of their services led to low demand for latrine construction. They also suggested that providing cash incentives to Women’s Unions for mobilizing households could have boosted customer uptake and increased demand for their services.

There was also a cultural factor at play: on the one hand, some households still used fishpond latrines due to habit and the cost of buying toilet paper to be used with new hygienic latrines (Pham et al., 2021); on the other, households often preferred to wait until they could afford a full home renovation, choosing to invest a substantial amount of money into building a modern, more elaborate bathroom, rather than opting for a basic latrine. This preference contributed to the need for loans and delayed building latrines.

Another factor was the lack of marketing for sanitation products. With minimal promotional efforts, households had limited awareness of available options, further reducing interest in investing in improved sanitation (Pham et al., 2021). The absence of affordable, desirable latrine models at the commune and village levels discourages adoption, and restricted access to credit from banks or government programs further hampers household investment in sanitation products and services. One mason who only provided labor spoke about the services of masons were not always engaged by households in building latrines, with many households opting for simple models and building it themselves, rather than using skills and experience of masons to assist in ensuring the latrine is hygienic and functional. This problem was also found in (ISF, 2015). These challenges highlight the need to develop alternative financing mechanisms, such as microfinance or fintech solutions, rather than universal subsidies, alongside stronger information, education, and communication campaigns aimed at poorer communities.

6.1.3. High Cost of Materials

Pricing issues pose a significant challenge for the suppliers, particularly the price variability in materials such as bricks, rings, and gravel, which directly affects profit margins. Suppliers identified the price variability in materials as the most critical factor for achieving financial sustainability, despite all respondents rating its impact as medium. Additionally, two-thirds of respondents highlighted the lack of affordable and desirable latrine models at the local level as a significant challenge.

Many suppliers spoke about the high cost of materials, particularly cement, a key construction component. While cement is often available in commune centers, its cost is significantly higher in remote areas due to transportation expenses. For example, in more isolated communes like Ang To, located 50 km from Dien Bien Phu city, cement prices can be up to 40 percent higher than factory wholesale rates. As ISF (2015) found, low profit margins for cement retailers further limit the possibility of reducing costs within the supply chain.

A similar trend is observed with toilet pans. Toilet pan prices can have as much as 400 percent variation across communes just a short distance away. Transportation costs are a major factor in this price increase. Furthermore, toilet pans make up only 3–9 percent of total material costs, with transportation being one of the most significant expenses for households outside district centers (Gero & Willetts, 2007). Given the already low profit margins on these products, there is limited potential for price reduction.

6.1.4. Subsidies

Subsidies for households and businesses were ranked by suppliers as having the lowest impact on both cash flow and profitability, reflecting their minimal mention as a financial risk. Despite being perceived as a low impact risk, subsidies have a complex impact. On the demand side, they contribute to a dependency mindset, where villages expect external organizations to assist with tasks they could otherwise handle themselves. As found by Pham et al. (2021), the main reason many households took up latrines was due to the Project’s support, while others without latrines cited “never being offered one” as their primary reason for not having one. The cost of building a latrine remained a significant barrier for some households, even with the subsidy provided by the Project (Pham et al., 2021). These households often had to borrow money from family members or take out bank loans to cover the remaining costs. Many relied heavily on the subsidy and additional support mechanisms such as loans, incremental payment plans, or, in the case of this Project, guarantees provided by the Women’s Union to purchase construction materials in advance. Subsidized latrine programs in social marketing areas can also weaken willingness to pay, as households delay purchases in anticipation of subsidy-based interventions. Despite recognizing the benefits of sanitation, many households prefer to wait for government or NGO assistance rather than investing in a toilet independently.

From the supply side, subsidies can provide businesses with a reliable revenue source and familiarize them with sanitation products. However, businesses do not see the end user as their direct customer, as many subsidy programs act as intermediaries. This can insulate businesses from private demand and reduce their incentive to invest in marketing efforts (EMC, 2014). These issues relating to subsidy-based programs are also noted by WSP (2012) such as creating expectations of external support that reduce household motivation to invest in sanitation and make it difficult for private masons and suppliers to compete, as their products remain unsubsidized. These factors highlight the risks of over-reliance on subsidies and the need for balanced market-driven approaches to improve sanitation access.

Subsidies for households and businesses also affect cost recovery. Similarly to the case study of water providers, households waiting for subsidy-based interventions are less willing to pay for latrines, while high-cost subsidy programs make it difficult for businesses to scale. Moreover, when specific sanitation products or services are not included in subsidy schemes, demand for those businesses decreases. This multidimensional impact suggests a need for a gradual transition away from subsidy-dependent models through enhanced educational campaigns.

6.1.5. Pro-Poor Businesses and Financial Viability for Sanitation Service Providers

Among the 13 respondents, 11 indicated that they would continue providing sanitation services to poor and socially disadvantaged households. Of the two who would not, one was uncertain about their financial viability, while the other expected to remain financially viable for only 1–5 years. From a business perspective, poor and vulnerable households represent only a small fraction of their customer base, and sanitation suppliers operate within a market-driven economy. However, from a local government standpoint, these households are a priority for social welfare and are entitled to support under socio-economic development programs. This contrast underscores the need for stronger government regulatory measures that support both vulnerable households and sanitation businesses. Respondents highlighted several forms of financial support they expect from the government, including measures to curb inflation, regulate material prices, provide interest rate subsidies on loans, and offer tax reductions. Policies should ensure that poor communities receive assistance without distorting the market while also enabling businesses to sustainably serve these segments. Balancing these interventions will require a more harmonized approach that benefits both service providers and disadvantaged households.

6.2. Discussion: Comparative Challenges Faced by Private Sanitation Service Providers in Rural WASH in Vietnam and Cambodia

The findings from this case study of sanitation service providers in rural Vietnam highlight several systemic barriers that echo similar challenges reported in Cambodia (Pham, 2023). A dominant issue in Vietnam is the lack of access to capital, which significantly constrains the capacity of sanitation businesses to expand or sustain their operations. This mirrors the findings of Pham (2023), who found that in small and often informal sanitation businesses, they struggled to access credit due to limited collateral and high interest rates. In both countries, while businesses often attempt to offer credit to their customers, they are themselves required to pay their suppliers in cash, creating a persistent cash flow imbalance.

Low customer demand is a shared concern across both settings, driven by a combination of affordability constraints, a lack of awareness about hygienic sanitation, and the limited promotion of sanitation products and services. In the Vietnam Project, mass organizations like the Women’s Union were active in sanitation awareness efforts, but these efforts focused on household education rather than supporting the market for sanitation services. Cambodian suppliers similarly reported weak demand, often attributed to minimal marketing, the limited availability of affordable latrine models, and entrenched habits of open defecation (Pham, 2023). The lack of user education and the absence of active market-making interventions continue to suppress household investment in sanitation in both cases.

The high cost of materials, particularly for cement, toilet pans, and other key construction inputs, further exacerbates the challenge of achieving financial viability. In Vietnam, price variability and transport costs in remote areas significantly inflate the overall cost of latrines, a trend that was also observed in Cambodia. In both contexts, narrow profit margins leave little room for businesses to absorb cost fluctuations or reduce prices to attract low-income households.

Subsidies present a complex and sometimes contradictory influence. In Vietnam, suppliers ranked subsidies as having minimal direct impact on their cash flow and profitability, yet they also described how subsidy-dependent customer behavior undermines market-based growth. This duality is similarly evident in Cambodia, where subsidy programs risk distorting consumer expectations and reducing private investment incentives (Pham, 2023). In both cases, due to having a third party conducting the mobilization, and the government giving the subsidies, suppliers are often excluded from direct relationships with end users in subsidized programs, further weakening their ability to negotiate prices and payment terms.

Despite the economic challenges, most sanitation suppliers in both countries expressed a commitment to continue serving poor households although they were concerned about long-term viability. The case of Vietnam, like Cambodia, underscores the tension between pro-poor objectives and market-based service models.

7. Conclusions: Policy Implications and Future Considerations

The findings from the two case studies provide valuable insights for shaping policy and practice to mitigate financial risks faced by private sector WASH providers in rural Vietnam, particularly in development projects targeting remote and disadvantaged areas. Although the Project operated as a public–private partnership involving government agencies, the Women’s Union (WU), and private suppliers, the WU—tasked with mobilizing households—was directed by the People’s Committee and viewed by communities as part of the government. As a result, subsidies were perceived as government aid rather than market-based price incentives, undermining the intended demand-driven approach of the results-based delivery model. While the Project aimed to position households as active customers in a functioning WASH market, this concept was largely disconnected from community perceptions (Pham et al., 2021).

The Project targeted poor and vulnerable households, many of whom relied on subsidies provided or loans to access services. For these households, the subsidies were seen as essential financial support rather than an incentive or discount. These findings echo concerns in previous studies (e.g., Howard & White, 2020; Clist, 2017) that while results-based financing can improve service delivery, its design may inadvertently limit private sector participation and hinder the development of a competitive, sustainable WASH market.

The comparison between the case studies in Vietnam and Cambodia—where similar public–private partnership (PPP) models were used to implement WASH development projects serving poor and marginalized households—provides valuable insights into common risk areas under PPP arrangements, particularly from the perspective of private sector actors operating in underserved rural areas. At the same time, there are key differences in governance structures, institutional frameworks, and regulatory environments between the two countries. This suggests that financial risks and viability are shaped by the intersection of micro-level business dynamics and broader governance systems, which may either constrain or enable various aspects of financial risk and sustainability. These case studies underscore the importance of context-specific measures to strengthen the financial viability of both water supply and sanitation providers operating in development settings similar to rural Vietnam, particularly those serving low-income communities. Effective risk allocation in PPPs, based on each party’s risk management capability, is crucial for financial sustainability, as inadequate risk-sharing can lead to project failure (Ameyaw & Chan, 2015).

7.1. Strategies to Strengthen Financial Viability of Water Supply Businesses

At the business level, a key strategy that could be developed during the project design is requiring advance payments from household upon signing connection agreements. This approach generates additional revenue, helping to stabilize finances, especially during the early stages of investment. The advance payment model can also be replicated in other rural areas during project preparation and initial investment phases, providing suppliers with an early revenue buffer. Additionally, capacity-building support from NGOs delivering WASH projects in business management could be beneficial. Rural water providers require capacity-building support, particularly in operational management, securing commercial financing, reducing non-payment issues, and improving customer base management.

At the government level, key actions to enhance the financial viability of rural water supply enterprises include implementing support policies for rural water suppliers especially for public–private partnership models like that in this case study. Support may include financial assistance based on pipeline length, given the high initial investment costs and slow return on investment. Other government interventions include tax incentives and water price support in remote areas, as well as interest rate subsidies on commercial loans, which would ease financial constraints for rural water enterprises. These can be negotiated at the project’s initiation with the government partner and would be helpful in bridging the gaps in the policies of existing pro-rural water supply regulations and their implementation. Strengthening regulatory implementation and increasing the influence of private sector water supply units will be crucial in ensuring the sustainability and expansion of water services in rural areas.

The government should play a more active role in balancing the interests of service providers and disadvantaged households. This could involve facilitating agreements where non-poor customers pay higher tariffs to offset lower rates for vulnerable households. Although suppliers in this case study felt it was their social duty to provide services to poor households, regulations should be effectively enforced to ensure statutory financial support for rural water supply, addressing pricing and tariff issues to bridge revenue gaps.

For businesses that service remote and disadvantaged areas, financial incentives such as interest rate subsidies and capacity-building programs in operations and asset management should be provided to help businesses lower costs and enhance financial sustainability. Water supply businesses should also be empowered to advocate for these financial supports.

7.2. Strategies to Strengthen Financial Viability of Sanitation Businesses

Sanitation suppliers that provide services within development projects—particularly those involved in constructing latrines for underserved households in rural Vietnam—require targeted support to ensure their sustainability and effectiveness.

At the household level, rather than relying on direct subsidies—which can distort the market and offer limited benefit to businesses—financial support for low-income households should focus on integrated approaches that both mobilize demand and improve affordability for sanitation services. Expanding communication campaigns on WASH targeting poor households will help drive demand, allowing businesses to serve this segment more effectively. This can be carefully built in the project design and for scaling up.

At the business level, to mitigate the risk of non-payment, suppliers can adopt strategies such as negotiating upfront payments with households. Improving business management training and access to finance will enable sanitation providers to expand their operations, increase profitability, and achieve long-term financial sustainability.

The sanitation suppliers in this study prioritized broader policies that focus on market creation, price stability, and strengthening regulatory frameworks to support private sanitation businesses. Direct government support should include measures to control price increases for key materials like cement, offer low-interest loans, and provide tax reductions. Government investment in sanitation development projects in economically disadvantaged rural areas could also help create market opportunities. In remote areas, financial incentives such as interest rate subsidies, loan guarantees, and microfinance schemes should be developed to assist small-scale operators, including masons, builders, and retailers, who struggle to access commercial loans.

This paper highlights the financial risks and viability challenges faced by private sector WASH providers serving marginalized communities in rural Vietnam. Sustaining these enterprises will require targeted support through a coordinated, sector-wide approach. While strategic directions have been drawn from these two cases studies, further research—such as experimental studies, financial modeling, and qualitative methods like surveys or focus groups—are needed to explore feasible payment and subsidy models, tariff structures, financial assistance models, and the public and political acceptance of such arrangements in greater depth.