Urbanization in the last 20 years has become one of the most important trends in human settlement development and the prospects of all developing countries continue to be deeply affected by rapid urban population growth. While Africa was 80% rural in the 1950s and 1960s, its rate of urbanization now stands on average at 50% and the trend is expected to continue over the coming years (UN-HABITAT, 1996). This report examines the major challenges of municipal finance, the main sources of municipal finance and the experience of sustainable service provision; financial management and innovative financial practices in Africa. It is supplemented with a case study of Gaborone city, Botswana. It provides suggestions on the way forward as far as municipal financing in the African continent.