Organised communities of the urban poor need sustainable access to affordable finance if they are to replace slums with decent housing at scale.
Alliances of poor communities and their support NGOs in many countries are continuing to grow, often quite rapidly, in terms of their organisation and capacity. Virtually all are undertaking slum redevelopment demonstration projects using a combination of cost recoveries, including community savings, grants, government subsidies and sales revenues. However, building housing and related infrastructure requires finance, which, as Homeless International’s Bridging the Finance Gap research confirmed, poor people have very limited options to access.
When poor families need a loan, ‘loan sharks’ can be their only option. These loan sharks typically charge very high interest rates and can potentially demand their money back at any time, with serious consequences for families that do not pay up. Some families may be luckier and able to access finance from Micro Finance Institutions (MFIs) or NGOs with more reasonable terms and conditions, but there are a number of reasons why these options are also generally not suitable, or may even be impossible, for housing and related infrastructure development.
Firstly, providing adequate housing and related infrastructure to the urban poor requires the urban poor to be able to work together to develop solutions at a significantly greater scale than we have seen to date. This is particularly the case in cities where large numbers of poor families typically live together on relatively small plots of land. Housing and related infrastructure development occurs at the community level rather than at the individual level, and therefore the whole community needs to be at the centre of the process. The finance options mentioned above are usually only available at the individual level, offer a very limited size of loan, and are of a short-term nature. Housing and related infrastructure requires loans of a much larger size and often in the form of medium-long term finance. Secondly, these finance options still traditionally carry very high interest rates, which is not conducive to medium-long term finance, and certainly not when it is the poor who are paying this interest. Finally, the sheer volume of finance that is required to provide adequate housing and related infrastructure for the poor is likely to be beyond the capacity of these finance options.
Photo: Community saving and credit groups create a basis for collecting money, people and information leading to collective strength and organisational capacity.
Where possible, therefore, Homeless International and a handful of other donor organisations support partners by providing small-medium scale capital grants to help such alliances establish and develop their own revolving loan funds to finance slum redevelopment demonstration projects. Through carrying out these small-medium scale projects, alliances develop the capacity needed to reach the stage where these initiatives can be scaled-up to settlement or even city-wide level. However, such larger scale slum redevelopment requires much larger amounts of capital, which Homeless International and other donor organisations find it very difficult to raise in the form of grants.
Photo: Small-medium scale capital grants help partners establish and develop their own revolving loan funds to finance their slum redevelopment demonstration projects, such as this housing project in Blantyre, Malawi. However, to undertake larger scale slum redevelopment, at settlement or even city-wide level, much larger amounts of capital are required.
The obvious large-scale source of capital is the formal financial sector. However, as the Homeless International Guarantee Fund section details, partners find it very difficult to access affordable capital in the form of loans from financial institutions to finance developments. Homeless International, however, believes that sustainable access to affordable finance from financial institutions is a key piece of the scaling-up puzzle.
With this in mind, and with the support of a number of its partners, Homeless International has developed three financial products to support partners through the different stages of their development, to the point where they are able to access affordable finance from financial institutions on a sustainable basis. These are: CLIFF, Homeless International’s Bond and Homeless International’s Guarantee Fund. This section of the website sets out a range of information and resources to explain what they are, why they are needed, how they work, and, in the case of CLIFF and Homeless International’s Guarantee Fund, implementation and impact to date.
Photo: Women in Tamil Nadu, India, waiting outside their local Bank of India bank branch to deposit their savings. The network of Self Help Groups to which they are members has accessed three large-scale loans for housing and sanitation, guaranteed by Homeless International. Local banks now deal with poor women on a regular basis, since they have demonstrated their capacity to save and repay loans.
