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    Draft casesrecommendations access to housing Draft casesrecommendations access to housing Document Transcript

    • GLOBAL SUMMIT 2010 Draft Cases anD reCommenDationsWith the support of:
    • Acknowledgementsthe authors would like to thank the social entrepreneurs who shared their innovative work,and the experts who contributed insights over the course of this investigation. the researchand writing of the following cases and recommendations would not have been possible with-out your support. We invite your continued collaboration, at the Global summit of Housingentrepreneurs in Barcelona, to inform the final version of this report.this Working report on access to Housing for theBase of the Pyramid is sponsored by:
    • Access to Housing for theBase of the Pyramid:A Working Reportaccess to Housing for the Base of the Pyramid: foreword ........................................................ 5market Based Cases ................................................................................................................7 Patrimonio Hoy ................................................................................................................................ 8 Jamii Bora ......................................................................................................................................... 14 Housing for all - india..................................................................................................................22solutions addressing Barriers to scale ..............................................................................9 CoDi - Community organizations Development institute ...............................................30 saiban ................................................................................................................................................36 terra nova ......................................................................................................................................42 sParC – society for the Promotion of area resource Centres ......................................48Draft recommendations for Various stakeholders ......................................................55 financial institutions: .....................................................................................................................56 Commercial Banks .................................................................................................................. 57 microfinance institutions .......................................................................................................58 Housing finance institutions................................................................................................. 61 Citizen sector organizations......................................................................................................62 real estate Developers (new Homes) ....................................................................................63 Building material manufacturers / retailers (Home improvements and new Homes)...65 Building materials retailers and Distributors (Home improvements).............................69 Public sector actors: national Government, Local Government, municipalities and Public Housing finance agencies ............................................................ 71 investors and funders:.................................................................................................................. 74 Philanthropists and foundations.......................................................................................... 74 social investors ........................................................................................................................76 Private investors ......................................................................................................................77
    • About the Authors Ashoka Innovators for the Public: founded in 1980, ashoka is the world’s working community of more than 2,000 leading so- cial entrepreneurs. it champions social change ideas and supports the entrepreneurs behind them by helping them get started, grow, succeed and collaborate. as ashoka expands its capacity to inte- grate and connect social and business entrepreneurs around the world, it builds an entrepreneurial infrastructure comprised of a series of global initiatives that supports the fast-growing needs of the citizen sector. ashoka’s vision is to create change today, for an ‘everyone a Changemakertm’ society to become the reality of tomorrow. for more information, visit www.ashoka.org. Ashoka’s Full Economic Citizenship (FEC): is one of ashoka’s global initiatives striving to enable an environment where every citizen has the opportunity and the capacity to exercise his or her economic, social and cultural rights. the full economic Citizenship initiative builds business partnerships that serve low- income communities in the sectors of housing, healthcare and small farming. these collaborations are Hybrid Value Chainstm which combine the resources of the business and citizen sectors to transform markets and redefine value in game-changing ways. for more information, visit fec.ashoka.org. Hystra: is a new, hybrid type of consulting firm. Hystra works with business and social sector pioneers to design and implement hybrid strategies through innovative business approaches that are profitable, scalable and eradicate social and environmental prob- lems; and combine the insights and resources of business and citi- zen sectors. Hystra itself is a hybrid organization, a for profit tool for social change. Hystra consists of a core team of full time con- sultants and of a growing network of partners already present in 7 countries. for more information, visit www.hystra.com.4
    • Access to Housing for theBase of the Pyramid:ForewordWritten by practitioners for practitioners, this report (due for publication in early2011) looks at international examples of promising and already successful affordablehousing solutions that provide both new homes and home improvement solutionsfor the urban poor. the following pages consist of two types of cases; marketBased Cases, and solutions addressing Barriers to scale; as well as a draft synopsisof recommendations for various stakeholders who act across the affordable hous-ing value chain, derived from the experiences of practitioners and industry experts.A Word on Methodologyafter an extensive review of over 70 housing solutions, we identified geographicallydiverse cases titled market Based Cases, of which three are included in this draft.these cases are termed as “market based” due to two primary criteria: • the initiative delivering the home improvement or new home is not highly subsidized • the client purchasing the new home or home improvement solution pays market value for the purchasefrom these market Based Cases, which illustrate promising approaches to deliv-ering new home and home improvement solutions, we surfaced some key crosscutting themes. apart from context specific factors, we identified four key barriersthat, according to the practitioners involved in these cases, restrict the scale andreplicability of their solutions.these Barriers are: 1. the lack of access to clear and secure land title (hereafter, Land rights ) 2. Limited collaborative and cross-sector collaborative action 3. the lack of access to a policy environment supportive of affordable housing markets (hereafter, supportive Policy) 4. the lack of access to appropriate finance options for low-income clients (hereafter, finance)We then identified additional solutions, called solutions addressing Barriers toscale, which are not necessarily market based, but provide interesting and insightfulexamples of addressing one or more of the above mentioned barriers. 5
    • the key differences between market Based Cases and solutions addressing Barriers to scale are summarized below: soLutions aDDressinG market BaseD Cases Barriers finance, advocacy, access to land rights or any product or service that alleviates enD new homes or home a barrier to scaling affordable housing ProDuCt improvement solutions solutions. occasionally new homes or home improvement solutions are end products as well systemic issues, policy constraints, Quantity or quality shortfalls in capacity constraints of low income aDDressinG affordable housing segments, all of which inhibit scaling up of affordable housing DeGree of Limited subsidies if any Higher level of subsidy suBsiDy sCaLe operational sustainability, expan- mobilizing subsidies, removing systemic sion and replication, opening and tHrouGH barriers and influencing policy developing markets CLients upper BoP income segments Lower BoP income segments reaCHeD the cases and analysis contained in this report culminate in series of recommen- dations for various actors in affordable housing, from finance providers to Public sector actors, from real estate Developers to Building materials retailers. a draft of these recommendations follows. A Collaborative Endeavor this project, sponsored by the Hilti foundation, was completed over the course of 6 months in 2010, and was led by ashoka’s full economic Citizenship initiative with input from Hystra consultants, and industry experts. the report reflects a co-creation process with social entrepreneurs and business leaders. the case stud- ies in particular, have been discussed with the contacts from each project and the recommendations that follow are the product of the insights of practitioners and industry experts. We invite your feedback and suggestions on the Cases, solutions and recommendations that follow.6
    • Market Based CasesPatrimonio HoyJamii BoraHousing For All - India 7
    • market BaseD Case PATRIMONIO HOYPatrimonio Hoy ProJeCt DetaiLs Geography: Latin-america: mexico (45 cities), Colombia, Venezuela, nicaragua, Costa ricaExecutive Summary Products: incremental home improvements; integratedLaunched in 2001, Patrimonio Hoy (PH), is a profitable program and materials and financing for complete rooms, bathrooms and kitchensbusiness unit of CemeX,1 an international cement producer and sup-plier of aggregates (sand, gravel, etc.). the program provides low- Stakeholders:income families in mexico and several other Latin-american coun- Private: CemeX, other suppliers, Distributors social: Community based promoterstries the opportunity to build additional rooms (bedroom,bathroom, kitchen etc.) in their homes in about a thirdof the normal time for roughly two thirds of the cost.2 low-income clients of a solution advancedthis is accomplished through an innovative arrangement, where by a private sector company. addition-groups of 3 families use a combination of upfront savings and credit ally, PH has expressed its commitment toextended by PH (76% of the project cost) to design and build a room serving low income communities throughin each of the participating 3 homes in 70 weeks. During the early improving public school infrastructureweeks of the program, PH offers technical assistance to its customers through its PH escolar5 program.to design and plan the project. 3 PH provides building materials fromCemeX and complementary building material suppliers (for windows, During its 10 years of operations, thetiles, etc.), through selected CemeX distributors that offer a choice program has provided 250,000 6between direct home delivery or temporary storage of materials.4 families (socios) with credit, ma- terials and assistance to buildto qualify as a PH distributor, a company must not distribute products new rooms. PH is now poised forwhich directly compete with CemeX offerings (to minimize odds that further national and internationalcompeting cement and materials providers will benefit from CemeX growth.financing and investments into this target segment). only 10% ofCemeX’s current distributors meet these stringent requirements. House upgrade in progressthe projects are marketed and sold through promotoras, local sales-people (mostly women) with strong ties inside the target commu-nities. these promotoras help overcome initial distrust by potential stakeHoLDers ContriButeD GaineD CemeX Building materials, new business opportunity, com- full product financing, munity based sales force, under- distribution system standing of customer segment otHer suPPLiers Building materials Growth in sales, steady demand Promotoras reach and trust inside income through sales commis- low-income communities sion, social capital, sales training Photo : Patrimonio Hoy DistriButors Home delivery of prod- Growth in sales, highly profitable ucts, storage facilities product mix, steady demand Consumer market demand for improved living and hygienic home improvement conditions projects8
    • market BaseD Case PATRIMONIO HOYThe Business Modelover the last ten years PH has refinedits business model to successfully serve tHe stories of rosa anD marÍalow-income markets in mexico and else-where. the stories of rosa magañaOperations established in and maría Diega, twothe communities7 customers of Patromonio Hoy (PH), illustrate thethe core of PH’s operations ist “cells” life-changing impact that thewhich are established in every neighbor- program can have.hood where PH is launched. Cells typi-cally have 1 to 4 employees whose roles rosa magaña, Patrimonio Hoy’s first customer, creditsinclude recruiting and training promotoras, Patrimonio Hoy withplanning, designing and scheduling proj- changing her life. she and herects, coordinating distribution deliveries, husband built their 120 sqreceiving payments and handling consum- meter house after living wither inquiries. their two children in a 10-sq meter carton shed with no bathroom for six years. theySales and Marketing through are now completing twotrained promotoras additional rooms and aCemeX hires local promotoras – more soldering and welding workshop. PH has helped rosa and her children in front of herthan 90% percent of whom are women8 – them build both a home and home, expanded from 10 sq- meters toto identify prospective customers and 120 sq meters. Construction is ongoing their own business. “Without on 2 rooms and a welding shop for hermotivate them to enroll in the program. the program,” rosa says, “i’m husband.these promotoras are the key to establish- sure we would still be living ining relationships with target clients and the same conditions.”developing the trust necessary for the maría and her family of six lived in a single-room dwelling for eightprogram to work within informal com- years. in just five years after maría became a PH participant—rathermunities. Promotoras are compensated for than the lifetime of work it may have taken otherwise—she and hertheir work through a commission, based family added seven rooms and a staircase to their home. according to maría, “Without Patrimonio Hoy, we would still be crowded,on the number of families they attract and uncomfortable, and angry. since we became part of the program myhow long they stay in the program. husband and i are more united, as he stays home during the week- ends to keep building our house. We see the Patrimonio Hoy teamthe PH program is further marketed as part of our family.”through branding initiatives, for instancethe placement of PH logos on trucks de-livering materials to homes.Integrated offerings forcomplete rooms, not justCEMEX products Photos : Patrimonio HoyPH supplies not just cement and aggre-gates but a comprehensive and inte- maria Diega Chavero and children in front ofgrated offering of construction materials their expanding home,for the completion of the room, kitchen under construction.or bathroom. all items are packaged bydistributors and delivered according to 9
    • market BaseD Case PATRIMONIO HOY week for the complete 70 weeks. of that, mXn 165 per week goes to the purchase of building materials and the remaining mXn 35 per Poor people can spend more week is the PH membership fee.money than we think, on homeimprovement. Companies need to the membership fee covers access to technical assistance, fixed pric-re-invent, in large part, even core ing for materials during the 70 week project, materials storage, homecompetencies to successfully serve delivery, community development projects through PH escolar, andlow-income markets.” the interest charged on PH financing. – israel moreno, Director, after 2 weekly payments are completed in each cycle (20% of the ma- Patrimonio Hoy terials needed for completing that cycle of the construction project), credit is granted by CemeX without additional prerequisites for the remaining 8 weeks. the first cycle is an exception, where 5 payments are needed before credit is disbursed (in total credit represents 76% of the project cost). the group savings and credit program of PH was built upon local “tanda” (private savings groups) practices common in low-income mexican communities, where groups of women set aside savings for a specific purpose each week and one of the members is responsible for collecting payments on a weekly basis. Distribution: Flexible home deliveries throughPhoto :Patrimonio Hoy selected suppliers11 When they purchase material, PH customers have the choice be- tween immediate home delivery or temporary storage at the dis- tributor’s facilities. this helps minimize wastage of materials and ad- ditional transportation costs to consumers. Olivia Villanueva, a PH client, unlike its parent company CemeX, PH mandates its distributors to and children in front be able and willing to provide a home delivery service and have stor- of an upgraded house age capacity.a pre-approved schedule. PH receives acommission of 6% on other constructionmaterials which are packaged into PH de-liveries and financed by PH.9 Photo :Patrimonio HoyFinancing: credit for groups CEMEXof 3 families, based on local employeesgroup savings practices10 at workPH programs are divided into 7 cycles of10 weeks, permitting each family enrolled Additional social impact: school constructionto complete a 100 sq foot room after70 weeks. Groups of 3 families organize additional programs have been launched for participant communities.themselves to participate in the program, one such example is PH escolar, which helps improve infrastructureand require only an official iD (no formal of local schools. four per cent of the membership service fee is al-land title) to do so. each family contrib- located towards PH escolar.12 CemeX provides participating schoolsutes mXn 200 (roughly usD 15) per technical assistance and building materials free of cost.1310
    • market BaseD Case PATRIMONIO HOYPatrimonio Hoy TimelinePatrimonio Hoy Timeline 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Project Milestones First launch in Re-launch Launch of additional PH reaches PH receives World Guadalajara including CEMEX programs (Te Impulsa, self-sustainability Business Award by financing Calle Digna, PH Escolar) UNDPCumulative credit extended (As of December of previous year) $1.6m USD $9.4m USD $22.7m USD $38.5m USD $52.9m USD $66.6m USD $82.3m USD $112.1m USD $134.8m USDSocial Value Creation (Members served) 10,000 36,000 68,000 103,000 126,000 154,000 183,000 219,000 252,000Patrimonio Hoy Operations Recruiting and Training PH Products Direct Sales of PH Products PH Products PH Products Legend Other building Clients Product CEMEX material Distributors Promotoras (groups of 3) suppliers Services $ Payments Consumer Finance Private Enterprise Payments Citizen Sector Organization $ Commission on Sales Customer $The Patrimonio Hoy Value Chain ProJeCt ProDuCt ProDuCt marketinG retaiL after ProCurement DistriBution finanCe DesiGn DeV anD saLes finanCe saLes• all materials • CemeX invested • CemeX • Technical • Direct sales • savings in groups • Distribution • Project and(CemeX and in launch and provides assistance by to families by of 3 families, 76% through selected payment follow-upcomplementary invests in expan- integrated cell at start local sales- product financing distributors, by promotorasproducts) by other sion of profitable home of project people by CemeX storage facilitiesmanufacturers business unit PH improvement (no constructionprovided through materials plus services)CemeX distributors creditsocial sector actors Private sector actors 11
    • market BaseD Case PATRIMONIO HOYEvaluation FrameworkIs the solution SOLVING THE PROBLEM? Is the solution ECONOMICALLY VIABLE?Patrimonio Hoy addresses a significant need PH is a profitable program for CEMEX andamong low-income communities — adding offers an affordable way for consumers tospace to existing dwellings — through an improve homes.integrated offering of all materials andnecessary financing and technical assistance. Solution is affordable and saves time for the targeted population.Problem Magnitude • average consumer family of 5 people has an income of• yearly housing gap of 750,000 houses in mexico. usD 8,500 per year, about 5 times the minimal yearly wage.• Half of homes built are in the informal sector, room by • Customer payment of usD 15 per week for buildingroom at a pace of ~ 4 years and a cost of usD 1,500 per materials, interest payments and ta, allowing them to relyextra room.14 on financial discipline, rather than current assets, to finance home improvement goals.• 16 million self-built homes, 2.2 million rooms added eachyear.15 • repayment rate of 99.8% since inception, proving affordability. • PH estimates each extra room built through its programQuality of Solution costs usD 1,000 (2/3 of typical cost) and takes on average 1.5 years to build (1/3 of usual time to build).• access to full range of building materials to construct anadditional room. PH is a lucrative program for CEMEX.17• Limited technical assistance in advising the right mix ofproducts for the project. • CemeX has invested usD 21million since launch. • Generated sales of about usD 100 million since 2000.Housing Impact- The Numbers Since Launch16 • extended usD 95million in credit to consumers in the• 156,000 rooms built. same period.• approximately 750 school infrastructure improvement • Donated usD 200,000 for public school infrastructureprojects with PH escolar. since launch. • PH profitable since 2006.Housing Impact- Quality of Life • 20% of PH’s profits sent to CemeX corporate.• increased family productivity and incomes based on ad-ditional usable space for work. • Besides financial returns, recognition of CemeX in com- munities as a business with a social conscience.• improved quality of life attributable to greater space.• Better health outcomes attributable to quality construc- For Social Stakeholders, Promotoras, PH is ation and sanitation upgrades. source of income and pride18 • 750 promotoras paid directly from CemeX, based on theOther impacts number of clients they attract and how long they stay in the• new training and source of income for promotoras, who program.are often consumers themselves. • usD 2.5 million in sales commissions to promotoras since• Creation of deeper community networks through reach of launch.promotoras. • in 2009, average usD 170 per promotora per month. Dependence on Subsidy or Grants Government subsidy is available for low income families who want to upgrade housing conditions, for ~1/2 PH’s members, representing ~ 30% of their weekly payments.12
    • market BaseD Case PATRIMONIO HOYIs the solution SCALABLE AND REPLICABLE?Patrimonio Hoy’s current structure as a pro- To be replicated by another manufacturer ofgram of CEMEX and its lack of partners with construction materials, this model requirescomplementary skill sets constrain its ability investment, appropriate financing and distri-to scale. bution systems.• in-house financing: limited amount available for loans and • a materials manufacturer willing to invest resources into alimited money available for re-investment. business unit catering to a new target market.• financial constraints of a business unit within CemeX: not • availability of finance partners to finance consumer pur-open to social capital or international donor funds, and with chases, or alternatively the capacity of materials manufac-funding streams subject to corporate processes in line with ture to extend finance.CemeX’s growth strategies, not PH’s. • Distributors capable of packaging complete offerings,• Lack of quality talent to manage growth and scale, knowl- and their willingness to extend storage and home deliveryedgeable about target communities (thus capable of identify- options.ing promotoras) and able to drive sales. • Community sales representatives with respect and reach• Difficulty finding viable social sector partners to aggre- in communities who can serve the function of promotoras.gate demand and recruit promotoras, in spite of trials withseveral Csos.Is the solution ENVIRONMENTALLY SOUND?environmental sustainability is not articulated as a primary goal of Patrimonio Hoy.Post ScriptCognizant of the above outlined barriers to scaling its operations, Patrimonio Hoy is looking to partner with socialsector organizations that have both an extensive network in communities and can adapt the business mindset re-quired to meet PH’s ambitious growth targets.1 Founded in 1906 and headquartered in Mexico, CEMEX is a global 7 Michigan Ross School of Business Case Study, December 12, 2003building materials company that produces, distributes, and markets ce-ment, ready-mix concrete, aggregates, and related building materials 8 Global Urban Development Magazine, Volume 4, Issue 2, Novem-throughout the Americas, Europe, Africa, the Middle East, and Asia ber 2008and has close to 47,000 employees worldwide. In 2008, the company 9 Interview with Israel Moreno, Director Patrimonio Hoy, Octoberrecorded a revenue figure of USD 20.1 billion. In 1996, with the ac- 15, 2010quisition of Colombia’s Cementos Diamante and Samper Companies,CEMEX became the world’s third largest cement producer; and, in 10 Habitat Business Award Application 2009; Best Practice, UN2005, the world’s largest ready-mix concrete producer after acquiring Habitat Website http://www.unhabitat.orgRMC Group Plc of UK. 11 Michigan Ross School of Business Case Study, December 12, 2003 12 Interview with Israel Moreno, Director Patrimonio Hoy, October2 Michigan Ross School of Business Case Study, December 12, 2003 15, 20103 Technical assistance typically comprises guidance at point of sale on 13 Interview with Israel Moreno, Director Patrimonio Hoy, Octoberwhat items to purchase and design of new room. 15, 20104 Families are not required to buy all products from the list, or all 14 Global Urban Development Magazine, Volume 4, Issue 2, No-products from selected suppliers/distributors. They can procure their vember 2008own materials, which would fall outside of PH financing, delivery andstorage services. 15 Harvard Business Case; Patrimonio Hoy: A Financial Perspective, November 1, 20075 Patrimonio Hoy Escolar is a partnership with local public schoolsthrough which PH supports infrastructure improvements through 16 Interview with Israel Moreno, Director Patrimonio Hoy, Septem-technical assistance and provision of building materials. Roughly 100 ber 14, 2010school projects have been completed. 17 Interview with Israel Moreno, Director Patrimonio Hoy, Septem-6 Habitat Business Award Application 2009; Best Practice, UN Habi- ber 14, 2010tat Website http://www.unhabitat.org 18 Interview with Israel Moreno, Director Patrimonio Hoy, Septem- ber 14, 2010 13
    • market BaseD Case JAMII BORAJamii Bora ProJeCt DetaiLs Geography: kaputei town, kenya 60 km outside the city center of nairobiExecutive Summary Product: new homes in new townshipWith more than 300,000 members, Jamii Bora (JB) is the largest 1 Stakeholders:microfinance institution in kenya.2 Beyond micro credit, the organiza- Private: Construction and environmental expertstion provides savings accounts, life and health insurance, counseling (e.g., architects, engineers, professors, and roadservices focused on community capacity building, business classes and builders); funding Partners social: Jamii Boralarger ticket housing loans. finance: Jamii BoraLeveraging its assets as a micro finance institution andits experience delivering a host of services to its mem-bers, JB launched its affordable housing initiative in2002. it did so by purchasing and delivering private land3 60km out-side of nairobi. its vision was to create a complete ecosystem that in total, JB plans to include 2000 newwould provide its members with residential, commercial and social homes (for 10000 individuals), cultural andservices.4 social centers, and commercial/ industrial areas in kaputei. total cost is estimatedeach resident of this new town, called kaputei, purchases new homes to be kes 900 million (usD 11.25 mil-and therefore access titled land and infrastructure. all residents are lion), half for residential development andexisting JB clients who have a strong borrowing history with the mfi the other half for commercial develop-and are either entrepreneurs or can support local entrepreneurs. JB ment. Construction costs have been re-is the exclusive provider of financing for purchase of these homes. 5 duced through standardized design, localCost of homes depends on how long the client has been a mem- manufacturing of building materials andber of JB and can range from 350000 kes(usD 4320) for those who construction of homes by residents whohave been members over 10 years up to 750000 kes (usD 9375) for are paid by JB. the project is financednewer members. through private loans, JB company savings and consumer down payments, with mini- mal funding through donations. stakeHoLDers ContriButeD GaineD kaputei is still under construction6 as Jamii Bora Provides homes, land Home loans are a new line legal protests7 from local environmen- tenure, commercial of products cross sold to properties, loans for their existing clients; additional tal nGos and neighboring towns have purchase , infrastructure, revenues from rent on delayed the process. as of september community centers commercial units 2010, two neighborhoods, en- PriVate funDers Provide funding for the equity; interest income, compassing ~500 homes in total, (e.g., acumen fund, project impact investing related stromme foundation) social value have been built and ~200 are un- der construction. Residents are HousinG technical, environmental and service fee for technical ProfessionaLs construction advice, knowledge of a new moving into completed houses (e.g., architects, engi- knowledge market segment on an ongoing basis. 8 Some fami- neers, professors) lies, that have already bought inDustriaL / Jobs to kaputei residents, Labor and new markets CommerCiaL rent for offices homes, have delayed their move enterPrises due to personal considerations Jamii Bora Demand for housing, con- new homes, additional of distance to work, and impact memBers struction labor income through on businesses. JB has also opened two construction jobs schools in kaputei — a primary school14
    • market BaseD Case JAMII BORAin January 2009 and a secondary schoolin January of 2010.9 management expectsthe township to be completed early 2012.10 tHe story of Jane nGoiriWith a current waitlist that far exceedsthe available homes, JB is in negotiationsfor the purchase of additional land to cre-ate another township. as the companycontinues to expand, JB believes it mustactively manage its costs, while lookingfor innovative ways to increase qualityand service for residents.11 Jane ngoiri outside her new home in kaputeiThe Business Model Jane ngoiri, a third generation slum dweller, lived in a small one bedroom shanty in the mathare slum of nairobi, along with her fourseveral features of the JB operating children. Her home was a 6 square meter, mud structure. a halfmodel, including engineering in-house complete wall divided her home from her neighbor’s, who made amaterials production, implementing a living from the illegal brewing of alcohol.standardized manufacturing process, and Jane was a commercial sex worker who had been struggling forleveraging its existing client base and sales many years to support her family when she found out that she waschannels, have allowed JB significant cost HiV positive. in late 1999, it took the mathare branch manager,reductions in delivering homes to low in- Jane njoki, several months to convince Jane and her colleagues thatcome households. another life was possible for them. the entire group decided to be- come Jamii Bora members in December 1999 and their lives slowlyProcurement: Cutting costs but surely changed.through making building Jane took sewing classes and started her own tailoring business. shematerials on-site buys old clothes and recycles them into children’s dresses for sale.JB evaluated and reduced multiple cost she purchased her first simple second hand manual sewing machine with a loan of usD 40 from Jamii Bora.drivers in the procurement of raw ma-terials. first, JB bought cheap land near Jane’s business is growing and she has taken out and repaid Jamiithe township to extract the raw gravel Bora loans 11 times over the past 10 years. However, even with aneeded for construction. it also built relatively stable income, an improved home remained unrealized dream. Given her profile as a HiV positive former-sex worker witha temporary, basic factory and hired no formal income or official address, commercial banks would not consider her a candidate for a home loan. in 2002, Jane turned to Jamii Bora for a home loan for a house in Jane ngoiri and family members in her new sitting room kaputei. Given her strong track record with previous business loans, Jamii Bora accepted her loan application in 2008. it took Jane six years to save enough for the down payment of 10% (usD 440). today, Jane lives in a two bedroom home in kaputei. she has a kitchen, a bathroom, a sitting room, two bedrooms, a garden and enough space to sew and grow her business. she pays usD 40 a month, which is not much more than what she paid for rent in nairobi. Photos : Jamii Bora Jane says she is proud to be a home owner and she thanks God every day for the miracles that have happened in her life. she says that even though she is HiV positive, she is determined to live to see her children grow up and also wants to see her grandchildren. 15
    • market BaseD Case JAMII BORA members to produce cement blocks and roof tiles, saving on both labor and transportation costs. on site production costs were kes 30 per block and kes 17 per tile, whereas purchased machine cut blocks would have cost kes 28-35 each plus kes 4,000-8,000 (usD 50-100) in transport.12 the factory has also provided jobs to over 100 JB families, improving their ability to pay back loans. Sales and Marketing: Cross selling to entrepreneurs with strong credit history JB leverages its existing sales channels to cross sell new housing loans to its base of approximately 300,000 clients across kenya. Housing loans are approved for clients who have a minimum three year engagement with JB and successful repayment of at least three business loans. those eligible for home loans in kaputei are either proven entrepreneurs or hardworking individuals who can support the work of entrepreneurs. JB proactively selects entrepreneurs who can ei- ther provide goods and services to the town (e.g., food shops), who can serve the surrounding areas (e.g., carpenters), or have outgrown their current business space and need bigger homes or the commer- cial area of kaputei.13 However, several entrepreneurs are hesitant to move to kaputei until a critical mass of residents moves in, to support their businesses and electricity (currently solar powered) is provided as a utility. Product Design and Development: Cutting costs in a low cost Professionals working with the community onhousing project is a combination standardized homesof hundreds of aspects of building to ensure quality construction, JB hired professional architects, en-materials production, designs and gineers and professors to design and oversee the construction of theconstruction methods, lay-out plans township, in consultation with residents.etc. there are no shortcuts or simplesolutions to cutting costs. every little With an emphasis on cost cutting, these hired professionals developeddetail counts, and only the sum of several standardized home layouts that could be mass produced, and involved simple, low tech construction processes and could leverageall these minor savings can lead to a cost savings through scale. each home was built with either 2 or 4solution that is truly and affordable bedrooms, a kitchen, sitting room and bathroom.14 Homes are basichome for the poor.” and finishings are minimal, as emphasis is placed on structural sound- – ingrid munro, ness, quality and space efficiency. founder and managing trustee, Jamii Bora initially, kaputei did not have access to government utilities, which necessitated the provision of basic services through alternative means, for example through solar panels on homes. JB recently began working with kenya Power & Lighting Company to bring electricity to kaputei. to address the water consumption needs of the community, university of nairobi professors were hired to conduct a hydro-geo- logical study. they found a water source at a depth of 85 meters and boreholes were drilled to create a hydro-pump system. additionally, hybrid wastewater management systems have been implemented to recycle 70% of water utilized in kaputei.1516
    • market BaseD Case JAMII BORA Financing: Installments roughly equivalent to slum rent, covering construction costs Housing projects for the as a microfinance organization leading an affordable housing initiative, poor fail because they focus only on JB offers financing to all of their home buyers. each client receives a housing. you can’t separate housing loan with a tenure of 5-20 years and an interest rate of 8.5-10%.16 from the other issues because poor Clients make a down payment of 10% of the total cost of kes 350000 people have so many needs. Poverty to ~700000 (usD 4,375-8,750) and the average monthly installment has to be tackled from all angles.” is kes 3,500 (usD 40).17 – ingrid munro, through lowering its own cost of capital by utilizing patient capital founder and managing trustee, Jamii Bora from its investors, JB offers a low interest rate to its clients. Com- bined with an increased tenure as compared to other microfinance loans offered, monthly installments work out to amounts similar to what residents formerly paid as rent in nairobi slums.18 the purchase price of the home covers all construction costs of the home (roughly kes 150,000 / usD 1,875 for 2-bedroom), 50% of infrastructure and land cost (kes 75,000 / usD 938), and a modest margin.19 the remaining 50% of infrastructure cost is covered through rent payments from commercial and industrial space. Aerial shot of Kaputei Township under constructionPhoto : Jamii Bora 17
    • market BaseD Case JAMII BORATime LineJamii Bora Feb. Sept. Jan. Oct. June Jan. 2007 Mar. 2009 Sept. 2010 Sept. 2002 2002 2003 2003 2004 2005 2007 2009 2010Project MilestonesJB Purchases land First plan for Temporary JB receives 1,000+ Kaputei project NEMA JB wins High Court To date 300 families School finished, Com - from private Kaputei factory built applications within approved by County rejects appeal and resumes moved into Kaputei mercial plan approved, owner completed the first month Council Kaputei production one 200 additional families project month later move to KaputeiJamii Bora Operations PRIVATE FUNDERS Equity $ Project finance Technical Advice Offices INDUSTRIAL/ CONSTRUCTON JAMII BORA COMMERCIAL PROFESSIONALS $ $ ENTERPRISES Service Fee Rent Legend Consumer finance $ Installments Product Home Service Construction Income $ Labor $ Payments Private Enterprise Labor Citizen Sector Organization Customer CLIENTS $ Employment IncomeJamii Bora Value Chain ProJeCt ProDuCt ProDuCt marketinG retaiL after ProCurement saLes finanCe DesiGn DeV anD saLes finanCe • JB set up • Project • Professionals • Professionals • Advertise- • JB provides • JB provides local factory to financed by design the supervise and ment to cur- housing loans community mass produce consumer standard, oversee quality of rent members at 8.5-10% maintenance tiles and down green com- contruction; and approval interest for •Commeri- cement blocks payments, munity with local resi- of those with up to 15 to cal center JB Trust and the residents’ dents, most strong credit 20 years provides private loans input of whom are record and livelihood to JB members, livelihood residents build homes opportunities in Kaputei social sector actors Private sector actors18
    • market BaseD Case JAMII BORAEvaluation Framework Is the solution SOLVING THE PROBLEM? Is the solution ECONOMICALLY VIABLE?Jamii Bora is providing quality home solutions The Kaputei Town Housing Project is a viablewith titled land to microfinance members model for Jamii Bora, investors and involvedby taking a comprehensive approach to low stakeholders. The provision of finance forincome population needs. Impact so far has purchase of homes makes this solution abeen small as the project is in mid stages of viable one for BoP communities in Nairobiconstruction. desiring home ownership.Problem Magnitude Slum dwellers pay roughly the same• ~1.5million slum dwellers in nairobi and 7.5 million in installment as their previous rent.kenya. 20 • Client families live in the nairobi slums, paying average• many households (~6 members each) live in a single room rent of kes 3500 (usD 40 for 2-bedrooms), roughly equiva-without security of tenure. lent to installments in JB program.• ~ 94% of nairobi’s slum dwellers are without access toadequate sanitation. • typical client family earns between usD 80 to usD 200 per month.21Quality of Solution • Client acquires loan for 90% of home value (kes 350,000 to 700,000 ie usD 4,375-8,750) over a 5-20 year term, at• Design and oversight of home construction by professional 8.5-10% interest rates.architects and engineers, with quality control on each home. • new homes result in increased incomes for some resi-• extensive consultations with potential residents to ensure dents who are employed by JB in home construction.needs are addressed. Jamii Bora is striving for financial sustainability,• inclusion of commercial space for entrepreneurial busi- ensuring loan repayment through selection ofnesses and livelihood generation. creditworthy clients. • in 2010, JB repaid in full a usD 250,000 loan to acumen fund.Housing Impact - The Numbers • Purchase price of homes allows break even on each home,• over 2000 JB member applications for a home in kaputei. land plot and related infrastructure.• 470 homes built and families served. • JB charges fees for additional services offered by JB to resi-• 50 entrepreneurs currently working in township, providing dents (e.g., schooling, electricity, township maintenance).jobs to other members (working from residential homes at • Credit extended at low rate of 8.5-10% made possible by atime of writing, as commercial center is not yet built). mix of funding sources including company savings, member deposits, and down payments.Housing Impact - Quality of Life • Home loans granted only to creditworthy JB members• ownership of a home and land title, a leverageable asset, (minimum 3 years as JB clients, at least 3 loans alreadyis an immense source of physical and financial security and repaid, capable of 10% down-payment).22pride, elevating social status. Other stakeholders benefit from additional• expected increased health outcomes due to improved revenues and value created for communities.sanitation conditions, access to clean water and sewage • fee for service for housing and environmental experts,systems. architects etc.• expected improved productivity outcomes due to • Local entrepreneurs access new revenue streams and abil-increased space for livelihood activities and solar lighting ity to expand business/revenue with additional work space.increasing productive hours. • Jobs created for 100+ JB members and local maasai community.• expected improved education outcomes due to commu-nity access to new resources like nursery schools, play- The solution is economically viable and is notgrounds, sports facilities, library and communal halls. reliant on subsidies. Clients pay the full cost of the home, land and related infrastructure. Additional programs such as the school and other facilities are subsidized by JB. 19
    • market BaseD Case JAMII BORAIs the solution SCALABLE AND REPLICABLE?Jamii Bora’s ability to scale is constrained by Going forward, Jamii Bora is attempting toa lack of partnerships and access to funds: address these barriers by:• Limited amount of funds for disbursable loans due to lack • recently becoming a registered bank, giving it access toof access to funds with low cost of capital and long term funds with lower cost of capital.maturity. • Considering partnering with other organizations to in-• Difficulties convincing would-be BoP clients to relocate crease scale and reduce costs.outside the city, especially to new townships, before acritical mass of residents is reached (due to limited liveli- To be replicated, this model requires:hood options, increased commute times, and lack of public • Large pool of low income individuals willing to move, andinfrastructure in new townships). an effective organization, with deep knowledge of the com-• Lack of government relationships to effectively provide munity able to aggregate demand.public infrastructure and utilities (and ideally limit JB’s • understanding of low income individuals’ creditworthinessinvolvement in creating access roads, electricity water and (likely require a long term relationship with clients).sewage systems). • access to affordable, long-term financing with low cost of• Lack of partnerships with private sector players that could capital or subsidies to offer low-interest loans.boost employment opportunities in new townships or oth-erwise alleviate JB’s need to reinvest in various processes, • availability of affordable and contiguous land, in closesuch as training labor in construction practices in potential enough proximity to city centers.new townships. • economic opportunities near location of new homes, or transportation to these opportunities. • a culture and environment where standardized low tech building is acceptable. • Productive relationships with local groups and neighbor- ing towns to avoid delays and potential legal battles and protests.Is the solution ENVIRONMENTALLY SOUND?Jamii Bora has attempted to build aneco-friendly township after legal fights with • inclusion of sewage system that cleans and recycles waterenvironmental NGOs. back into the community.• JB prevailed in court proceedings after a 2-year legal battle • Homes powered by solar panels and technologies such asagainst nGos, who claimed kaputei would disturb wildlife hybrid waste water management.migratory patterns.20
    • market BaseD Case JAMII BORAPostscriptat kaputei, Jamii Bora has been able to develop a sustainable, relatively closed ecosystem by allowing communities toengage in the construction of their own homes, by supplying infrastructure and relying on members’ entrepreneurialnature to stimulate livelihoods. However, as the organization considers growing their housing initiative both in kaputeiand through new ecosystems, partnerships with the government and private sector players are likely required to moreeasily scale and replicate.Partnerships with the government for the provision of infrastructure and public utilities, like the one being pursuedwith the kenya Power & Lighting Company, would allow JB to scale to new areas more efficiently. Private companiescan provide more scalable employment opportunities, thereby allowing Jamii Bora to offer homes to a greater numberof its members who do not fit the current entrepreneurial criteria. With more occupational opportunities, more slumdwellers will be willing to relocate to Jamii Bora’s ecosystems. Leveraging cross sector partnerships would better al-low JB to focus its efforts on scaling home development and financing.1 Jamii Bora means “good family” in Swahili Company%20Industry/-/539550/861970/-/item/1/-/514y0hz/-/index. html2 JB founded in 1999 as a small micro-finance operation for a groupof 50 beggars 13 Interview with Ingrid Munro, Founder and Managing Trustee, Jamii Bora, July 20103 350 acres of contiguous land were purchased 14 Interview with Ingrid Munro, Founder and Managing Trustee, Jamii4 Interview with Ingrid Munro, Founder and Managing Trustee, Bora, July 2010Jamii Bora, July 2010 15 Jamii Bora Company Website, http://www.jamiibora.org/index.5 Two types of homes are offered. The first, a 2 bedroom, sitting htmroom, bathroom and kitchen layout is approximately 540 sq feet insize on a 2000 sq feet plot. The second type of home is 4 bedroom, 16 Jamii Bora Company Website, http://www.jamiibora.org/index.740 sq feet, on roughly the same sized plot. htm6 Construction began in late 2007 and is ongoing. 17 Yasmina Zaidman, Helen Ng & Adrien Couton. Knowledge Neces- sary to Meet Poverty Alleviation Goals: Building Enterprise to Reach7 Jamii Bora prevailed in a court case brought on by local NGOs Low-Income Markets.alleging that Kaputei township blocked the animal migration corridorto Nairobi National Park. 18 Interview with Ingrid Munro, Founder and Managing Trustee, Jamii Bora, July 20108 Over 250 families had moved in at the time of writing 19 Jamii Bora Company Website, http://www.jamiibora.org/index.9 Roughly 250 students are enrolled in the primary school. In 2010, htmthe government recognized both schools as official public schools. 20 Homeless International (http://www.homeless-international.org/10 Interview with Ingrid Munro, Founder and Managing Trustee, Jamii standard_1.aspx?id=0:2350&id=0:276&id=0:262)Bora, July 2010 21 Interview with Ingrid Munro, Founder and Managing Trustee, Jamii11 Interview with Ingrid Munro, Founder and Managing Trustee, Jamii Bora, July 2010Bora, July 2010 22 Jamii Bora Company Website (http://www.jamiibora.org/housing-12 Turana, Johnstone ole. Private Sector Now Steps In To Provide Low- time.cost Housing. February 15, 2010. http://www.businessdailyafrica.com/ 21
    • market BaseD Case HOUSING FOR ALL - INDIAHousing For All - India ProJeCt DetaiLs Geography: india, Gujarat; ahmedabad (more cities in pipeline). other Hfa projects in Colombia,Executive Summary Brazil and egyptashoka’s Housing for all (Hfa) initiative, supported by the Hilti Product:foundation,1 works to catalyze sustainable and scalable new home new homes in new apartment developmentsand home improvement solutions for low income communities. it Stakeholders:does so by advancing business models for collaborative action be- Private: real estate Developers: santoshtween private and social sector actors capable of delivering solutions associates, Vintron, DBs. CHL (Community Housing Limited) - construction managementin this sector.2 company and ksa DPs - architecture and design finance: seWa microfinance, micro HousingLaunched in 2008, Hfa3 india brings together real estate de- finance Company, GruH finance, Dewanvelopers with access to land and capital; Citizen Sector Or- Housing finance Ltd.ganizations (CSO) with the ability to aggregate demand in target social: saatH and mahila Housing trust (selfcommunities; and housing finance institutions willing to lend employed Women’s association, seWa)to low income clients. all partners benefit from these engagements:low income communities buy affordable new homes with options to designed with a long-term commitmentfinance mortgages and down payments, real estate developers and to community needs, notably through:finance institutions gain new clients, Csos receive a fee for their ser- 1) maximizing space utility according tovices and further their objectives to help communities through pro- the lifestyles of the target customers; 2)viding access to housing solutions. creating common spaces that preserveBeneficiary families have, on average, 5 family members collectively the social dynamics of low-income com-earning an average income of usD 6-104 per day. Low-income clients munities; and 3) in some developments,assume a mortgage against their new homes and repay regular loan including the designation of physical spaceinstallments to the finance provider. new home developments are for Cso resource centers where capac- ity building activities such as training for livelihood development is provided. stakeHoLDers ContriButeD GaineD reaL estate Land procurement, access to new markets, Cso Currently, four projects (all in ahmed- DeVeLoPers delivery of complete marketing partnerships, cash abad) are in various stages of develop- housing units flow benefits of shorter term ment, with the first expected to be com- and pre-sold developments plete at the end of 2010. roughly 2500 finanCe Consumer finance for access to new client base units are on offer for low income ProViDers low income clients and opportunities to cross sell; support from Csos customers across the 4 projects. All projects are scheduled for ProJeCt technical expertise, opportunity to work on manaGement design innovation innovative design challenges, completion by the end of 2011. ComPanies anD new market expertise arCHiteCts Twenty five units5 in the first Community knowledge of target service fee for sales and development have been sold to orGanizations population, network of marketing; opportunities low-income communities. advance potential clients, input for equity and diversified on appropriate design for revenue streams; ability to bookings (through payment of a deposit homes and developments, extend housing to clients of below 5% of the value of the home) community and livelihood generation projects in the other three projects are ongoing and were at 1540 at the time of writing. LoW-inCome Demand for new homes titled and design customized Customers new homes with access to Loan disbursements for mort- basic utilities; continued sup- gages are also ongoing, with 670 6 port from Csos loans originated to date.22
    • market BaseD Case HOUSING FOR ALL - INDIAWhile pre-bookings look positive inearly stages of the projects, the degree towhich low income communities are able tHe story ofto assemble necessary down payments,and can access and then repay mortgage sunita kanHayaLaLfinancing over several years, remains tobe seen. sunita lives in a small one-room house in a slum in indiranagar, 15 km away from the city of ahmedabad in Gujarat, india. she has been living there with her husband and two sons for more than 10 years, earning her livelihood by working as an attendant at a bankThe Business Model for the past decade. now that her sons are grown up, and are wage-earners them-Partnership: CSO and real selves, the family – which is increasingly crowded in their one-room space – has the capacity to afford a bigger home. owning a home,estate developers a secure asset, has been a longtime dream of sunita’s. However,as of mid 2010, the above actors are en- there was neither a home on the market that she could afford, norgaged in three kinds of partnership models did she have access to financing options which would allow her to consider such a large purchase.to deliver a total of 2500 new homes tolow income communities by end of 2011. today, her situation is much different. sunita has made an advanced booking for an apartment with an Lambha Hfa india project, and1. Cso is engaged as one of many pos- will soon realize her dream of owning a home with more space for sible marketing agents by the devel- her family and better facilities. the home costs usD 9050, and she oper and receives a commission for is in the process of being approved for a mortgage loan that will have her paying roughly usD 85 per month for 15 years. units sold. sunita was made aware of these affordable housing options through2. Cso is an exclusive marketing agent the work of community organizations who market these units. for a period of time and receives the community organizations also build the capacity of would-be commission. in one of the iterations customers like sunita, through livelihood training, access to govern- of this partnership model in india, the ment resources and other services. partner Cso founder has assumed a position on the developer corpora- sunita kanhayalal, Hfa india client, soon to move tion’s Board. this ensures greater into her new home. planning and design input by the Cso to represent the client needs in the development of homes and after sale of homes.3. Cso and developer corporation are formally engaged in a for-profit joint venture allowing equitable distribu- tion of risk and returns.these varying partnership dynamics are Photo by: Elisabeth Realcomplemented by the services of financeproviders, architects and project man-agement companies to enable target cli-ents to purchase high quality affordablehomes. 23
    • market BaseD Case HOUSING FOR ALL - INDIASales and Marketing: Aggregateddemand through CSOsCso partners play the role of marketing agents who aggregate de-mand for the developer as well as the finance providers involved inthe project. they market new homes to low income clients throughvarious channels which include existing physical spaces organized by Photo : Ashokathe Cso to address several needs of the community, and direct mar-keting managed by field workers.Financing: New Market, New Products,Many Unknowns A typical slum home, Ahmedabad IndiaHousing finance for low-income communities is a relatively nascentmarket in india. Hfa india works with several lenders from mfis tocommercial banks who are all on a learning curve in terms of defin-ing products and services responsive to this market, which are in linewith their cost structures and business models.at the time of writing, 670 loans7 were originated, supplied by lendersat a maximum Loan to Value (LtV) of 80%. Loan amounts range frominr 300,000 to 600,000 (usD 6500-14,000), with a tenure of 15years and at interest rates ranging from 12% to 14%. average monthlypayments amount to roughly inr 3000 to rs 6000 (usD 65-140), and Photo : Ashokatypically range from 35% to 40% of a household’s monthly income.several potential buyers of homes, though confident of their capacityto pay monthly installments on a home mortgage, experience difficul-ty accumulating the nearly 20% down payment required to originate New housing development site,a mortgage loan. Ahmedabad, Indiatoday, finance providers including mfis housed within partner Csos,are looking to provide shorter-term loans to finance specifically thisdown payment. on the one hand, short term financing along theselines might be looked at as necessary to enable low income families tobuy these homes. Conversely, conventional financial wisdom, whichcautions against extending finance beyond 80% loan to value on ahome, suggests that doing so would excessively increase the defaultson loans. the years to come will demonstrate the appropriate bal-ance of short term and long term finance and whether customers areable to afford down payments and the mortgages they take on. Photo : Ashoka New housing development under construction for low-income clients in Ahmedabad, India24
    • market BaseD Case HOUSING FOR ALL - INDIAHFA India TimelineHFA India Timeline Dec. Feb. May Nov. Feb. May June June Oct. Jan. Feb. Feb. July 2008 2009 2009 2009 2010 2010 2010 2010 2010 2011 2011 2011 2011Project MilestonesLaunch HFA India First project Launch of Om Expansion in HFA partner CHL sets Launch of Launch Signing of Launch of CHL project Expansion to Expansion Urban Design First draft of discussion and Shanti Nagar Ahmedabad and up offices in India Umang of LOI for Chennai and to Challenge National Affordable signing of LOI signing of LOI Lambha Swapna Pune launch of HFA Bangalore ‘‘Homechangers Housing Standard Sakar project India platform Competition’’Financial Value Creation 2,700 lakh INR 5,600 lakh INR 976 lakh INR 1,000 lakh INR 8,000 lakh INR 1,200 lakh INRSocial Value Creation (Total familes served) 675 Families 1,400 Families 244 Families 250 Families 2,000 Families 3,000 FamiliesHFA India Operations Exclusive Access to New Homes for Clients DEVELOPER/ Model 1 TECHNICAL Joint Venture ASSISTANCE/ CSO PROJECT Model 2 MANAGEMENT CSO as Developer Board Member Exclusive Access for CSO Clients to New Homes Commission/Service FeeLegend $ Product Marketing, Demand Aggregation, Community Inputs Service Payment $ Payments $ Payment Private Enterprise $ Citizen Sector Organization HOUSING FINANCE CLIENT Customer Housing LoansHFA India Value Chain ProJeCt ProDuCt ProDuCt marketinG retaiL after ProCurement finanCe DesiGn DeV anD saLes finanCe saLes • Developer • Various • Developers • Developer and • Direct sales • mortgage • Livelihood acquires land and avenues including work together developer/ Cso to families financing provided generation subcontracts proc- developer’s with CSOs JV partnership through CSOs by Hfis. mfis and commu- ument of building revenues, CSO and architects sub contracts engaged as provide loans for nity services materials investment, to design construction marketing down payment support by commercial developments process vendors or CSOs in finance and partners with collabora- private developers tion with the investors developers social sector actors Private sector actors 25
    • market BaseD Case HOUSING FOR ALL - INDIAEvaluation FrameworkIs the solution SOLVING THE PROBLEM? Is the solution ECONOMICALLY VIABLE?Through collaborative entrepreneurship Partnerships catalyzed by HFA India tap new,models, HFA projects provide affordable and profitable market opportunities for developersquality homes with clear title and access to and finance providers. They also bring newbasic services (water, electricity, sewage etc) revenues to CSOs, while allowing low incometo a small number of BoP families. In doing customers to afford a home purchase.so, these projects illustrate successful busi-ness models to scale affordable homes for low Solution reaches the upper segment of theincome populations. BoP. However, resulting new homes are a significant and difficult investment for evenProblem Magnitude the upper BoP.• 17 million households live in slums8 in india. • 1 to 3 minimal incomes (~ usD 1-2 per person per day) per beneficiary family of 5.• Deficit of 24.7 million units corresponding to 35% of urbanpopulation.9 • Customer receives loan for 80% of home value ( usD 6,500-14,000) over a 15 year term, at 12-14% interest rates,Quality of Solution i.e. monthly installment of usD 65-140, typically represent-• Well designed apartments with access to basic services ing roughly 30-35% of a household’s monthly income.and good quality material used for construction. • a previously absent affordable housing product for the• Csos and clients’ input on design to ensure optimal utili- upper BoP is now available in the marketplace and has thezation of common and individual spaces. potential to stimulate positive market competition and potentially lower the prices.• maintenance not yet addressed: either administered by thedeveloper, or Cso-led, or resident-managed. • advanced booking fees have been withdrawn by roughly 20-30% of potential customers to date.11 it is estimated thatHousing Impact - The Numbers most of these withdrawals have to do with the difficulty in assembling the 20% down payment.• 1540 families booked apartments in 4 new home develop-ments of average unit size of 300 sq ft10, first of which will For real estate developers, while low incomebe completed at the end of 2010. housing developments are a lower margin venture than upper scale developments, sev-Housing Impact - Quality of Life eral factors make these ventures comparable• Pride, elevated social status and physical and financial secu- in terms of returns on investment.rity from owning a home and leverage-able asset. • Potential lower cost of capital, due to several possible• expected improved quality of life and productivity for ben- sources of investment for affordable housing projects,eficiaries, due to legal and organized access to basic services including social investor funds, or subsidized funding.like water, electricity and physical security, and functionalcommon spaces. • margins reduced to 16-25%12 as opposed to a regular 30- 60%, but comparable or higher return on investment due to• expected improved health outcomes due to improved advanced volume based sales of units by Csos and availabil-sanitation conditions, access to sewage and safe structures. ity of down payment funds before project completion.• expected improved access to social infrastructure such as • Large market potential with few existing competitors.educational centers and community centers, which are likelyto follow housing developments. • real estate developers gain first mover advantages and form relationships with strong Csos which form significant barriers to entry for later entrants.26
    • market BaseD Case HOUSING FOR ALL - INDIAIs the solution ECONOMICALLY VIABLE?CSOs benefit from additional revenues and • Csos extending to their beneficiary populations, avalue created for communities. customized home offering without bearing related develop- ment costs.• Csos compensated for marketing and promotion coststhrough their networks, while they build further skills and While the housing projects of HFA India arecompetencies working in partnership with private sector not subsidized by donor funds, the CSO part-players. ners of these models utilize grant funding for general operations.• Csos also paid 1-2% commission for every unit soldthrough their networks.13Is the solution SCALABLE AND REPLICABLE?Because it leverages the competencies and To be replicated, this model requires findingmotivations of players that exist in the mar- the right set of partners, willing to tackle thisket (developers, financers and CSOs), this market and work together, as well as collabo-model requires each player to invest resourc- ration with the public sector for infrastruc-es (available land, finance, etc) in order to ture and approvals. Replicability depends on:scale up. • the ability to find:The following circumstances constrain HFA 1) Willing private sector developers interested in this mar-India projects’ ability to scale: ket opportunity.• unfavorable policy environment with tedious and corrupt 2) Csos with deep knowledge of communities and com-channels for construction permits delaying project timeline, plementary marketing, training and demand aggregationa critical factor in optimizing cash flow and maximizing thin competencies.profit margins. 3) Diverse finance providers with willingness and capacity• scarce access to affordable land to build residential sites to finance short and long term capital requirements of lowin the urban areas, especially land with access to public income communities who may not have formal documenta-infrastructure. tion of income.• Csos and private sector partners unaccustomed to the 4) architects with a keen sense of design for low incomeothers’ social versus business mindset and work culture, communities and ability to incorporate community input.necessitating time to learn to work together. • Players who take on a role similar to ashoka’s involve-• Limited interest on the part of private sector developers ment, convening disparate stakeholders with varyingdue to lower margins, limited awareness and lack of confi- agendas around a complex, and potentially beneficial marketdence in market size and prospects. opportunity.• Limited capacity of finance providers and lack of adequate • favorable policy environment which does not distort thefinance products for financing requirements of informal market (for e.g. a policy framework that provides free landborrowers. to all slum residents is not conducive to market sales of units).• Low income communities’ hesitation with advanced salesbefore completion of actual physical structures, which is an • Cooperation from government for approvals and provisionimportant condition for acceptable return on investment for of external infrastructure (access roads, public transport,developers. water and electricity supply).Is the solution ENVIRONMENTALLY SOUND?environmental sustainability is not articulated as a primary goal of the HFA program. 27
    • market BaseD Case HOUSING FOR ALL - INDIAPostscriptFuture subsidies possible, with potential impacts on pricesubsidies of inr 200 (usD4.50) per sq foot14 are available from the state to real estate developers addressing theneeds of low income populations. these subsidies are yet to be realized and incumbent on developers to pursue withthe state. should they be successful in realizing these subsidies, the impact on sale prices of homes, and whether sav-ings will be passed on to customers remains to be seen.Scale through advancing knowledge and standardsWith a clear understanding that prospects for scale and replication are impacted by the project and context specificconstraints mentioned above, ashoka invests resources in the development of industry standards, tools and knowl-edge platforms which promise implications for a wide range and variety of contexts. among its initiatives, are collabo-rations with diverse stakeholders towards a national (indian) affordable housing standard which aims to codify energy,quality of construction, design and environmental standards for affordable housing. in an effort to promote increasedknowledge sharing and the development of web based tools for a variety of stakeholders to assess market opportuni-ties, ashoka is launching a global Housing for all knowledge Platform in november of 2010, intended to be an onlinecommunity and resource center for various stakeholders to assess market opportunities.1 A joint initiative of the Martin Hilti Family Trust and the Hilti 8 McKinsey Global Institute, Housing Policy and UrbanGroup, based in Liechtenstein, the Hilti Foundation supports Planning in India, pg 59 & 119various initiatives with the common theme of empoweringpeople to help themselves. http://www.hiltifoundation.org/ 9 McKinsey Global Institute, Housing Policy and UrbanHome.aspx Planning in India pg 1192 Housing for All initiatives are active in Brazil, Colombia and 10 Interview with Vishnu Swaminathan, HFA India Director,Egypt. September 1, 20103 Ashoka and the Hilti Foundation do not provide any financial 11 Interview with Rajendra Joshi Managing Trustee SAATH,support to implementing partners who deliver housing solu- June 30, 2010tions. While Ashoka Fellows are involved in HFA India projects, 12, 13 Interview with Hemant Parikh, Managing Director Vthey no longer receive funding or stipends from Ashoka. Worldwide Group June 28, 2010 and Manish Pancholi, CEO4,5 Interview with Vishnu Swaminathan, Director HFA India, DBS Affordable Home Strategy Ltd June 29, 2010September 1, 2010 14 Interview with Hemant Parikh, Vintron, June 28, 20106 Total number of loans disbursed as of September 6, 20107 Details of loan figures from interview with Vishnu Swamina-than, HFA India Director, September 1, 201028
    • market BaseD Case HOUSING FOR ALL - INDIA Solutions Addressing Barriers to Scale CODI - Community Organizations Development Institute Saiban Terra Nova SPARC – Society for the Promotion of Area Resource Centres 29
    • soLution aDDressinG Barriers to sCaLe CODICODI - Community family is around tHB 10,000-20,000 (usD 333-666) per month. most hold unsecured jobs such as smallOrganizations Development vendors, daily labors, taxi-drivers etc.6Institute Background and evolutionBARRIERS ADDRESSED: A foundation of community group savingsFINANCING, LAND RIGHTS, at its roots, CoDi’s model of direct lending to com-SUPPORTIVE POLICY munities has a culture of savings and savings groups mo- bilized by the thai government in the 1970’s. subsidized loans for infrastructure and livelihood generation pur-Executive Summary poses were provided directly to the community once aThe Community Organizations Develop- group savings history was established. using this plat-ment Institute (CODI) of Thailand is a CSO form of savings groups established in the 70’s and 80’sfunded primarily by the Thai government. as a foundation, the urban Community DevelopmentIt currently administers a national platform office (uCDo), set up in 1992 by the thai governmentfor affordable demand-led housing, called to address urban poverty, began to link individual sav-the Baan Mankong1 program. ings groups together to form cooperatives, to scale up its provision of loans.7it is a compelling example of how a policy platform cancatalyze community generated affordable housing solu- in 2000, uCDo merged with the rural Developmenttions. these solutions appear to overcome significant fund of thailand to form CoDi, which scaled up uCDo’schallenges faced by other approaches to affordable lending for affordable housing.8 its success over thehousing, including scarce consumer financing and access past decade has effectively positioned its approach as ato land title. sound affordable housing policy framework for the thai government.Based on the central principle that people are the mostimportant agents of change in their own lives, CoDi’s Cooperativeapproach, through Baan mankong, centers aroundbuilding the capacity of individuals to determine memberswhat housing solutions are appropriate for them. CoDi participatingprovides funding (subsidies and loans) and technical in planningassistance to community organized member re-blockingbased cooperatives or representative bodies of plots.emerging from within communities to realize Baan Langthese upgrades.2 each cooperative then uses the money Community,for various types of housing projects, depending on the Charitaburispecific needs and desires of the members of each co-operative. some projects involve in-situ acquisition ofland title and incremental home improvements, whileothers result in re-blocking of plots and relocation of Operational Featuressome residents to new locations. 3 Cooperatives largely Access to funds for cooperativeshandle their own construction, either by building them-selves, or working with local contractors. Community cooperatives mobilize on the basis of group savings and according to the rules and normsCODI’s impact and scale in Thailand through established by the communities and members served.the Baan Mankong program has grown to With a six month proven track record of joint savingsover 90,0004 families. 5 the average income per and payments, the cooperative can apply for loan funds30
    • soLution aDDressinG Barriers to sCaLe CODIthrough Baan mankong. the cooperative then managesthe loan disbursal and repayments, making funds avail- Charoenchaiable to individual families, according to their needs.9 ad- Nimitmaiditionally it allocates funds for cooperative infrastruc- Community,tural developments (access to basic services, sanitation, Bangkok,access roads etc), supported by CoDi technical assis- before andtance (architects and engineers) at the discretion of the after upgradingcooperative and its membership.10 projects.Community cooperatives acquire funds from CoDi atan interest rate of 4% and loans these funds to individu-als within the cooperative at 6%, allowing a margin fordefault and the cooperative’s ongoing activities.11 theseadditional activities include community development,income generation or educational initiatives, daycarecenters and programs, etc.12 the specific conditions ofloans vary greatly depending on each individual project.repayment rates back to CoDi are roughly 90%.13 thecooperative system allows some flexibility for commu-nity members facing financial difficulties to find a solu- Creating policy is usually a top down ini-tion that will suit them and the community. tiative led by politicians. However a housing policy that responds to the needs of the people willCommunities are encouraged to do full surveys of the always be a bottom up effort, led by the peoplehouseholds living in the community, to assess the finan- themselves.cial capacity of each household to take on a loan, to - somsook Boonyabancha,ensure that no one takes on a debt that they will not secretary General of asian Coalition for Housing rights,be able to repay. Loan amount per household varies founder of CoDidepending on the type of development taken on. if the household is building or upgrading on leased land, the average loan size is roughly tHB 150,000 (usD 5,000); if a loan is to cover land cost plus housing, the aver- age loan size per family would be around tHB 220,000- 250,000 (usD 7,333-8,333). the size of the loan funds dispersed to cooperatives varies depending on number of member households. Presently, the average loan size of a Baan mankong co- operative loan is about tHB 20 million (usD 675,675) with about 100 families per loan.14 Cooperative access to property rights supported by CoDi, and bolstered by the availability of a larger quantum of funds than the community could have mobilized on their own, cooperatives occasion- ally enter into negotiations with private landowners to purchase the land they occupy. often, negotiations withDiagrams of community before and after private land owners are settled through land sharingcooperative re-blocking, Charoenchai Nimitmai deals where the community vacates a prime portion ofCommunity, Bangkok 31
    • soLution aDDressinG Barriers to sCaLe CODI a democracy that does not believethat any human being can manage their ownlives is not a democracy at all” somsook Boonyabancha on the role of government in affordable housing.the land, which the landowner can then sell or devel-op.15 the community then consolidates into a smaller,typically less valuable area of the property where landtitle is held by the cooperative until members completepayments on their loans and in doing so obtain indi-vidual leases.in the more common occurrence of public institutionsowning the occupied land, CoDi has assisted residentsin negotiating long-term occupation leases to mitigateagainst the threat of eviction. in all cases, whether landtitle is acquired, or long term leases are secured, thecooperative holds title or lease for a period of roughly15 years until individuals have completed their loan re- Naa Technicque community site before and after.payments to the cooperative.16 The community relocated to a nearby area with new homesEnsured quality of constructionin addition to funds, CoDi provides technical assis-tance through architects and engineers, and by facili-tating linkages between communities and universities.Housing plans must be approved by local, regional and somsook BoonyaBanCHa, of CoDinational boards ensuring standards of quality. on tHe CHaLLenGes tHe CoDi moDeLPartnerships with private and social Has faCeDsector players · Accessing funds is difficult. CODI’s flexibleother social sector organizations partner with CoDi, system of delivering funds directly to communityor more directly with the cooperatives themselves, in cooperatives is mismatched to the systems andvarious regions. these partnerships are in two primary processes of formal financers.capacities; either technically supporting construction, · The model assumes the capacity of the poor toor building the people’s organizational capabilities. handle their own finances, their housing construc- tion, and make decisions related to their loans, infrastructure and housing needs. Counter to this approach, the sense that poor people don’t have much ability to do for themselves runs deep and CODI struggles with this with its own employees. Community · Also local politics have proven problematic and participating in can slow progress for a model that hinges on the construction community self-aggregating and mobilizing.32
    • soLution aDDressinG Barriers to sCaLe CODIas a result of the Baan mankong program, a network of the government has approved tHB 186 million (usDcommunity actors has formed that is very active across 6.2 million) to CoDi as subsidies for 2,325 new unitsthailand. Called the national union of Low income of Baan mankong additionally, CoDi has three mainCommunity organizations (nuLiCo), this network sources of revenue; interest from loans, interest fromprovides assistance to other communities wanting to investments and fees from managing government pro-upgrade, in terms of managing finances, how to ap- grams such as welfare distribution programs (whichply for funds, how to organize the community, how to cover management and administration costs). for themanage themselves through the entire upgrading pro- 2011 operating budget, which is set at roughly tHB 250cess.17 million (usD 8.3 million), interest from loans accounts for 30%, fee income 20%, and investment income 50%.19Cooperatives themselves build relationships withprivate sector players, occasionally going directly to CoDi has been unsuccessful at partnering with com-producers and negotiating the wholesale bulk on- mercial banks to gain access to additional sources ofsite delivery of housing construction materials.18 funds due to a mismatch between CoDi’s unstructured lending practices directly to communities and the sys-Mixed sources of income for CODI tems and standards based lending practices of formal financial institutions.20CoDi receives a stream of funding from the thai gov-ernment. in the fiscal year 2011 (oct 2010-sept 2011), BARRIERS ADDRESSED: 1) LAND RIGHTS: Community/cooperative title or lease the availability of a quantum of funds to the community, organized into cooperatives, activates their bargain- ing power and allows them to negotiate purchase or longer term lease hold of the land they occupy, often a 30-year lease with option to renew. the community then holds cooperative title or lease to the land and is engaged with CoDi and its members over a 15 year loan repayment period. 2) FINANCE: direct delivery of group lending with adequate support the key innovation is in the delivery of finance to the community. financing is made available without interme- diary lenders, with the appropriate mix of resources (subsidy/loans/technical assistance) and a careful balance between oversight and flexibility offered to the cooperative. this approach appears to circumvent the need for formal financial institutions and financial products catered to these low income populations. 3) SUPPORTIVE POLICY: Funds to people, subsidies for infrastructure, monitoring and approvals from various government agencies through CoDi, the thai government signals the availability of funds and subsidies to the community. the gov- ernment does not administer the use of funds, and does not take on an operational role in delivering affordable housing solutions. the latitude provided to the cooperative to allocate funds according to the needs of the cooperative members and families allows highly customized housing solutions that are responsive to individual and community needs at large scale. the government does however play a role in monitoring and assessment of these community proposed projects. mandatory approvals of building plans by local, regional and national bodies, ensure that standards of quality are adhered to and that infrastructure is packaged into improvements. 33
    • soLution aDDressinG Barriers to sCaLe CODIEvaluation FrameworkIs the solution CODI’s work is rapidly scaling up in Thailand, especially due to increasedSCALABLE? publicity and demand resulting from its approach being sanctioned by the Thai government. • Current impact: 90,00021 households impacted to date. • receiving annual government funding to scale operations, towards goal of 200,000 families.22 • relatively low levels of involvement by CoDi in operational matters related to provision of afford- able housing, lends the model to greater scalability. Current constraints to scale23 • Primarily constrained by the availability of funds from the thai government and other financing institutions to meet growing demand. CoDi has been unsuccessful in partnering with commercial banks because of a mismatch between CoDi’s unstructured lending practices directly to communi- ties24 and the systems and standards based lending practices of formal financial institutions. • availability and affordability of land for relocation when cooperative housing solutions require it. • Willingness of public organizations to cooperate on long term lease negotiations. • the capacities of the cooperative themselves, to lead communities, execute projects and manage funds.Is the While CODIs work is rapidly scaling up in Thailand, replication depends on asolution unique set of circumstances.REPLICABLE • a culture of community organizing and cooperatives mobilized around savings.in otherlocations? • a cultural context prepared to consider the poor as primary, willing and capable agents in their own advancement. • a responsive government at the local and national level willing to allocate resources directly to people without excessive regulation of use of funds. • Government entities able to transparently administer funds to low income communities. • Political environments that are not divisive at local levels, allowing community collaboration and orga- nizing around common needs. • manageable population size that can be impacted through a national government policy without reli- ance on state, city and local governance structures and bureaucracies.34
    • soLution aDDressinG Barriers to sCaLe CODIIs the CODI is a government funded initiative. In an effort to advance its sustainabil-solution ity as an organization, CODI attempts to diversify its income streams, whileCOST- generating income from its performing portfolio of loans.EFFICIENT? • For clients the solution is cost effective in that: - Beneficiaries with varying levels of income can take out desired loan amounts to perform demand- led housing upgrades; the target group is the urban poor, mostly working in the informal sector. - the cooperative’s access to funds, and its capacity to aggregate the community as potential consumers, provides incentives for nGos and private sector players to address this target market, making CoDi’s intervention cost effective beyond addressing affordable housing needs. - the solution is additionally cost effective in that it builds the capacity of consumers over the long term through education, livelihood and other programs run by cooperatives (funded by cooperative revenues earned on funds loaned). • For CODI and the Thai government the solution is cost effective in that: - multiple streams of revenue in addition to thai government funds support the work of Baan mankong; CoDi is funded partially (~ 30% of operating budget) by margins on its active portfolio. 25 roughly 50% of its budget is from income on investments and the remaining 20% is through addition- al revenue earned as fee for service for administering welfare and other government programs. 26 - new sources of funding are supplied by the thai government (for example in the fiscal year 2010, CoDi received tHB 3000 million for extending loans to cooperatives) and to a smaller degree through national financers (national Housing Bank). 271 Baan Mankong translates to ‘secure housing’ 15 50 Community Upgrading Projects, CODI Update, No. 5, March 2008, Pg 62 Interview with Somsook Boonyabancha, Secretary General ofAsian Coalition for Housing Rights, Founder of CODI August 7, 2010 16 Interview with Somsook Boonyabancha, August 7, 2010. In case a family makes its repayments early and then wants to sell the title, it3 50 Community Upgrading Projects, CODI Update, No. 5, March will have to sell its debt and right to a title back to the cooperative.2008, Pg 10 The cooperative will then arrange the reallocation of the right to the4 Correspondence with Diane Archer, PhD, Asian Coalition for house to other needy community members. The house cannot beHousing Rights (ACHR), Bangkok, November 2010 sold for a profit. Tenure is normally granted for 30 years in the case of lease. The loan period is 15 years.5 The government target is 200,000 houses total. So far around90,000 are complete. 17 Correspondence with Diane Archer, PhD, Asian Coalition for Housing Rights (ACHR), Bangkok, November 20106 Correspondence with Diane Archer, PhD, Asian Coalition forHousing Rights (ACHR), Bangkok, November 2010 18 Interview with Somsook Boonyabancha, August 7, 2010.7 Interview with Somsook Boonyabancha, August 7, 2010 19 Correspondence with Diane Archer, PhD, Asian Coalition for Housing Rights (ACHR), Bangkok, November 20108 Baan Mankong: Going to Scale with ‘’Slum’’ and Squatter Upgrad-ing in Thailand, Environment & Urbanization Vol 17 No 1 April 2005, 20 Interview with Somsook Boonyabancha, August 7, 2010page 21, Somsook Boonyabancha 21 Interview with Somsook Boonyabancha, August 7, 20109 Baan Mankong: Going to Scale with ‘’Slum’’ and Squatter Upgrad- 22 Correspondence with Diane Archer, PhD, Asian Coalition foring in Thailand, Environment & Urbanization Vol 17 No 1 April 2005, Housing Rights (ACHR), Bangkok, November 2010page 24, Somsook Boonyabancha 23 Interview with Somsook Boonyabancha, August 7, 201010 A conversation about UPGRADING at Bang Bua, Asian Coalitionfor Housing Rights (ACHR) 24 Increasingly, low income communities in Thai cities are coming together to form City Development Funds, which provide funds11 Interview with Somsook Boonyabancha, August 7, 2010 through a revolving loan system, for housing, income generation,12 As of now, about 73 childcare/community centers and 60 com- education, and other needs. This CDF is supplied with contributionsmon houses for elderly and underprivileged have been built under from the communities, the municipality, and possibility seed fundingBaan Mankong program. from donor organizations such as ACHR. The CDF system provides communities with another option to access finance other than CODI.13 1-2% of the portfolio is non-performing loans (NPLs). In thesecases, the loan may be restructured, e.g. lengthen loan period, or 25 Interview with Somsook Boonyabancha, August 7, 2010decrease the interest rate. If cooperatives have some members who 26 Correspondence with Diane Archer, PhD, Asian Coalition forcannot repay, they can use the 2% margin to cover this. Housing Rights (ACHR), Bangkok, November 201014 Correspondence with Diane Archer, PhD, Asian Coalition for 27 Correspondence with Diane Archer, PhD, Asian Coalition forHousing Rights (ACHR), Bangkok, November 2010 Housing Rights (ACHR), Bangkok, November 2010 35
    • soLution aDDressinG Barriers to sCaLe SAIBANSaibanBARRIERS ADDRESSED: LANDRIGHTS, CROSS SECTORCOLLABORATIONExecutive Summaryestablished in 1991, Saiban is a citizen sector or-ganization in Pakistan that sells affordabletitled land complete with basic infrastruc-ture i.e. water, electricity and sewage to a Developed lane in one of the Khuda Ki Bastitarget population of urban squatters with developments with homes and shopsa household income of USD 2–4 per day1 Karachi, Pakistan(through its more recent projects). it is beingprofiled for its unique approach to ensuring that the piloted four different business models in four cities, 3appropriate low-income families (i.e. families with reaching 6300 families across Pakistan. saiban’s vision oflow-incomes, but yet with means to self build homes) scale involves influencing government policy and privatebenefit from the ability to purchase titled land. addi- sector companies to serve the affordable housing andtionally, saiban has been able to evolve its model under land needs of low income populations.varying levels of government involvement and collabo-ration, while continuing to address access to land forlow income groups. Background and Evolutionthrough clear, established mechanisms for selection ofclients, and an emphasis on hassle free processing of the Khuda ki Basti or “God’s Settlement” models (saibanland purchases, saiban alleviates hurdles to accessing settlements, hereafter kkB1-4), all focus on effectivelytitled land typically faced by low income populations in providing target low income clients affordable and lessPakistan. in addition to the price point of available land complicated access to land rights. all four models havebeing out of their reach, these communities also lack been implemented under varying levels of governmentthe capacity to produce the paperwork and documen- involvement. kkB models 1-4 have evolved from beingtation required either for purchase of land, or eligibility completely government funded in Hyderabad (kkB1),in traditional lottery based processes of allocating land to selling privately acquired land in Lahore (kkB4).to low-income populations.2 Consequently, the sale price of the land plots and there- fore the targeted income segments of the BoP have in-saiban provides access to land, minimum in- creased over the 20 years across the four projects, tofrastructure and basic services. The land is include higher income segments of the BoP.purchased by low-income families, who typi-cally make an initial down payment, which is followed over the years, saiban has evolved to engage with everyby installments to saiban over several years. Land sold aspect of the affordable housing value chain – right fromby saiban to low income groups is cross-subsidized by sale of plots and provision of related infrastructure, toother sections of the plot sold at commercial rates. construction and sale of complete homes. However, the fundamental principles of client selection and thesaiban aims to establish proof of concept of avenues to provision of access to plots with infrastructure, basicviably provide land title to low-income groups. it has utilities and social services apply in all projects.36
    • soLution aDDressinG Barriers to sCaLe SAIBANKKB1 and KKB2: Completely tially allocating 60 acres and then another 40 acres (forgovernment subsidized 2800 plots of 80 sq.yds. each) on deferred payment.10 saiban collaborated with the government to provide in-kkB1 and kkB2 addressed the population segment ternal and external infrastructure, mostly incremental-which ranged between the bottom 5–15 % of BoP (as- ly, i.e. after residents had moved in and started to build.suming that bottom 5% has negligible disposable in-come). Land was granted to saiban by the government.4 Purchasing land, as opposed to having been grant-residents paid a subsidized total amount of about usD 1105 ed land by the government in kkB1 and kkB2,for the plot (usD 12 as down payment and the rest as usD meant comparatively higher plot sale prices, which2 monthly installments over 8 – 10 years). they also paid a in turn meant that kkB3 addressed a higher in-regular maintenance fee of usD 16per month for internal7 come population — roughly the bottom 10-20% in- and external infrastructure.8 come segments. Land was priced at usD 430-48511 per plot (usD 90-115 as down payment and the restkkB1, was established in 1986 on a plot of 150 acres in as usD 4 monthly installments over 8-10 years). theHyderabad. the project was delivered as a government project generated a profit for saiban, enabling expan-program by the founder of saiban while he was employed sion of operations.by the Hyderabad Development authority, Pakistan.9saiban, as a formal organization, was formally estab- KKB4: Privately accessed land withlished five years later in 1991. greater need of cross subsidykkB2 was launched in Gharo in 1992. in this project kkB4 was launched in 2006, with 20 acres of land forsaiban managed the delivery of 50 plots granted by the 460 plots. Land was purchased from private ownersgovernment. without any subsidy or assistance from the govern- ment. Purchasing the land from private owners had im-KKB3: Market based delivery supported plications on price point offered to low-income clients,by government the target income segments served and the dynamicsin 2000, kkB3 came into being as a more autonomous of saiban’s engagement and offering. in kkB4, land wasmodel in karachi. the government assisted saiban by ini- available for low income segments at roughly usD 1000 (usD 465 as down payment and the rest in usD 12 monthly installments for 5-7 years).12 Developed lane in KKB3 with homes and shops in addition to the sale of undeveloped plots of land, saiban began to offer a small number (a total of 40) of completed homes to slightly higher income groups. these homes, priced at roughly usD 230013 (down payment of usD 700, the rest paid in install- ments at a 15% interest rate for 10 years) allowed some degree of cross subsidy on the prices of undeveloped plots of land. saiban’s approach in kkB 3 and kkB4 increasingly shift- ed from that of sale and delivery of land with infrastruc- ture to being engaged in all aspects of the value chain, from purchase of land, infrastructure development and planning, building of homes and the sale of homes as well as plots of land. this shift resulted in its serving a higher income segment of the BoP, roughly the bottom 25 – 35 % of income earners.14 37
    • soLution aDDressinG Barriers to sCaLe SAIBANOperational FeaturesIntegrated access to titled landand basic servicesWhile access to titled land is a primary focus of saiban,the model advances improved living conditions by pro-viding basic infrastructure, and space for social servicesand livelihood generation. Basic infrastructure like ac-cess to electricity, water, sewage, roads etc. is providedin advance of sale of plots or sometimes incrementally,after establishment of residences.Client selection through marketing plusvetting A room in reception areaavailability of land is marketed within slum communi-ties through printed flyers, word of mouth, direct mar-keting campaigns in marketplaces and banners outside Financial viability through cross-subsidythe saiban reception office onsite.15 once potential cli-ents are aware of plots for sale, saiban’s selection pro- saiban generates revenues through multiple offeringscess begins. Potential clients are required to move to which cross subsidize18 the price point of residentialthe site with their possessions and register to live in plots for low income families. these other offerings in-small units (shacks with beds/mattresses or very small clude selling more valuable plots of land and commercialrooms) in the reception site for 15-20 days.16 plots at market rates, sale of complete homes to higher income groups and plots to nGos (operating schools,requiring onsite living for 2-3 weeks, with very mod- hospitals etc). the cost of basic infrastructure is borneest amenities, establishes the potential client’s genuine by residents and other users of the Basti through main-need for affordable land title ownership. this also al- tenance fees.lows saiban to conduct a comprehensive backgroundcheck of potential clients and assess their capacity tostart self construction on a home. this vetting pro-cess reliably surfaces; 1) legitimate low-income clients,rather than speculators, and 2) low-income clients whowill not perpetually squat on the land, but have enough tasneem siDDiQui, founDer of saiBanincome or savings to start to self build quickly. selected on tHe key CHaLLenGes saiBan moDeL Has faCeD:clients are then allotted land plots without extensivepaperwork or other requirements. · It is difficult to change the mindset of policy makers about selection processes that provideEnsured land use through mandatory land tenure for low income groups.build requirements · Entering each new geography requires newClients who are approved to buy plots are required to relationships with municipality, private playersbegin building their unit upon allotment, albeit incre- and trust with the community. This results in lagmentally. Clients build their homes based on their ca- time between purchase of land and correspond-pacities, using their own labor and the support of local ing sale of plots.technicians, friends and relatives. if construction does · Saiban has had to invest considerable resourcesnot begin within one month of allotment, saiban can into providing external infrastructure to affordablecancel the allotment and offer the land to another family.17 private land which is much further from the city.38
    • soLution aDDressinG Barriers to sCaLe SAIBAN Policy advocacy and mentorship of private sector players saiban’s vision for scale is not through direct impact in terms of numbers. rather it tries to influence gov- ernment policy towards efficient selection of target low-income beneficiaries, and favorable subsidy struc- tures for sale of titled land to these communities.20 elements of the saiban model, such as the allocation of smaller plot sizes, recovery of total plot value in in- stallments and the incremental provision of basic infra- structure have influenced the government’s more re-Demarcation of 80 sq. yds plot cent attempts to deliver access to land for low-income groups.21Affordable client financing through saiban also aims to catalyze private sector interest incredit by Saiban and partner bank serving the needs of low-income populations. its abil-saiban allows low-income families the ability to pur- ity to demonstrate a financially viable business model,chase land through a series of payments divided into under widely varying circumstances has cast saiban inan immediate down payment and monthly installments an advisory role to organizations like People’s Hous-paid over 8-10 years. Land title is transferred once the ing Cell in sindh and ansaar management Company, aentire purchase amount has been paid to saiban. Where newly formed private company interested in exploringhigher income families purchase complete homes, part- this market.ner bank HBfC19 provides clients access to flexible ansaar management Company is attempting to createlong-term finance options. a for-profit venture developing homes for low-income populations using the principles of the saiban model.22Children playing in common areas in frontof a typical self built home 39
    • soLution aDDressinG Barriers to sCaLe SAIBAN BARRIERS ADDRESSED: 1) LAND RIGHTS: Careful vetting of potential clients and hassle free access to titled land saiban provides subsidized access to titled land and basic infrastructure to carefully selected low income clients. the model requires beneficiaries to stay in basic living conditions on its reception site to establish genuine need for a subsidized titled plot, and to determine their capacity to self build homes right away. its selection process ensures that subsidies (either provided by the government, or through saiban’s own cross subsidy of plots) are cost efficient in that they only subsidize the land and then ensure that eligible and capable beneficiaries build their homes. 2) CROSS SECTOR COLLABORATION: Partnerships with the public and private sectors to extend reach in its earlier projects saiban, with a high degree of cooperation with the public sector, effectively provided infrastructure enabled and affordable titled land to very low income groups. saiban’s client selection process, and ability to sell and finance purchases over years, combined with government provision of subsidized access to land and infrastructure addressed the needs of low income groups likely better than either the public sec- tor or saiban (social sector) could have accomplished alone. in later models, while public sector involvement has been less, saiban’s collaborations with private sector players promise a more effective delivery of new homes to low-income groups with higher incomes and capacity to pay. these collaborations include mentoring for-profit developers attempting to advance saiban’s model and partnerships with banks who provide financing for completed homes.Evaluation FrameworkIs the Saiban’s model provides proof of concept to public as well as private sectorsolution players, on ways to address provision of affordable land and housingSCALABLE? • Current direct impact of the saiban model: 6300 families. 23 • on-going advocacy with government agencies and mentoring for private sector players for additional impact. The following circumstances constrain Saiban’s vision of scale through advocacy and influence of practices: • Lack of desired support from policy makers for scaling impact. • Lack of likeminded private sector players and Cso partners to advance proven models. • Lack of affordable and contiguous land to advance the saiban model.40
    • soLution aDDressinG Barriers to sCaLe SAIBANIs the Saiban’s model requires a unique set of motivations on the part of potentialsolution implementers, as well as specific local conditions for effective replication:REPLICABLE • access to affordable and contiguous land.in otherlocations? • Willingness to implement a patient approach vis-a-vis client selection. • investment to purchase private land or willingness of government to allocate land. • Capacity to build infrastructure and access to basic services. • relationship with government for external infrastructure (access roads, public transport, supply of water) and access to basic services. • Capable nGo partners for developing social infrastructure (schools, hospitals etc).Is the Saiban’s business models have established their economic viability undersolution varying levels of subsidy and government support. The client selection processCOST- has ensured that target BoP consumers have been able to afford land in allEFFICIENT? models, and that subsidies were used efficiently. • for clients the solution is cost effective in that: - Bottom 5-10% income earners are able to purchase land through most subsidized kkB1. Bottom 25-35% able to purchase land through unsubsidized kkB 4 (no government subsidy, although the plots of land were internally cross-subsidized through the sale of complete homes to higher income groups). - economic activity is encouraged. kkB encourages establishment of commercial and social service initiatives. the residents are also encouraged to set up small entrepreneurial businesses (tailor, shoemaker etc) to support the needs of the community. saiban also provides skills training centers for enhanced livelihood opportunities for kkB residents. • for saiban the solution is cost effective in that a combination of various levels of government subsidies and revenue generation mechanisms (from sale of plots at subsidized rates, to sale of commercial plots and fees for infrastructure) have generated a surplus which saiban reinvests into projects. • for government, saiban represents cost-efficient use of subsidies: only land and/or infrastructure is granted or subsidized. no money is spent on construction (mandatory construction requirement en- sures that clients self build), less money is spent on overheads (no paperwork to process, no advertise- ment or lottery to organize).1 Rahman and Hassan (April 2009), Acumen Fund Report: Scaling used this anywhere else, should we delete this footnote?affordable housing for low income groups in Pakistan 12 Interview with Tasneem Siddiqui, July 6, 20102 Hasan, Arif (2000), Housing for the poor: Details of history ofland allocation schemes in Pakistan 13 Rahman and Hassan (April 2009), Acumen Fund Report: Scaling affordable housing for low income groups in Pakistan3 Saiban Founder Tasneen Siddiqui was involved in the first modelin Hyderabad in 1986, prior to the formal creation of Saiban as an 14 Interview with Tasneem Siddiqui, August 31, 2010organization in 1991. Saiban piloted subsequent projects in Gharo, 15 Interview with Tasneem Siddiqui, July 28, 2010Karachi and Lahore. 16 Interview with Tasneem Siddiqui, July 6, 20104 Davidson, Cynthia C. (1995). Khuda-ki-Basti Incremental Develop-ment Scheme. In Architecture Beyond Architecture. Cynthia C. 17 Interview with Tasneem Siddiqui, August 31, 2010Davidson, and Ismail Serageldin, eds. London: Academy Editions 18 Salman and Aslam (Jan 2009), Acumen Fund working paper: Prop-5 Based on conversion rate as on 10/3/2010 erty Rights: Ensuring well being through low income housing6 Based on conversion rate as on 10/3/2010 19 House Building Finance Corporation (HBFC) is a 55 year old leading housing finance in Pakistan, the first to offer mortgage loans7 Sewage system, electricity and water connections for individual to the BoP clients for home construction http://www.hbfc.com.pk/land plots Home.htm8 Access roads, public transport, supply of electricity and water for 20 Interview with Tasneem Siddiqui, July 6, 2010the entire community 21 Interview with Tasneem Siddiqui, July 6, 20109 Saiban Founder, Tasneem Siddiqui was at the time the DirectorGeneral of the Hyderabad Development Authority, Pakistan 22 Interview with Jawad Aslam, Founder Ansaar Management Com- pany, July 20, 201010 Interview with Tasneem Siddiqui, July 6, 2010 23 Interview with Tasneem Siddiqui dated xx11 Based on conversion rate as on 10/3/2010 – Since we have not 41
    • soLution aDDressinG Barriers to sCaLe TERRA NOVA Terra Nova to conflicting political interests, the discontinuity of governmental plans, and the high level of resources BARRIERS ADDRESSED: needed for government led regularization programs. LAND RIGHTS, CROSS SECTOR COLLABORATION, SUPPORTIVE Operational Features POLICY Legalizing occupied land, preserving settlement plans, with gradual upgrades Executive Summary Land plots addressed by terra nova have, in some cases, been illegally occupied for more than 15 years. Terra Nova is a private company that special- terra nova preserves the existing plan of settlement, izes in securing land rights for low-income relocating, through compensation, only the families liv- populations in Brazil, resolving stalemates ing on plots improper for housing (due to safety risks or between informal squatters (“settlers”) and environmental reasons for example). it widens streets, legal land owners, through the settlers’ and develops plans for building infrastructure including acquisition of the plot they live on. the pro- water, energy and basic sanitation. infrastructure is ex- cess also benefits the local authority (city, region or tended gradually, taking into consideration the capacity state) which is able to charge taxes and improve urban of the municipality and the needs of the community in infrastructure and services as a result of the regulariza- each area. tion process. A win-win-win situation for owners, this initiative has been profiled for its “negotiated ap- occupiers and the local governing body proach,” leading to tailored win-win resolutions of ille- gal settlements for all concerned stakeholders (private- through a “Judicial agreement” — a binding legal con- community-public) at minimal cost to the government tract ratified in court — owners agree to be compen- (which finances only public infrastructure). sated a negotiated amount, that settlers share propor- tionally to the area they occupy. although owners may During the period of 2003-2007, CoHaPar, the hous- be paid less than the market value of the plot, this is a ing agency in the state of Paraná, regularized 7,000 fami- reasonable compromise given the alternative of being lies in partnership with terra nova, compared to only unable to make any use of their occupied property. set- 1,500 families that CoHaPar managed to regularize tlers pay monthly installments for a duration (averaging over a similar time period when acting alone.1 8 years5) calculated so that their monthly payment is compatible with their family income. their installments Since its first project in 2001, Terra Nova has also include compensation for those who need to be assisted/enabled more than 20,000 families relocated, a set amount to build infrastructure that the in 4 areas2 across Brazil in gaining ownership government will not provide, and terra nova fees (tar- of their plots. the resolution of illegal settlements geted at ~usD 2,900 per family6). at the end of the during this nine-year period is estimated to have saved payment period, the settler families become owners of the government roughly usD 82 million. 3 the plot. as a result of this process, the city is able to integrate the zone with the urban planning of the city, adjust- Background and Evolution ing infrastructure based on its priorities. it is able to today in Brazil, 1.8 million households live in illegally relocate families who were living in risk prone areas, in occupied urban areas, most of them in improper dwell- areas of environmental preservation or where streets ings.4 the public sector has not had the capacity to should be built, without bearing the corresponding solve this problem at the scale required, notably due costs. additionally, the city begins to receive taxes from previously excluded areas. 42
    • Source: Terra Nova soLution aDDressinG Barriers to sCaLe TERRA NOVA 1998 2010 Impact of Land Regularization Jd. União | Curitiba | PR | Main Street | Before and After A tailored approach through feasibility Involving the community in all steps of studies the process the first step of the process is a mapping of the infor- it is the residents who, at times, solicit terra nova to mal settlement. terra nova then conducts a feasibility solve their situation (it can also be land-owners or the study, which includes a survey of the legal documents of local authority or the governing body). When the pro- the area (school registrations, ownership history, etc), cess starts, terra nova identifies community leader- the identification of community associations and leader- ship and trains them, organizes the community, demon- ship, and a technical field visit (notably to identify areas strates the advantages of having ownership of the lots at risk). this is followed by a more in-depth “diagnostic where they live, and discusses the process with them. phase”, including a contract between terra nova and Both, before and after the signing of the Judicial agree- the owner that guarantees exclusivity to terra nova ment, the community, through workshops, participates in the regularization process; a preliminary urban, legal in the urban planning aspects of the project to decide and social evaluation of the needs of the community, to on what infrastructure they want to include. these be used in the later phases of the negotiation; and finally workshops also build community capacity for the longer efforts to secure the support of community leaders. term. through chosen representatives in the “techni- cal Chamber,” the community participates in decisions An integrated project taking into ac- on each family’s payment terms and on resolution of count urban, environmental, and social issues arising during the project. considerations the community participates in the actual construction terra nova’s approach takes into account: work and the reorganization of the space (relocation of ill-located houses, road construction, etc). this partici- City planning - redefinition of land plots, streets, pation leads to peer pressure that has so far succeeded squares, road systems, space for basic infrastruc- in convincing reluctant residents to join the project. ture, green and institutional areas; the environment - revitalization of areas to be pre- served, environmental education, set up of recycling the idea of having property rights is a real systems; stimulus for people. it motivates them to find a better job, they start looking for better opportunities, and social dynamics - recording and profiling of all in- they usually f ind ways to pay after a few months.” habitants and neighbors (for relocation of those in improper houses), set up of a technical Chamber, – andré Luís Cavalcanti de albuquerque, discussions and negotiation with each family indi- managing Director, vidually, and community social work. terra nova 43
    • soLution aDDressinG Barriers to sCaLe TERRA NOVA Negotiated approaches eliminating the need for external finance anDré LuÍs CaVaLCanti De aLBuQuerQue, manaGinG DireCtor external financing is not utilized and families who have of terra noVa on tHe key CHaLLenGes difficulty paying the proposed amounts are accommo- tHe terra noVa moDeL Has faCeD dated in two ways. they are either allowed to pay small- er increments over a longer term, or if these amounts · Today our biggest constraint to scale is our are still excessive, families can pay a nominal amount as working capital. Most of our expenses are upfront in the two years needed to build the com- “rent” until they have the means to make payments for munity project, negotiate an agreement and get the purchase of land. it ratified by the court, whereas settlers start pay- Activating the agency of the community ing only after these two years and their payments (and thus our revenues) are then spread over an in acquiring land rights average of 8 years. tn redefines the role of the government and occu- · Initially projects were slowed down by bureau- pant vis-a-vis regularization. Before terra nova was cracy and the lack of understanding of the land established, the government was the primary entity regularization by the public, state and municipal responsible for regularizing privately held property, re- agencies in the process of approval of the proj- quiring it to expropriate the land i.e., the government ects and environment licenses. This has now been paid the proprietor for the land. this purchase is done improved as we use a provision of the civil law at a substantial cost to the taxpayers. taxpayers’ mon- called “Original Acquisition”, by which the court ey, which could be used to improve social and environ- only needs to approve the private agreement mental conditions was instead used to regularize land. between the land owner and the settlers which allows the settlers to get their land title when terra nova has created an alternative where the cost they finish paying the installments. This reduced of purchase of land is the responsibility of those who a lot the paperwork and time needed for the set- occupy the areas. this has significantly shifted the role tlers to get their title. of the government as a “paternalistic benefactor,” by · It takes time to build trust with the commu- encouraging occupants to assume their responsibility nity, especially in areas where relocation had in the process of regularizing land ownership. terra already been tried and had failed. Even once the nova’s methodology transforms this relationship to project starts, some residents do not participate one of equal partners, empowering entire communi- and only look at what is happening, waiting for ties to assume responsibility for past actions and for others to do the work. This attitude is a result of constructing their future. the occupants, through their the paternalist policy of the state, wherein the government promises to help and deliver social own efforts and resources and with terra nova’s sup- benefits, which leads to people waiting for that to port, act as agents of transformation. happen rather than take their destiny into their own hands and try to improve their lives. · Though historically the public sector has not had the capacity to deal with informal land occupa- tion, many in this sector still believe that they are this concept can be replicated anywhere, the only legitimate actors to decide and act on because all we do is set up the process for the this matter, arguing that the private initiative only population to solve its own problems. the com- aims at profit. munity has the power and capacity to improve their lives.” – andré Luís Cavalcanti de albuquerque, managingDirector, terra nova 44
    • soLution aDDressinG Barriers to sCaLe TERRA NOVA Impact of Land Regularization Jd. União, Curitiba, PR, Main Street, Before and After2005 Makeshift water lines 2010 Implementation of formal waterimprovised by community residents lines by government BARRIERS ADDRESSED: 1) LAND RIGHTS: Legalizing informal settlement through fair financial compensation terra nova describes itself as “transforming dead assets into capital”. Land owners receive capital in exchange for their illegally occupied land that they could not use for years and often considered as lost, while settlers gain property rights on their plot, which they can then sell, or leverage the asset as collateral, etc. 2) CROSS SECTOR COLLABORATION: private sector catalyzing conflict resolution between communities and pri- vate owners, with Government’s approval terra nova, a private company, solves conflicts between private individuals (land owners and informal set- tlers) through a cross sector collaborative effort between the individuals themselves, the local government (the city, for example), national government agencies (notary’s office of real estate records), and commu- nity organizations (trade unions, slum dwellers associations). the technical Chamber, where all parties are represented, provides a strong platform for collaboration, as all parties have to make decisions together for the design and implementation of the project. 3) SUPPORTIVE POLICY: Local government support of a cost effective program fulfilling the state’s duty with minimum public spending the local governing bodies, once convinced, are active and supportive participants in the process. the government’s participation in the provision of infrastructure is negotiated, based on the demands of the community. if the government does not have the capacity or does not accept parts of the project, the costs are added into the community’s installments. for example, the government can pay for a community building while the community will buy the corresponding land plot. additionally, the government does not have to bear regularization (and relocation) costs. overall, accepting and supporting this program allows the govern- ment to use only minimum funds to efficiently address the issue of improper housing on illegally occupied land. 45
    • soLution aDDressinG Barriers to sCaLe TERRA NOVA Evaluation Framework Is the Terra Nova has proven itself more efficient and scalable than government solution led initiatives in land rights provision: SCALABLE? • regularization process 4 times faster than that of the state according to CoHaPar.7 for terra nova, unresolved cases result when areas need to be entirely relocated, which tn is not designed to manage • more than 20000 families in the process: 6000 in contract and 14000 in the evaluation process. 8 9 • entirely financed by community fees (except some of the infrastructure, which is paid for by local government). However the following factors constrain scale: • Cash constraints: terra nova needs capital to finance the beginning of each project while first cash flow from community comes after 1-2 years and is spread over 8 years. Cash is needed to al- low terra nova to implement a sound education program10 to secure the enrollment of community members. if done properly, this dramatically increases the number of families accepting the regular- ization process.11 Terra Nova envisions scale through partnership with financial institutions to overcome its own cash constraints and through the following: • Creation of a technical Chamber in each project, formed by all involved agencies, for joint analysis and integrated approval of all relocations, allowing faster scale-up. • terra nova may establish partnership with nGos that could help scale up (so far partnerships have been ad hoc on specific issues and projects, for recycling for example). • Provided the cash constraints are addressed, terra nova plans to engage 90000 families in the next 5 years.Is the Replication would require:solution • similar legislation allowing land rights registration based on agreement between owner and settlersREPLICABLE (existing in Colombia and other Latin american countries), notably:in other - formalization of legal agreements between land owner and settlers which are recognized by thelocations? courts, recognizing and protecting the titling during the regularization process and after - guarantee of the occupants’ right to remain on the land during the payment period; - existence of legal recourse to reclaim the land in the event of non-payment by the settler. 46
    • soLution aDDressinG Barriers to sCaLe TERRA NOVAIs the Terra Nova model is entirely funded by the resident beneficiaries. Revenuessolution generated from the community are shared between financial compensation toCOST- owners, revenues for Terra Nova, and money set aside for public infrastruc-EFFICIENT? ture. Government gains tax revenues from newly formalized settlements and saves money on public housing and dispossessions. • for residents: • the families on average comprise 5 people, with basic formal education and income around ~usD 650 (2 minimum wages), and spend around usD 60-75/month on payments for 5-10 years. install- ments are spread over tailored number of years so that each family is able to repay. those who can- not pay at the beginning rent their land for a smaller fee, and then start the purchase when they can pay.12 • Gaining property rights means gaining an asset and collateral for accessing loans for further eco- nomic development. • Project builds community capacity through leadership and team building workshops included in the project, and through the establishment of the technical Chamber. • Part of installment goes to community projects, improving neighborhoods and thus raising the value of land. • for local and national governments: • estimated usD 82 million saved to date for government, compared to their cost of action to relo- cate people through use of public funds.13 • additional savings as residents improve their own homes after regularization and construction of new infrastructure, without reliance on government money. • new source of taxes from these now formal areas. • for owners: though they may not get the entire market value of their land, owners recover some value that they had little hope of realizing. • for terra nova: revenues from residents’ payment (targeted at ~usD 2900/family, but received over an average of 8 years), for an investment over first 2 years of ~usD 565/family14.1 COHAPAR http://www.cohapar.pr.gov.br/ 9 Interview with André Luís Cavalcanti de Albuquerque, Managing Director, Terra Nova, October 8 20102 State of Parana, Cities of Sao Paulo, Porto Velho and Cuiaba. 10 A key component of the Terra Nova process, where the organiza-3 Terra Nova, Land Regularization as an Instrument for Social tion works with community leaders and informs them of the benefitsTransformation, Document used for Stage 2 of WORLD HABITAT of ownership with the purpose of convincing them about the projectAWARDS 2007 COMPETITION and getting them involved.4 Fundação João Pinheiro, Ministerio das Cidades, Secretaria Nacio- 11 Interview with André Luís Cavalcanti de Albuquerque, Managingnal de Habitação – Deficit Habitacional Nacional, 2006 Director, Terra Nova, October 8 20105 Interview with Diana de Castro, Investor Relations, Terra Nova, 12 Interview with André Luís Cavalcanti de Albuquerque, ManagingOctober 19 2010 Director, Terra Nova, October 8 20106 Interview with André Luís Cavalcanti de Albuquerque, Managing 13 Terra Nova, Land Regularization as an Instrument for SocialDirector, Terra Nova, October 8, 2010 Transformation, Document used for Stage 2 of WORLD HABITAT7 COHAPAR http://www.cohapar.pr.gov.br/ AWARDS 2007 COMPETITION8 The evaluation stage is before the repayment contract is signed 14 Interview with Diana de Castro, Terra Nova, October 19 2010between the settler families and the land owner. 47
    • soLution aDDressinG Barriers to sCaLe SPARC SPARC – Society for the Photo: John-Michael Maas / Darby Communications Promotion of Area Resource Centres BARRIERS ADDRESSED: SUPPORTIVE POLICY, CROSS SECTOR COLLABORATION, FINANCING Aerial view of Dharavi Slum, Mumbai, India Executive Summary society for the Promotion of area resource Centres or sParC, is a large Citizen sector organization in space to conduct meetings and activities; and advocacy india that advocates for participatory policy on their behalf at policy platforms. changes in affordable housing and relat- ed infrastructure on behalf of low-income this support notably enables communities to develop groups, while building the capacity of these their own housing projects, with the aim of demon- communities. it is as an example of an organization strating the value of community driven solutions and catalyzing a policy environment more responsive contributions to the government. to the housing and infrastructure needs of low-income communities. it does this by bridging the gap be- SPARC, through its alliance members, is tween the government and the grassroots present in 72 cities in 9 states of India. Since citizen’s sector groups and federations that its inception in 1984, it has served a member represent low-income populations. base of close to 2 million people.1 Addition- ally, it has supported the construction of ap- sParC programs are rooted in the belief that long- proximately 50002 houses since 1998. SPARC term collaboration between governments and commu- has also participated in forming Slum Dwell- nities is necessary to benefit the most disadvantaged ers International (SDI), a confederation segments of society. the organization enhances the ca- of slum dwellers groups, operational in 28 pacity of mature, well networked grassroots organiza- countries. 3 tions or federations (alliance partners) to i) better lead their communities, ii) to better understand community needs (through surveys and mapping) and, iii) to better negotiate on behalf of communities for increased ac- Background and Evolution cess to urban resources. it also advocates on a policy sParC’s initial work in 1984 aimed at helping those at level on behalf of its alliance partners through building the very base of the pyramid — 1.5 million pavement relationships with state agencies. dwellers of mumbai with the least access to resources.4 the propelling idea was that a solution that would work sParC works in particular with two alliance partners with the most vulnerable would have implications for — the national slum Dwellers federation (nsDf), a those higher up in the economic pyramid. sParC real- national network of slum-based community groups, ized that among the pavement dwellers, while women and mahila milan, a women’s savings group. it supports were the most vulnerable, they were also the most these community-based groups through provision of innovative when it came to surviving with limited re- institutional finance, financial and technical expertise, sources. 5 thus sParC started supporting mahila milan, leadership development services, access to physical a women’s collective, to encourage women to engage 48
    • soLution aDDressinG Barriers to sCaLe SPARCin roles of leadership, and to organize and empower Impacting policy through demonstratingthem to participate in more significant projects. sParC value of low-income communities’ inputfocused on training and supporting mahila milan leaders to counter the sense that low-income communitiesto professionally manage the credit and savings of mem- have little to contribute to their own advancement,bers, as a buffer against crises and emergency needs sParC and nirman support projects designed andlike medical treatment and loss of employment. these implemented by community members. the objectivesfunds were also eventually used as collateral to access are 3-fold:institutional credit. 1. Build their capacities;sParC also partnered with the national slum Dwellers 2. illustrate the weaknesses in current governmentfederation (nsDf), advancing the leadership capacity programs and policies; andof slum dwellers federations at the national level and 3. Demonstrate the positive value of solutions emerg-providing them with access to advocacy platforms. the ing from community action and leadership.underlying belief was that successful and longer term this support, in addition to effective articulation ofdevelopment strategies would have to involve the com- needs and advocacy on behalf of these groups, aims tomunities as important and engaged stakeholders.6 attract the attention of policy makers and government. in fact, a number of Jnnurm10 development schemesin 1998, sParC created nirman, a not for-profit7 com- active in many parts of the country, such as slumpany. nirman provides slum federation leaders with rehabilitation authority (sra) scheme for pavementcritical financial and technical support to help them de- dwellers and Dharavi redevelopment Project11 (undercode the housing and infrastructure schemes offered sra) have been influenced by sParC.12through national and state agencies,8 so that they canparticipate in their planning and execution. this not sParC has been supporting the federation membersonly strengthens and empowers the community to ad- and mahila milan leaders to work on resettlement &dress their own needs but also legitimizes their political rehabilitation as well as in-situ upgrades in several sraexistence. schemes.13 sParC focuses on helping the community develop their own solutions, providing them with train-additionally, in 1996,9 sParC co-founded slum Dwell- ing, financial support and guidance to comprehend theers international (sDi), a confederation of slum dwellers bid process for sra projects as well as execute them.groups operating in 28 countries. the sDi facilitates cross- in doing so, sParC highlights that community input islearning, provides slum federation leaders with more re- of value and that the poor are active citizens of the city,sources and confidence, and fosters a stronger sense of justifying their right to access urban resources.solidarity between the urban poor communities in devel-oping nations.Operational FeaturesEmpowering federation action throughArea Resource CentersPhysical spaces called area resource Centers, provid-ed by sParC to the alliance members, allow alliancepartners to organize, plan and execute their activitiesas autonomous groups. for instance, mahila milan loanofficers use the space to collect savings and maintainbooks of accounts and nsDf coordinates communityorganizing efforts. Meeting of NSDF members at the Area Resource Centre in Mankhurd, Mumbai 49
    • soLution aDDressinG Barriers to sCaLe SPARC the broader sra initiative has been criticized for in- comprehensive eligibility criteria, which in several cases sHeeLa PateL, founDer, sParC on tHe key has led to eviction and displacement of low income fam- CHaLLenGes faCeD By tHe sParC moDeL ilies, and for developing vertical slums with inadequate · Mainstream politicians do not look at the thought to associated infrastructural development. problem of housing for low-income communities those who oppose the sra are critical of sParC in its broad economic and political sense and thus exploring community based solutions within the sra often address the issue only partly, not thinking framework. these criticisms not withstanding, sParC of coupling housing with economic opportunities continues to explore projects that communities can un- for example. dertake themselves within the sra framework.14 · The policy framework is a top down approach, built by experts, but the reality comes from Leveraging useful policies to benefit the below. The exclusion of community input in policy community making makes such programs and schemes un- nirman, through strategic project interventions, has suitable to reach and impact the target segments. leveraged financial and non-financial resources, such · Governments work with small pilot projects, and as existing policies, to implement community projects let them evolve until they become dysfunctional. while simultaneously building its own capacity for sus- Then they try the next approach that is offered tainable operations. for instance by participating in sra to them, without learning from the past. No one they received transferable development rights15 (tDr) really tries to find solutions for the long haul and which they used to access private land for several re- look at the bigger picture. There is not enough habilitation housing projects. By participating in sra intellectual exploration, and the political system is projects, nirman can generate its own resources by not learning from what has already been done. either partnering with private companies to implement projects or by receiving tDr by administering projects themselves. this creates a win-win situation for gov- Informing policy through more ernment, companies and the community, wherein the educated advocacy and accurate government can efficiently deliver a pro poor housing surveys and documentation scheme, private developers can benefit from the tDr With surveying and documentation support from and communities receive compensation for efforts as sParC, federations and grassroots groups assemble ac- well as access to new houses. curate information and data on the communities repre- sented. this is done primarily through community-led Survey team maps the settlements studies, research and mapping projects. these studies in Wadala, Mumbai strengthen community leaders’ abilities to negotiate with the authorities and are increasingly shaping policy. for example the report “We the invisible”16 (1995), made pavement dwellers visible to both the general public and officials; and influenced the government to launch a program to provide resettlement and rehabili- tation options to eligible pavement dwellers (those who could prove that had no ownership of any housing or infrastructure). Attracting donors with a long term vision and ability to take risks sParC takes a long term approach to its work, fund- ing community-led experiments that offer long-term benefits to the community with potential to impact the policy debate, even if the short term benefits are not 50
    • soLution aDDressinG Barriers to sCaLe SPARCnecessarily tangible or guaranteed. this approach re- to further strengthen federation members across thequires that sParC’s own funding come from multilater- globe, sDi launched the urban Poor fund internationalal and international donors with a similar understanding (uPfi), an innovative financing facility directly managedof a long-term and experimental nature to community by federations of the urban poor. initiated in 2007, thecapacity building and advocacy. fund was capitalized by a usD 5 million grant by Bill and melinda Gates foundation and was further strength-Strengthening collaboration ened by usD 2 million contribution in 2008 by the Gov-internationally ernment of norway.17sDi, co-founded by sParC, gives slum dweller associa- this pool of money supports federation groups, allow-tion leaders access to international peer networks to ing them to take risks and set precedents to exploremeet and gain cross-cutting understanding of urban scalability and cost efficiency of projects. access toissues and possible solutions through local, national these funds, allows communities to negotiate effective-and international exchanges. ly with formal bodies in the public and private sector, furthering their autonomy and decision making power. BARRIERS ADDRESSED: 1) SUPPORTIVE POLICY: Creating responsive policy through advocating on behalf of grassroots community groups, and illustrating where policy initiatives can be improved sParC provides community groups with a platform to participate in the formulation of policies and programs geared towards their needs. sParC’s collaboration with the communities also highlights the shortcomings of existing policies and demonstrates better and more efficient designs and delivery mechanisms. following sParC initiatives, national and state policies have become more responsive to the needs of low-income com- munities, for instance state and national committees have invited sParC to weigh in on the design of govern- ment schemes for Jnnurm and sra initiatives. 2) CROSS SECTOR COLLABORATION: Capacity building of grassroots community groups for greater collaboration with the public sector acting as the missing link between government and the grassroots organizations representing the interests of the people, sParC actively catalyzes cross-sector collaboration. sParC’s support in building the lead- ership capacities of federations and community groups empowers them with the ability to organize their community’s efforts and resources, understand more deeply the needs of the community and articulate their demands. this capacity building approach makes community groups active stakeholders in programs address- ing the needs of low income populations. for instance, the ability to provide valuable data and information about the populations they represent legitimizes community groups and allows them to engage with the public sector. 3) FINANCE: A tool for empowered and autonomous action sParC negotiates with institutions and government to extend credit to collective members of the federa- tion, leveraging the collective ability of the federation as collateral. access to larger funds enables the federa- tions to autonomously execute community infrastructure and housing projects and therefore empowers federations to influence policy at a state, national or even an international level. 51
    • soLution aDDressinG Barriers to sCaLe SPARC Evaluation Framework Is the SPARC is active in 72 cities in India and SDI in 28 countries globally. Because solution they focus on building the strength of existing alliance partners who work in SCALABLE? the community, and advocate on their behalf at a policy level, SPARC inter- ventions have the potential of large scale impact. However this impact is indirect. • Limited direct impact: pilots and interventions to illustrate various models for implementing hous- ing and infrastructure. • sDi and nsDf impact: 450+ exchanges (city, regional, national, international) • indirect impact:18 • mahila milan impact: ~ 58000 members in 72 cities, with savings of inr 70 million (usD 1.6 million) and loans issued of inr 6 million (usD 0.14 million), from their own sources and institu- tional funds for home improvements, livelihoods, emergency costs and more. • ~30000 households relocated from vulnerable areas to secure permanent housing with com- munity involvement, in collaboration with authorities through sParC’s alliance and nirman. • Participation in policy implementation and change: sra for pavement dwellers, Jnnurm, Dharavi redevelopment Project. SPARC’s scale is constrained by low government interest, limited sources of funds and human resources, and the time needed for federations to mature and participate effectively at an advocacy level: •resource commitment of time, money and effort to call government attention towards city plan- ning for excluded urban poor communities. • Limited sources of philanthropic funds/donors with an appetite for taking risks on projects and pilots with long term objectives rather than direct results. • Limited human resources with desired attitude and skill sets (issue for sParC and its federation partners), i.e. leaders with the capacity to advocate, plan and execute projects with deep commit- ment to low-income communities. • need for large scale skills training limits scale. Leadership and skills training is required beyond the scope of project planning and implementation for alliance members to themselves address scale. scaling of sParC is directly correlated to the scaling of federations and the degree to which they can address challenges in the community. • Lack of mature federations limits scale since younger federations are constrained by operational details and challenges. it takes time, training and investment for the alliance members to assume effective advocacy roles. Is the SPARC’s replicability in other locations depends on the receptiveness of a solution government to community demands and the existence of strong community REPLICABLE in federations. More specifically, replication requires: other • Government and public sector agencies open to sharing advocacy platforms with federation leaders; locations? and understanding the value of seeking solutions from community leaders. • mature and effective federations or grassroots groups representing the needs of vulnerable com- munities with effective leadership structures and capacity to execute projects. •Patient professionals (within organizations like sParC) with belief in solutions emerging from communities to aid and encourage their plans and strategies by providing access to funds, skills and networks. • flexible donor funds to empower autonomous community action to demonstrate value of commu- nity solutions. 52
    • soLution aDDressinG Barriers to sCaLe SPARCIs the SPARC is primarily donor funded. Programs reach the lower BoP through thesolution double subsidy of government housing programs coupled with SPARC’s ownCOST- donor funding, reaching deeper into low income communities than marketEFFICIENT? based and perhaps even solely government led solutions can. • for communities: better service and capacity building at low cost. - access to housing, infrastructure, finance and policy platforms to impact and improve political and economic participation of BoP from the bottom 10% of the income percentile.19 - there are criticisms of unintended consequences for low-income families through sra scheme projects, which lead to eviction, dangerous density levels and inappropriate designs for the commu- nity. • for alliance partners (e.g. community federations): capacity building and enhanced impact at low cost. - Capacity building through free professional assistance to decode government schemes, guidance on preparing bids for government projects, partnerships with governments or donors for surveys and census of communities, in addition to representation in policy platforms and advocacy of their interests. - for mahila milan members, free mentoring to manage savings group funds and maintain self-sufficient system of operations. - salaries and other operational and administrative costs of mahila milan and nsDf paid by sParC. • for the government: extended reach into the BoP segment and better designed policy at low cost. - extended reach of government-subsidized programs to lower BoP segments through additional donor funds rather than government subsidies. - Better informed and thus potentially more efficient government programs (or better allocation of government subsidies). access to accurate data gathered through alliance members conducting slum surveys (from city-wide slum counting and profiling to detailed socio-economic baseline surveys for upgrading or resettlement projects, often used for eligibility determination for implementing govern- ment led schemes). • for sParC and donors: multiplied impact of philanthropic funds. - Cost-efficient investments of sParC’s usD 1.5 million philanthropic funds, 20 designed for multi- plied and long lasting effects. - nirman gets capital funds which form its equity, which is leveraged to seek loans from banks and do joint ventures to implement sra projects and utilize subsidies provided by government, extend- ing sParC impact at no cost for donors. the capital investment is revolved to other projects along with any earnings made in the project. 21 • additional gains for donors: - access to network of real beneficiaries at national scale in india and internationally. - Visibility nationally and internationally through sDi members. 53
    • soLution aDDressinG Barriers to sCaLe SPARC 1 SPARC Annual Report 2008-09 13 Slum Rehabilitation Authority serves to facilitate the rehabilitation of slum dwellers in authorized dwelling units. Under SRA, anyone 2 Interview with Sheela Patel, Founder, SPARC, August 26, 2010 can propose to develop rehabilitation housing – private developers, 3 Interview with Sheela Patel, Founder, SPARC, August 26, 2010 NGOs or the residents themselves – provided there is agree- ment from the landowner and 70% of the residents. SRA provides 4 Article from SPARC website resource centre titled “SPARC” http:// market-based incentives to encourage landowners and developers to www.sparcindia.org/docs/sparc.txt participate. 5 Article from SPARC website resource centre titled “Alliance” NGOs are given additional incentives to encourage their participa- http://www.sparcindia.org/docs/alliance.txt tion in rehabilitation projects. Nirman, for example receives ad- 6 Interview with Sheela Patel, Founder, SPARC, August 26, 2010 ditional benefits (additional density permits for construction at other sites) for implementing such projects. Nirman has worked notably on 7 According to the Indian Companies Act, 1956: A section 25 projects such as Rajiv Indira Suryodaya, Bharat Janta, Milan Nagar and company is a company with limited liability that may be formed for some others in Mumbai (Nirman’s Annual Report, 2009-10) “promoting commerce, art, science, religion, charity or any other use- ful object,” provided that no profits, if any, or other income derived 14 Correspondence with Sheela Patel, Founder, SPARC, October, through promoting the company’s objects may be distributed in any 2010 form to its members. http://www.ngosindia.com/resources/ngo_reg- 15 TDR is earned through the construction of rehabilitation floor istration1.php area, and has market value equivalent to the price of land in another 8 Nirman Annual Report 2009-10 area. 9 Website of SDI www.sdinet.org 16 SPARC Annual Report 2008-09 10 Jawaharlal Nehru National Urban Renewal Mission is a seven year 17 Website of SDI www.sdinet.org mission which started in 2005-06 with the aim of establishing fast 18 SPARC Annual Report 2008-09 tracked urban infrastructure in India with a budget of INR 50,000 crore for this period (JNNURM brochure www.jnnurm.nic.in) 19 Interview with Sheela Patel, Founder, SPARC, August 26, 2010 11 Dharavi is the largest and most highly populated slum pocket in 20 Interview with Sheela Patel, Founder, SPARC, August 26, 2010 Asia. The Govt. of Maharashtra has accepted the proposal for the 21 Correspondence with Sheela Patel, Founder, SPARC, October, redevelopment of Dharavi which, after suitable modifications, will 2010 be implemented through the Slum Rehabilitation Authority (SRA) (source: www.sra.gov.in) 12 Interview with Sheela Patel, Founder, SPARC, August 26, 2010 SPARC was involved in the envisioning of SRA policy which formally recognized the rights of slum dwellers to access titled abode in the city of Mumbai. 54
    • soLution aDDressinG Barriers to sCaLe SPARC Draft Recommendations for Various Stakeholders 55
    • RECOMMENDATIONSDraft Recommendations forVarious Stakeholdersmultiple actors play a role in building the market for affordable housing: the Private sector (real estateDevelopers, Building material manufacturers and retailers), Public sector, Citizen sector, finance Providers(microfinance institutions, Housing finance institutions and Commercial banks) and investors.this section highlights the findings of our investigation for each of these categories of players along the af-fordable housing value chain. General recommendations such as these require adaptation to local marketand institutional conditions. nevertheless these suggestions, based on discussions with experienced prac-titioners and experts in the field, should help you think about your organization’s core competencies, theassets you bring to this task, and how these strengths can be leveraged.We start with financial institutions because the issue of financing is central to housing and has implicationsfor other players in the value chain.Financial Institutions:Commercial Banks, MFIs, and HFIsextending housing loans for home improvements or new homes requires new product design,skills, and processes for players willing to enter this new market, be they traditional com-mercial banks, micro-finance institutions (mfis), and – to a lesser degree – specialized housingfinance institutions (Hfis).Whether you are a bank, an mfi or an Hfi, working with Base of the Pyramid (BoP) seg-ments requires that your methods of repayment match, as closely as possible, clients’ moneymanagement practices. relevant innovations include quick loan approval and disbursement,smaller and more frequent (e.g. weekly) repayments, lending to groups (that, in turn, prorateand collect payments from members), requiring participation in prior savings programs (eitherindividual or group), direct deduction of loan payments from paychecks or pension fund con-tributions, and personal visits by loan officers the day after any failure to pay on time occurs.When attempting to roll out successful financial products in these markets, implementingthese business process changes are often more challenging and vital than changes to pricingpolicy (interest-rate charged per annum).56
    • Commercial Banks the core business of commercial banks is to provide loans to up-market clients (the middle and upper class), and most have hesitated to lend to low-income consumers as they are costly to serve. these households often have difficulty meeting standard documentation require- ments (such as formal proof of income and collateral through encumbrance of property title) and want credit for less standardized housing products (e.g. home improvement and expansion; construction of a unit on a lot owned by the family). additionally, relatively high operating costs geared to traditional home loan underwriting, lending, and servicing1 have likely discouraged commercial lenders from offering smaller loans to low-income households for a wide variety of housing products and solutions. in the past, equity and liquidity constraints often induced commercial banks in emerging countries to ration home lending to only their best (i.e., most profitable) customers. this is changing. structural global trends2 have increased the liquidity and equity base of most com- mercial banks and will likely continue to do so for the foreseeable future. meanwhile, upper income and middle income housing loan markets have become highly contested and saturated in many emerging countries. a rapidly growing urban lower middle-class has become the single largest income group in most dynamic emerging countries (india, China, indonesia, most of southeast asia, middle income countries in Latin america). this new urban lower middle-class has previously lacked access to formal housing finance. extending home finance to this huge new market as well as to creditworthy low-income households now represents a key challenge for survival and growth of commercial banks. recommendations for Commercial Banks fortunately, commercial banks have key assets for achieving success in this challenge: access to cheaper, longer-term finance than most mfis; sophisticated credit, liquidity, and term-risk management tools adaptable to affordable housing finance markets; and operational systems (it networks) and branch networks capable of scale. thus we recommend that you: 1. Create a dedicated unit to serve notes the Affordable Housing Finance market a dedicated, separate affordable Housing finance/Housing microfi- nance unit will enable you to implement tailored business processes and thus achieve lower operating costs than your traditional activities. for example, repayment terms for home improvement loans to this seg- ment will need to be aligned to the existing money management prac- tices of clients. you can leverage existing savings groups (as done by Patrimonio Hoy), or joint liability groups using the same social collateral dynamics for home improvement loans as do mfis. a dedicated unit will also ensure you can keep tight control over costs and profitability key Performance indicators (kPis) and hold your management more accountable to them. a separate unit also allows you more latitude to potentially invite other investors.1 The cost of qualifying households for a mortgage loan and collecting on a mortgage payment for Mexico’s mortgage banks has approximated that of US home lenders- Dr. Bruce W. Fergu-son, General Manager, Housing Microfinance, and former Senior Housing and Urban Economist, World Bank.2 These global trends that have flooded many commercial banks in emerging countries with liquidity and permit dramatic increase in their equity base include: the rapid growth of emergingcountry economies (which have now replaced consumption in advanced countries as the driver of global economic development); and the determination of the Federal Reserve of the UnitedStates to avoid deflation in the country at all costs through printing money, quantitative easing, and devaluation of the US currency (justified as part of the necessary rebalancing of the globaleconomy to reduce trade imbalances). These structural trends promise to export liquidity and inflation to the rest of the world for the foreseeable future. Brazilian and Chinese banks are ontrack to become the biggest global financial institutions. 57
    • RECOMMENDATIONS notes 2. Partner with CSOs and MFIs for greater access and deeper understanding of this market many commercial banks do not have a solid understanding of the needs and characteristics of low-income housing consumers, or information recommendations for Commercial Banks on their creditworthiness. Partnering with mfis who have years of ex- perience working with these customers can allow you to enter this mar- ket prudently. strategic collaborations with affordable housing develop- ers and building manufacturers/retailers can also reap benefits. these mfis, home developers, and building manufacturers/retailers can help you qualify suitable households for finance, provide packages of credit for building materials, provide construction related technical assistance and delivery of materials to sites/storage. 3. Ensure your consumer credit loans are not used to finance long-term housing investments your bank might be involved in financing housing improvements for low-income customers through high cost, short term consumer lend- ing activities. although a popular high-profit activity for some commer- cial banks (e.g. those in the us and Brazil) in the short run, high-cost consumer lending for housing (over 60% all-in interest-rate per year, typically extended through other institutions) adds little value for low- income households. these activities risk generating a household debt crisis in the long term and can be detrimental to your bank’s profits and reputation. Microfinance Institutions (MFIs) mfis find themselves in a difficult position vis a vis housing loans. mfi clients likely already de- mand home improvement loans (or already use other types of loans for this purpose), which your institution probably provides on a small scale as a reward to faithful customers. How- ever, housing financing for either new homes or home improvement is a new business, one that is significantly different from financing of micro-entrepreneurs. seriously serving BoP housing finance needs as an mfi, at more than minute scale, requires the capacity and financial backing to provide larger, longer terms loans at lower interest rates. specifically, sustainable affordable home lending/housing microfinance requires competitively priced funding in local currency for terms of five to ten years. such terms are still rare in the mfi industry, which depends upon quick turnover (average loan duration of less than a year) of somewhat higher- priced working capital and micro business loans. mfis, however, have a competitive edge over traditional housing finance institutions as they know this client base intimately. additionally, low overhead and transaction costs constitute meaningful advantages if mfis develop the new competencies required to add housing loans to their portfolio. mfis may not see housing loans as a key development opportunity as most operate in markets where considerable unmet demand exists for their “higher interest rate/shorter term” core products – working capital and micro-business loans. affordable housing lending is a new and58
    • specialized business requiring considerable investment in upgrading skills and systems. in this context, a central question for mfis becomes: “why build a housing loan business beyond the minimal scale necessary to meet the demand from existing customers?” the answer to this question is context specific. However, we believe that the following are compelling reasons for mfis to diversify into housing finance at scale: 1) serve your customers better and thus gain their loyalty, as you risk losing your best cus- tomers to other mfis or commercial banks if you do not provide them with a tailored service that is increasingly in demand. 2) Gain a new profitable market that is much larger than that for micro-business lending. 3) Cross-sell savings, insurance, and remittance products along with housing finance the larger the mfi and the more contested the credit market, the more compelling the case for scaling up housing finance. that said, mfis’ top management must make an explicit stra- tegic commitment to affordable housing lending for this activity to gain traction within the organization. indeed, building a quality housing loan product means more than simply making small adjust- ments to micro-enterprise credit and calling it a “housing loan”. mfis serious about housing should create a new business division able to provide new services (such as technical assis- tance to ensure that the home improvement project is technically feasible and that the work is well done, a requirement for clients to repay), different processes (higher ticket size and longer duration than current average loans will require different assessment of ability to re- pay), new funding sources, and more sophisticated operational systems (for example, manag-recommendations for microfinance institutions ing asset/liability risk, which is generally insignificant for micro-enterprise lending). mfis committed to developing a housing product at significant scale should consider the fol- lowing strategies: 1. Create a dedicated unit to serve notes the Affordable Housing Finance market a new division allows instilling of new values, new business processes and the roll out of new products under a different cost structure. estab- lishing a dedicated unit will ensure you keep a tight control over costs and profitability/risks kPis, and you can more easily hold the manage- ment of the new division accountable for them. it will also allow you to keep tight control over possible innovations such as extending loans not only for building materials for the house but also for specialized labor and individual infrastructure, (such as, for example, low-cost decentral- ized technologies for water, sanitation and energy). 2. Offer a technical assistance service to your housing finance customers this can be accomplished through a business partner (material retailer for example) or a Cso partner. it could include developing a set of 59
    • RECOMMENDATIONS notes modular or standardized home expansion and home construction blue- prints/budgets. your mfi could extend credit offerings exclusively, or offer better terms to households that build with the assistance/labor of construction contractors from a list provided by the mfi. 3. Partner with commercial banks or second-tier housing finance institutions to access longer-term debt funding With ready knowledge of clients’ credit history, and given the lower ticket size of home improvement loans, you are likely to start by offering home improvement loans. the repayment terms for home improvement recommendations for microfinance institutions will be close to your traditional microfinance activities. as a second step, you will consider offering loans for new homes which require tying up capital for longer durations and lending at lower rates of interest. this will require that you work with larger banks and/or creating a new entity, i.e. a Housing finance institution (see next section). you may also be able to find social investors that will allow you access to longer-term funds on more favorable terms for housing loans as is the case with Jamii Bora. 4. Work with government to leverage public subsidies for the lowest income households Purely market based programs are not able to effectively reach the low- est income households. to reach such customers, mfis can leverageCreating the new process- public subsidies which can take many forms including; partial loan guar-es required to offer hous- antees, subsidized cost of capital and complementary grants concur- ing loans requires signifi- rently administered with housing micro-loans. cant investment from anmfi as well as a long-term 5. Partner with diverse players (materials manufacturers strategic commitment to and retailers, real estate developers) interested in grow-housing. this complex un- ing this marketdertaking suits those mfis with an established, siz- strategic collaborations with diverse players (construction material pro-able, profitable and stable viders and retailers, real estate developers) can help you access the micro-enterprise lending capital needed to provide attractive housing loans, as you leverage deep knowledge of, and access to low income markets. for example, operate business. the larger your branches inside hardware/building materials retailer store partners and customer portfolio, the on the sites of projects of affordable home developers with whom you more attractive to the collaborate. as an mfi, you have expertise in aligning repayment terms other partners you will to the existing money management practices of clients. you can alsobe, and the easier it will be leverage existing joint liability groups using the same social collateral for you to make it a new, dynamics for home improvement loans as for your traditional microfi- profitable business line. nance activities. these competencies can be of great value in the right partnerships.60
    • Housing Finance Institutions (HFIs) Comercial banks usually make home loans above usD 15,000 with a duration longer than 5 years, for formal customers for the purchase of developer-built units in subdivisions. mfis typically offer loans below usD 1,000 and durations of less than 2 years for informal customers. typically unencumbered by the large overheads of commercial banks and without the same constraints on access to capital faced by mfis, financial institutions specialized in housing (Hfis) are the missing middle, which can potentially make huge strides in addressing the fi- nancing needs of the BoP for new homes, offering loans between usD 1,000 and usD 15,000recommendations for Housing finance institutions for durations of 2 to 10 years. these types of institutions include housing cooperatives, mu- tual savings and loans, and mortgage banks. for these organizations to scale operations quickly they need to: 1. Partner with MFIs and CSOs for greater access and notes deeper understanding of this market Given your niche focus on housing finance, success depends on intimate knowledge of your customer base. mfis and Csos have long established relationships with your target market. you could partner with them to quickly source a critical mass of clients, and/or imple- ment mfi tried and tested backend processes and methods of cus- tomer acquisition and servicing. 2. Focus on selected customer segments and standardize credit assessment processes you could take demand aggregation a step further and work with orga- nizations that provide access to volumes of clients with specific profiles closely matched to the ones you serve. for instance, working with trade unions or member-based vocational organizations (federations of en- trepreneurs or auto rickshaw drivers, for instance) provides Hfis the ability to leverage limited resources in service of a greater numbers of loans. specializing in a few client profiles will enable you to develop stan- dardized processes for underwriting and credit assessment. 3. Partner with real estate developers Partnerships with real estate developers that focus on housing programs for the informal sector will enable you to aggregate the supply of new homes for you to finance and position you to serve this market well. 61
    • RECOMMENDATIONS Citizen Sector Organizations Csos span the spectrum from local non-profits, to special interest-based organizations to cooperatives, advocacy groups and mfis. most serve a broad range of needs for low-income communities including housing, education, health care and advocacy for basic rights. Csos focusing on affordable housing often take the approach of fundraising for building homes or implementing home improvements themselves. this approach is well suited for communities with the lowest income levels. However, for constituents with higher levels of income, a new market-based approach is possible. With deep access to and knowledge of low-income communities, Csos are well positioned to provide goods and services at market rates to the top of the BoP. Csos that want to offer affordable housing solutions have a unique opportunity to do so at minimal cost to the Cso, in certain cases even earning revenues from a variety of engagements best suited the Cso, as illustrated in the table below. tyPes of Csos tyPiCaLLy inVoLVeD funCtion Local Csos or mfis supporting sales and marketing / income generating activities activating demand Local Csos or mfis with a network of Bulk sales and processing / potential clients Demand aggregation Local Csos, community groups, knowing opin- Promotoras (sales forces for ion leaders in the community other businesses) recruitment mfis, local savings groups, community groups financing (including mobilizing savings) advocacy groups, community groups, provid- Providers of complementary services such ers of low cost legal services as property rights or utilities Local Csos, community groups Value added services like technical assistance or construction training for Cso’s interested in serving affordable housing needs, our recommendations are as follows: notes 1. Build networks of “promotoras” or sales forces to sell home improvement products and services assess the assets you bring to these new engagements (number of ben- eficiaries/ members, geographical reach, etc) and make strategic choices about your role. for example, to find “promotoras”, a minimum level of involvement would be to provide your business sector partners ac- cess to your network of beneficiaries. alternatively, you could recruit and train them yourself. finally, you could take a leadership role in this initiative, creating the network of “promotoras,” presenting aggregated demand and a sales force to distributors and retailers.62
    • 2. Alternatively, provide services (for a fee) to business notes partners (e.g. real estate developers) as you engage with business sector players, focus on the services thatrecommendations for Citizen sector organizations you are uniquely positioned to provide at scale without relying on sub- sidies. Business sector actors should be willing to compensate you for such services that they cannot provide better than you can (demand aggregation, BoP sales force training, loan provision, etc). this is an eco- nomic opportunity for you, and likely to bring profound changes in the way you operate as you will have to work closely with the business sector. therefore, ensure you have the right partners and that your interests are aligned. then make the required commitment to make this partnership work. this enterprise might require a new organiza- tional structure with separate governance, new staff and a new ethos altogether. such a move may disenfranchise some of your most loyal constituents. Do not underestimate the time and efforts required to include them. the payback may well be more sustainable and larger scale social impact. 3. If you are unable to aggregate demand, work to activate it if your organization is not in a position to, or is disinterested in col- laborating with the business sector to address affordable housing solu- tions for upper BoP populations, you can still play a relevant role in this space: building the capacity of your constituent base as in the examples of sParC and CoDi. initiatives which increase the income potential of clients, build their capacity and their access to financial services will, over the long term, allow their economic inclusion in the housing mar- ket as eventual consumers rather than beneficiaries. Real Estate Developers (New Homes) few real estate developers consider the Bop as an exciting opportunity. they likely enjoy growth potential in more lucrative and traditional markets than that of the BoP. furthermore, they see low income markets as small, complex, with thin margins and high barriers to entry in terms of accessing customers. admittedly, the challenges they foresee in working in BoP segments do exist, and therefore success in these markets requires new competencies. as the Hfa india case illustrates, this market represents an exciting opportunity for entre- preneurial real estate developers. • returns on investment are potentially substantial, as thin margins per unit are offset by the smaller investment required and quicker capital rotation compared to traditional projects. • Complexity can be turned into a source of competitive advantage for those willing to go down the learning curve and develop the new competencies required. 63
    • RECOMMENDATIONS • BoP markets will present opportunities for growth for developers during times of low demand in higher-end markets. the BoP is the new big wave of growth in the housing industry as the overall supply of higher-end properties outpaces demand. increasingly, middle income and upper income housing markets have become con- tested and saturated in emerging countries. therefore, we recommend that to enter this market you do the following: notes 1. Develop a comprehensive offering (financing, social services) for low-income clients recommendations for real estate Developers (new Homes) identify new ways to develop, capture and deliver value along the afford- able housing value chain. this implies considering all of the pieces that comprise a value proposition for your clients; not just the building, but also adequate financing for your consumers, as well as an appropriate level of infrastructure to sustain the types of services that these com- munities will require. in some instances, this may even imply focusing on ways to create adequate economic opportunities for target commu- nities. as new homes, more often than not, require relocation to new sections of a city, people will not move if these elements are not in place. Consider how you can boost the capacity of the community in the pro- as a real estate developer cess of your engagement. for instance, arranging space for vocational creating a successful prod- training, or including the community in construction empowers your uct for BoP/low-income future client base to purchase homes you develop through increased markets, will be a long, income or sweat equity, and has the added benefit of creating loyaltyoften frustrating road with among your new client base.much trial and error. Large scale operations and ac- 2. Partner with CSOs for greater access and cess to capital are not the deeper understanding of this market primary assets required inthis market. rather, strong this market is a departure for you, therefore it is important to work local ties coupled with with players who know your market well. Csos have intimate knowl- commitment to a specific edge of these client segments and understanding of their motivations, area are crucial to real preferences and living conditions. they can therefore help you create estate developers seeking homes that are responsive to micro level demand by gathering clients’ inputs. Csos can play an effective role in the marketing and sale of gains in this market. the homes. Because they are a trusted and long term presence in the com- benefits of engaging in this munity, and are likely to be the best sales force you can find for your sector are more tangible project (provided of course that they themselves are convinced that at local levels, thus those your offer is appropriate to the needs of the communities they serve).local players who have ties to the community, who are in a position to lead,and can leverage this social capital will succeed. 64
    • 3. Partner with MFIs and HFIs torecommendations for real estate Developers (new Homes) provide adequate financing solutions in this target market, affordability has as much to do with whether fi- nancing options responsive to the needs of clients and their income patterns exist, as it has to do with the price of the home. microfinance institutions are potentially good partners because they have extensive experience in this market and pose fewer barriers and requirements of borrowers than traditional mortgage lenders. on the other hand, microfinance institutions have access to shorter term capital than tra- ditional banks and limited sources of funds. therefore, also consider building alliances with more traditional housing finance institutions to be able to deliver attractive financing options to clients. 4. Coordinate with governments to provide sustainable infrastructure Given that new home developments are more likely in newly developed areas, it is critical to engage with government for access roads, electric- ity, water, sanitation and all basic infrastructure required by the new community. managing the costs of maintaining such infrastructure over time may involve introducing maintenance payment schemes and require that developers think through the upkeep of infrastructure investments at the outset of projects. Building Material Manufacturers / Retailers (Home Improvements and New Homes) Building material manufacturers operate high fixed-cost businesses, where each additional unit sold contributes to margins. Pricing products above marginal costs is crucially important. managers sometimes worry that serving the poor would mean lowering the prices of exist- ing product lines. opportunities exist both in the market for home improvement and new homes that do not jeopardize your margins in core markets, as demonstrated by the case of Patrimonio Hoy. materials manufacturers are potentially the only organizations in the entire affordable housing value chain that can be international players. if you are one of these international manufacturers, you possess the internal assets to leverage your investment in other ge- ographies and replicate programs in several locations. you are in a rare position to win new global markets 65
    • RECOMMENDATIONS Home Improvements typically, more than 50% of the sales of building materials manufacturers and retailers occur in small quantities for “self-build” home improvements market. there are compelling reasons why this is the case, with implications on why serving the low-income self-build market re- quires a specific package of products and services: The self-build market is highly expandable as well as more stable than the developer market. the self-build market holds up during recessions and crises much better than the developer market, which contracts quickly with higher interest rates and lower government subsidies. additionally, the potential demand generated by adding value to a self-build product (joining the sale of building materials with technical Building material manufacturers / retailers assistance, finance, modular blue prints/plans) can be significant, and can increase sales of existing building materials. First-mover advantage can create an economic moat difficult for competitors to bridge. Positioning your company as a first mover in facilitating higher-quality construction creates opportunities for additional sales through vertical and horizontal expansion. successfully creating and expanding a product for the self-build market will prove instrumental in building the “brand” of the corporation. Conversely, if your com- pany does not seize this opportunity, another eventually will, and reap the benefits. Innovation blowback can make your investments pay off in higher value markets. Product or systems innovations initially designed for low-income markets, and re- sulting new capabilities, can have significant impact in higher income or more main- stream markets as well. the experiences of pioneers such as Patrimonio Hoy show that new market approaches can successfully sell to this segment without affecting margins. if your materials are distributed in developing markets, the poor are already buying your products, and they are likely buying it at a higher price than higher-income customers. Due to limited cash flow, low-income con- sumers will rarely, if ever, receive volume discounts; to the contrary, low-income consumers often pay a premium for small amounts of high-quality brands. many low income households are unaware of the interest rate they pay on loans for build- ing materials, illustrating that pricing is somewhat secondary. Households value a number of other attributes more highly including; speed of credit approval, the delivery of building ma- terials to construction sites and free storage of purchased building materials by the company until needed, credit for specialized labor as well as building materials, and an initial plan and budget for work to be performed. 3 serving this segment requires addressing these non-price issues. this complex and costly undertaking may deter smaller players.3 Although families highly value this initial plan and budget, they are often unwilling to pay for ongoing technical assistance and inspections.66
    • the fragmented nature of the industry presents an obstacle to rallying all the players that would like to see the market develop, but cannot afford to single-handedly fund the efforts needed. thus, to enter the market for self-built home improvements, building material manu- facturers and retailers should consider the following: 1. Create a dedicated Affordable Housing unit, with notes adequate governance and funding structures as any new serious venture taken on by a business, you will have to invest for the long-term, developing innovations and new competencies.recommendations for Building material manufacturers / retailers your current sales team and existing organization are unlikely to un- derstand the broader context and long-term benefit of a move towards serving these markets. you will need new skill sets, and thus, likely new staff employed through a new unit. While this unit may benefit from financial backing and the distribution network of your current business in the initial phases, ensure that this new business unit becomes inde- pendent enough in the long run to be able to reinvest its profit in this business as it grows. keeping the new unit dependent on the larger organization means a perpetual channeling of profits to the center, and likely the need to solicit funding which will hinder the ability of the new business to grow rapidly or at all. 2. Partner with CSOs for greater access and deeper understanding of this market it will likely be a costly endeavor for manufacturers to find and train the right sales people to effectively sell to low income segments. alterna- tively, you can create sales forces though partnerships with Csos, but it may be hard to find the right partners (e.g., Patrimonio Hoy’s attempts to work with Csos has been met with limited success). finding the right Cso partner will safeguard your first-mover advantage, as cultivating long-term relationships with Csos will erect barriers to entry for other players. moreover, by having a local partner in the community, you will also be able to select the most creditworthy households and better ensure that your sales network has the support they need for their per- sonal and family needs (i.e. child care and other social services), which can help minimize staff rotation. 3. Address the financing needs of consumers by partnering with a strong finance provider Consider financing purchases of products as a temporary solution and engage in partnerships with financial institutions as soon as suitable part- ners emerge. Provide financing partners with loan guarantees if needed (see recommendations for finance Providers). if you cannot find the right partner, develop a separate entity with competence in financing. as PH example illustrates, developing a competency in finance will require new skills, which takes time. Creating a credit facility will also likely slow your growth (as it did for PH) by tying up capital for loan activities. 67
    • RECOMMENDATIONS notes 4. Include in your offering all necessary materials or services (even if these products are not produced by your company) selling only your product range will limit impact and growth opportuni- recommendations for Building material manufacturers / retailers ties. to enable a full range of offerings, you have a clear decision to make between the following two strategies: • Create a coalition of players with the competencies needed along the value chain to sell combined offerings that fit con- sumers’ needs. this approach shares the investment risk but raises governance and branding issues for your new structure. it also allows you to stay focused on your product line and competencies. • Leverage existing relationships with local retailers to ensure that products from other manufacturers are packaged into the offering and delivered to the client, as does Patrimonio Hoy. in this case, the lead manufacturer will bear the cost of organizing the effort, but owns the initiative, controls the brand, and avoids governance issues. you will encounter the issue of whether your direct competitor offer- ings should be included in a packaged offering for low income segments. on the one hand, your investment in building this new market entitles you to sell your products exclusively (and no direct competitor prod- ucts) in your packaged offerings. including your competitors’ products may mean that your competitors get a free ride on your investment if you do not negotiate terms effectively. on the other hand, allowing di- rect competitors in your offerings for the BoP can broaden scope: you are more likely to access government subsidy and support from Csos as an industry-wide initiative. 5. Leverage your existing distribution network to provide “last mile” delivery your storage centers and transportation infrastructure can be leveraged to extend flexible distribution options for low income clients, saving them high costs in transportation and storing goods as well as costs related to wasted materials onsite. make sure this network provides a minimal level of technical assistance; this can be a way to involve your employees in community service as well. these strategies are particularly suited for manufacturers with strong relationships with dis- tributors in a given geographic area and current leaders in the markets. neglecting to seize this opportunity if you are a market leader opens the door for competitors to gain market share.68
    • New Homesrecommendations for Building material manufacturers / retailers according to real estate developers of the Hfa india project, materials used in new home construction tend to be over-engineered for the requirements of affordable housing, as there is a vacuum to be filled for products better suited to the preferences of BoP clients. these products could be less elaborate, though not necessarily low in quality, and thus possibly cheaper. there is also a need for faster, more cost efficient construction techniques that manufacturers can contribute to. thus we recommend that you: 1. Innovate processes and products to reduce notes cost and time of construction for example, pre-fabricated or other standardized products and mate- rials can help lower construction time. for finishing products like tiles, extending new no-frills lines can lower construction costs without com- promising on quality and without cannibalizing your other markets. in- vestments in innovation along these lines, and resulting new capabilities can have significant impact on more mainstream markets as well. 2. Convene with real estate developers and construction management companies manufacturers are in a unique position to be responsive to the needs of real estate developers in this market. they are also well positioned to catalyze affordable housing solutions by convening multiple stakehold- ers, including the public sector. these strategies are particularly well suited to manufacturers with a strong market pres- ence and strong relationships with real estate developers. Building Materials Retailers and Distributors (Home Improvements) at a local level, retailers and distributors are best positioned to serve low-income communi- ties. most retailers already have access to, and offer the full range of materials necessary for a BoP client. some, particularly the large chains, have greater purchasing power and ability to negotiate volume discounts on a full range of materials. retailers with distribution networks in targeted areas already serve BoP clients, either directly or indirectly through masons and small construction contractors. While retailers may offer entry products for these markets, virtually none have tailored a specific product for BoP segments markets per se. therefore it is unlikely that retailers are capturing the full potential demand that low income self-builders represent. 69
    • RECOMMENDATIONS this market merits investment by retailers and distributors, for the same reasons it does by material manufacturers — its large size and non cyclical nature, strong growth, high price point for low volumes and brand loyalty of BoP clients. some materials manufacturers, have already recognized the potential of this market and have designed programs that reach low income communities. in doing so, they have leveraged their relationship with retailers, cap- turing potential gains of retailers, despite retailers and distributors being generally better positioned to serve this market. in developing countries, the building material retail and distribution industry is a step behind their developed country counterparts in terms of consolidation. for example the experiences of Home Depot4 or Point P5 have shown that consolidating, professionalizing and increasing efficiency of traditional distribution networks offers a major profit making opportunity. a similar market opportunity for a distributor to emerge as “tHe” broker of building materials for the BoP exists in emerging countries. therefore to leverage these opportunities we recommend that you: notes 1. Create an Affordable Housing product and service offerings Building materials retailers and Distributors utilize your knowledge of client needs and preferences and leverage the variety of materials and products available to you. 2. Partner with CSOs able to build networks of local “promotoras” or sales forces this will enable you to expand your reach through door-to-door sales through networks with deep ties in local communities, thereby extend- ing your presence beyond retail locations and ensuring last mile sales and delivery. 3. Address the financing needs of consumers by partnering with a strong finance provider Build relationships with banks to provide credit either through credit cards or other forms of short-term consumer financing, providing fi- nancing partners with loan guarantees if needed (see recommendations for finance Providers). if you cannot find the right partner, develop a separate entity with competence in financing. this path takes time and is likely a limitation to your growth, as it was to PH, tying up capital for loan activities. thus think of providing financing as a temporary solution and be ready to revert to partnering with financial institutions as soon as suitable partners emerge.4 Home Depot is the world’s largest home improvement specialty retailer with stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, 10 Canadian provinces, Mexicoand China. http://corporate.homedepot.com/wps/portal/?5 Point P is a leading distributor of building materials in France http://www.pointp.fr/decouvrir-point-p-X92S12R1270
    • 4. Partner with manufacturers to sharemarket development investmentsPreferred supplier offerings to the right partners are great ways to pro-vide partnership incentives that can result in integrated product offer-ings that sell.Public Sector Actors: NationalGovernment, Local Government,Municipalities and Public HousingFinance Agenciesthe “public sector” addressed by these recommendations includes various types of entities:local government, national government, public second-tier housing finance institutions, infra-structure service agencies, etc. We leave it to the reader to map the public sector in theirspecific context.as a public sector actor, you are likely already involved in the space of affordable housing. youlikely intervene by disbursing subsidies, building basic infrastructure, designing and enactingregulations and branding social housing programs designed to grant or deeply subsidize newhomes for low-income populations. such government interventions are necessary to providehousing solutions for the most marginalized populations for whom market-based approachesare infeasible.Largely as a result of the heavy subsidization and focus on mortgage finance of developer-builtunits, the financial resources at your disposal are often insufficient to satisfy the needs of thebottom two thirds of your constituency. the powerful lobby of the formal construction industry largely drives the bias in favor of public subsidy of large developer built units. in addition, housing ministers and housing bureaucrats rarely understand the importance of incremental building and finance of affordable housing. these key public managers as well as elected officials often think of “housing” mainly in terms of meeting quantitative goals for mortgage finance of developer-built units – the highest cost, least affordable, and – usually – most unappealing housing solu- tion for the low/moderate income majority. Dr. Bruce W. Ferguson, General manager, Housing microfinance, and former senior Housing and urban economist, World Bank 71
    • RECOMMENDATIONS the following characterizes the typical public sector approach to the housing market: The impact of the public sector as a whole biases formal housing provision heavily towards the top third of the income distribution. the great bulk of formal housing production – usually above 90% -- is unaffordable to the bottom two thirds. Public-sector support for mortgage finance of develop- er-built units contribute strongly to the dramatic mismatch between housing sup- ply and demand in emerging countries. Local governments can exercise control over many of the factors that determine the price and availability of secure tenure to serviced urban land. the single most important input of the public sector into affordable housing. typi- cally, however, local governments pay little attention to the supply of suitable par- cels for affordable housing development. National government, public second-tier housing finance institu- tions, and housing ministries subsidize and focus on mortgage fi- nance of developer-built units in large subdivisions. However, household surveys consistently demonstrate that low-income house- holds would much rather upgrade their existing unit and the community than relo- cate to a distant subdivision (on inexpensive land that meets the cost parameters of housing programs) far from jobs and services. How then, can public sector agencies better serve the affordable housing needs of low in- come populations? Public sector actors should focus on roles that neither business nor citi- zen sector players can play. the business and citizen sector players addressing low-income markets will tell you that you could help them scale up to meet this un-served demand in the following ways: notes 1. Create a favorable policy environment for access to recommendations for Public sector actors property rights Property rights are identified as a key barrier to scale by all cases pro- filed. Pioneering public sector actors have been able to: • Listen to practitioners in the field and CSOs to create the best framework and platform for various stakeholders to ad- dress the property rights barrier. the Csos who are working among these communities have likely innovated approaches the public sector could take to scale. CoDi is an example of a Cso figuring out that access to a significant base of funds at one time, coupled with specific resources, gives communities the bargaining power to negotiate for property rights. this approach has been scaled up by the thai government. • Encourage and incentivize “negotiated and transparent ap- proaches” to enable access to property rights. “negotiated approaches” (where land owners and land occupiers agree to72
    • trade titled plots in exchange for part of the land value as in notes the case of terra nova, or in exchange for freeing up more valuable portions of the land, as in the case of CoDi) have been proven to work in various locations. 2. Use infrastructure budgets strategically in ways that have multiplier effects as experienced by the slums rehabilitated by terra nova and demon- strated by numerous studies, low-income people are more likely to in- vest in their homes after investments in infrastructure are made with public money.6 additionally, strategic choices in infrastructure develop- ment (building access roads in areas planned for future development; recommendations for Public sector actors and provision of basic services and utilities to new home developments) can influence developers to enter a new location, motivate landowners to agree to sell, and encourage construction materials manufacturers to consider serving low-income markets. 3. Encourage provision of finance solutions (guarantees, subsidies and other incentives) Pioneering public sector actors –particularly second-tier liquidity facilities for housing — can convene and listen to the needs of mfis and banks at- tempting to serve low income segments. Public sector actors have various means to address the constraints faced by finance providers attempting to finance housing solutions for low-income communities, for example: • Provide funds for partial guarantees of loan repayment to alleviate fears that housing loans to the informal sector are risky, and help lenders raise money from capital markets while still keeping some of their “skin in the game.” Partial guaran- tees have the added benefit of limiting negligent lending prac- tices such as those that resulted in the us subprime home lending crisis.7 • Enable credit lines at subsidized rates for a given amount of time, or alternatively, subsidize their cost of capital with a one-time grant, to help new entrants into the informal or low- income housing finance space get started. • Introduce other incentives, including tax breaks, preferential status or other benefits for finance institutions serving these markets. • Remove current legal barriers to the expansion of finance in- stitutions, including restrictions on the acceptance of depos- its, and barriers to acquiring additional funds to loan.6 Historically, MFI industry grew out of a rejection of subsidized public credit for small and medium-sized farmers. In housing, however, government participation is essential in order to: 1)achieve secure tenure to service land for low and moderate income households; and 2) to reach the poorest households with an affordable housing solution. For example see 2005 study byDean Cira, Senior Specialist in Urbanism World Bank.7 The US subprime home lending holds few lessons for emerging countries, where housing finance institutions of all types have continued appropriately conservative underwriting and lending.The one exception is that the national monetary authority must not only pay attention to liquidity and inflation, but also watch carefully asset prices of real estate to avoid bubbles (now an ac-cepted policy goal in China, Hong Kong, and much of Southeast Asia). 73
    • RECOMMENDATIONS 4. Streamline your processes for approval of housing for low-income market segments regulations affecting affordable construction can greatly discourage real estate developers from addressing these markets. Long and corrupt ap- provals processes tie up capital in projects and create uncertainty. a streamlined process for approval of housing for low income market seg- ments, including “fast-track” options that avoid delays and cumbersome red tape would greatly encourage the development of affordable housing solutions. additionally, regulations pertaining to the use of certain types of ma- terials or processes, often the product of lobbying efforts on the part of manufacturers, can add significant extra costs to affordable housing developments particularly in places where land values are very expen- sive such as in major urban centers around the world. ensure that your affordable housing related regulations specify performance of construc- tion (for example, resistance to fire) rather than the specific solution (for example, plasterboard). as you take on these recommendations, you will likely face internal opposition from within your public sector agency. to avoid this, identify, celebrate and promote the internal champi- ons you undoubtedly have in your organization, creating the right incentives for them to act. Investors and Funders: Philanthropists, Foundations, Social Investors and Private Investors Currently donors and multilateral agencies provide large loans and grants to governments and Csos around varying “social housing” programs. these funding streams can be made much more efficient by incorporating the recommendations that follow in this section. Philanthropists and Foundations Donation based affordable housing programs will always be limited in scale by the amount of philanthropic funds available. Leading philanthropic institutions deploy grant funds to catalyze markets, and thus achieve larger sustainable impact. such a shift in focus requires a depar- ture from output- and volume-based interventions, where the projects that receive funding are those where the greatest numbers are touched. instead, more strategic and long-term interventions that unlock markets will have a lasting effect and allow additional low income families – particularly in the upper income segments of the BoP — to improve their housing through market based approaches.74
    • thus, we recommend that you intervene in a strategic way, as only “free agents” like philanthropists can: 1. Invest in public goods (e.g. land registries) needed notes to enable market development support the creation of land registries and infrastructure developments, and training resources that local governments, business sector, and citi- zen sector players are unable to fund themselves. 2. Play a convening role for multi-sector initiatives Promote the emergence of a coalition of players who can serve the recommendations for Philanthropists and foundations needs of low income markets. illustrate the ways in which they comple- ment one another and provide a platform and potentially seed funding to incentivize their participation. 3. Invest in risky for-profit ventures Donors accustomed to vetting solutions and not requiring recovery of capital are in a unique position to catalyze market growth by investing in riskier for-profit ventures that have the potential to greatly impact the affordable housing market. under-utilized tools like Program related investments (Pri)8 can be used to fund these types of initiatives. Look for profitable projects and take risks that investors requiring set rates of returns will not take. 4. Subsidize market based solutions to reach deeper into the BoP Where market based solutions are addressing the needs of upper BoP populations, your involvement could stretch the lower limits of the pro- gram. you can “piggyback” on existing market-based programs, provid- ing the right incentives for those involved to serve the needs of the poorest. mechanisms to do so include loan guarantees, subsidized loans or, or grants to market based initiatives to address the needs of lower income segments. alternatively, subsidize the capacity building of lower income segments to allow their later economic inclusion. 5. Focus on a few projects until they have achieved impact invest in a few projects for the longer term. make sure that the project leaders and entrepreneurs you sponsor go as far as they can in getting their models right, and do not get diverted with new initiatives. Projects will only be picked up and replicated by others (and thus have a real, significant, lasting impact) once they have proved to work on a certain scale, which will require time and commitment from your investees.8 In the USA, PRI investments refer to the use of Foundation’s endowment funds (which would otherwise be invested in the stock market or other form of for-profit investments) in for-profit investments with both a social and a financial return. 75
    • RECOMMENDATIONS Social Investors social investors who are more accepting of uncertainty in terms of financial returns, with greater value placed on the creation of social returns, are well positioned to invest in afford- able housing. these investors should take a patient approach to recovering their capital, for example through the following: notes 1. Seed fund promising ventures that are not yet ready to offer market returns this is precisely what many social investors did when they started in- vestment in the early stages of mfis during the 90’s. many of these investments have not only proved profitable but have demonstrated the viability of micro lending approaches around the world. recommendations for social investors 2. Strategically support MFIs and HFIs offer long term credit lines at below market rates of return, or guaran- tee funds, to mfis and Hfis willing to offer home loan products to their client base 3. Couple your investment with appropriate technical assistance increasingly social investors are realizing that technical assistance and guidance is much needed in this market and greatly enhances the chanc- es of success of your investment. 4. Make equity investments in promising affordable housing enterprises and intermediaries support the creation and on-going costs of intermediaries for regions and large countries (e.g., sub-saharan africa, india, Lain america, the middle east and north africa) that channel equity, debt, and techni- cal assistance to promising players in affordable housing. similarly, make equity investments in affordable housing enterprises such as lending institutions, homebuilders and subsidiaries of materials manufacturers focused on the BoP market.76
    • Private Investorsrecommendations for Private investors if you are a private investor accustomed to a level of returns, you may be thinking that the housing market for low income populations is high risk and offers limited returns. it is indeed high risk, as these initiatives grapple with the learning curve of a new target market. How- ever, with sound investments, those that manage to move down these learning curves first will profitably serve this market, with the potential to benefit from huge market shares in the future as barriers to entry for second comers are high. therefore: 1. Consider this a high-risk/high-return market notes take the time to look at the opportunities it provides, as developers as well as material retailers may be looking for funds to scale up fast. 2. Partner with social investors social investors are well positioned to incubate projects until they are large enough for you to invest in a second round of investment. the economic dynamism of many emerging countries, combined with advances in our understanding of creating products for the low/moderate income majority, and the shift of the mass-market to the lower middle class have now made “housing for all” an attractive although still challenging proposition for the private-sector. affordable housing in emerging countries is one of the major markets of our time. Carpe diem. enD of Draft reCommenDations 77
    • notes
    • asHoka:innoVators fortHe PuBLiC1700 north moore street,suite 2000 (20th floor)arlington, Va 22209usatel: +1 703-527-8300fax: +1 703-527-8383