Government of Nepal created the Rural Water Supply and Sanitation Fund Development Board, on 14th March 1996 to promote sustainable and cost effective demand-led rural water supply and sanitation services in facilitation of Non-governmental and Private Organizations with full emphasis on community ownership in conformity with the Government's Eighth Plan (1992-97), Ninth Plan (1997-2002) and Tenth Plan (2002-2007) sector policies, which aimed at fundamental changes in rural water supply and sanitation service delivery mechanism in the country. The Ministry of Urban Development is the line ministry for the Board.

The Board is designed based on the experience of a field tested pilot project, acronymed 'JAKPAS' (the Nepali acronym of Janata Ko Khanepani Ra Sarsafai Karyakram - meaning People's Water Supply and Sanitation Program). Preparation studies for the pilot were carried out with funding by the United Nations Development Program (UNDP) and a grant from Japanese Grant Facility (JGF). The World Bank executed the pilot for a period of three years, during 1993-96, financed by two additional JGF grants.