Draft casesrecommendations access to housing

GLOBAL SUMMIT2010

Draft Cases anD reCommenDations

With the support of:

Acknowledgements

the 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 research and 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 Housing entrepreneurs in Barcelona, to inform the final version of this report.

this Working report on access to Housing for the Base of the Pyramid is sponsored by:

Access to Housing for the Base of the Pyramid:A Working Report

access to Housing for the Base of the Pyramid: foreword ........................................................ 5

market Based Cases ................................................................................................................7

Patrimonio Hoy ................................................................................................................................ 8

Jamii Bora ......................................................................................................................................... 14

Housing for all - india ..................................................................................................................22

solutions 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 ......................................48

Draft 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

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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.

5

Access to Housing for the Base of the Pyramid:

Foreword

Written by practitioners for practitioners, this report (due for publication in early 2011) looks at international examples of promising and already successful affordable housing solutions that provide both new homes and home improvement solutions for the urban poor. the following pages consist of two types of cases; market Based Cases, and solutions addressing Barriers to scale; as well as a draft synopsis of 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 geographically diverse 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 purchase

from these market Based Cases, which illustrate promising approaches to deliv-ering new home and home improvement solutions, we surfaced some key cross cutting themes. apart from context specific factors, we identified four key barriers that, according to the practitioners involved in these cases, restrict the scale and replicability 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 to scale, which are not necessarily market based, but provide interesting and insightful examples of addressing one or more of the above mentioned barriers.

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the key differences between market Based Cases and solutions addressing Barriers to scale are summarized below:

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 Endeavorthis 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.

market BaseD Cases soLutions aDDressinG Barriers

enD ProDuCt

new homes or home improvement solutions

finance, advocacy, access to land rights or any product or service that alleviates a barrier to scaling affordable housing solutions. occasionally new homes or home improvement solutions are end products as well

aDDressinG Quantity or quality shortfalls in affordable housing

systemic issues, policy constraints, capacity constraints of low income segments, all of which inhibit scaling up of affordable housing

DeGree of suBsiDy

Limited subsidies if any Higher level of subsidy

sCaLe tHrouGH

operational sustainability, expan-sion and replication, opening and developing markets

mobilizing subsidies, removing systemic barriers and influencing policy

CLients reaCHeD

upper BoP income segments Lower BoP income segments

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Market Based CasesPatrimonio Hoy

Jamii Bora

Housing For All - India

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market BaseD Case PATRIMONIO HOY

Patrimonio Hoy

Executive Summary

Launched in 2001, Patrimonio Hoy (PH), is a profitable program and business unit of CemeX,1 an international cement producer and sup-plier of aggregates (sand, gravel, etc.). the program provides low-income families in mexico and several other Latin-american coun-tries the opportunity to build additional rooms (bedroom, bathroom, kitchen etc.) in their homes in about a third of the normal time for roughly two thirds of the cost.2

this is accomplished through an innovative arrangement, where groups of 3 families use a combination of upfront savings and credit extended by PH (76% of the project cost) to design and build a room in each of the participating 3 homes in 70 weeks. During the early weeks of the program, PH offers technical assistance to its customers to design and plan the project.3 PH provides building materials from CemeX and complementary building material suppliers (for windows, tiles, etc.), through selected CemeX distributors that offer a choice between direct home delivery or temporary storage of materials.4

to qualify as a PH distributor, a company must not distribute products which directly compete with CemeX offerings (to minimize odds that competing cement and materials providers will benefit from CemeX financing and investments into this target segment). only 10% of CemeX’s current distributors meet these stringent requirements.

the 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

low-income clients of a solution advanced by a private sector company. addition-ally, PH has expressed its commitment to serving low income communities through improving public school infrastructure through its PH escolar5 program.

During its 10 years of operations, the program has provided 250,0006

families (socios) with credit, ma-terials and assistance to build new rooms. PH is now poised for further national and international growth.

ProJeCt DetaiLs

Geography:

Latin-america: mexico (45 cities), Colombia, Venezuela, nicaragua, Costa rica

Products:

incremental home improvements; integrated materials and financing for complete rooms, bathrooms and kitchens

Stakeholders:

Private: CemeX, other suppliers, Distributorssocial: Community based promoters

stakeHoLDers ContriButeD GaineD

CemeX Building materials, full product financing, distribution system

new business opportunity, com-munity based sales force, under-standing of customer segment

otHer suPPLiers Building materials Growth in sales, steady demand

Promotoras reach and trust inside low-income communities

income through sales commis-sion, social capital, sales training

DistriButors Home delivery of prod-ucts, storage facilities

Growth in sales, highly profitable product mix, steady demand

Consumer market demand for home improvement projects

improved living and hygienic conditions

House upgrade in progress

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tHe stories of rosa anD marÍa

the stories of rosa magaña and maría Diega, two customers of Patromonio Hoy (PH), illustrate the life-changing impact that the program can have.

rosa magaña, Patrimonio Hoy’s first customer, credits Patrimonio Hoy with changing her life. she and her husband built their 120 sq meter house after living with their two children in a 10-sq meter carton shed with no bathroom for six years. they are now completing two additional rooms and a soldering and welding workshop. PH has helped them build both a home and their own business. “Without the program,” rosa says, “i’m sure we would still be living in the same conditions.”

maría and her family of six lived in a single-room dwelling for eight years. in just five years after maría became a PH participant—rather than the lifetime of work it may have taken otherwise—she and her family added seven rooms and a staircase to their home. according to maría, “Without Patrimonio Hoy, we would still be crowded, uncomfortable, and angry. since we became part of the program my husband and i are more united, as he stays home during the week-ends to keep building our house. We see the Patrimonio Hoy team as part of our family.”

rosa and her children in front of her home, expanded from 10 sq- meters to 120 sq meters. Construction is ongoing on 2 rooms and a welding shop for her

husband.

maria Diega Chavero and children in front of their expanding home,

under construction.

The Business Modelover the last ten years PH has refined its business model to successfully serve low-income markets in mexico and else-where.

Operations established in the communities7

the core of PH’s operations ist “cells” which are established in every neighbor-hood where PH is launched. Cells typi-cally have 1 to 4 employees whose roles include recruiting and training promotoras, planning, designing and scheduling proj-ects, coordinating distribution deliveries, receiving payments and handling consum-er inquiries.

Sales and Marketing through trained promotoras

CemeX hires local promotoras – more than 90% percent of whom are women8– to identify prospective customers and motivate them to enroll in the program. these promotoras are the key to establish-ing relationships with target clients and developing the trust necessary for the program to work within informal com-munities. Promotoras are compensated for their work through a commission, based on the number of families they attract and how long they stay in the program.

the PH program is further marketed through branding initiatives, for instance the placement of PH logos on trucks de-livering materials to homes.

Integrated offerings for complete rooms, not just CEMEX products

PH supplies not just cement and aggre-gates but a comprehensive and inte-grated offering of construction materials for the completion of the room, kitchen or bathroom. all items are packaged by distributors and delivered according to

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a pre-approved schedule. PH receives a commission of 6% on other construction materials which are packaged into PH de-liveries and financed by PH.9

Financing: credit for groups of 3 families, based on local group savings practices10

PH programs are divided into 7 cycles of 10 weeks, permitting each family enrolled to complete a 100 sq foot room after 70 weeks. Groups of 3 families organize themselves to participate in the program, and require only an official iD (no formal land title) to do so. each family contrib-utes mXn 200 (roughly usD 15) per

Poor people can spend more money than we think, on home improvement. Companies need to re-invent, in large part, even core competencies to successfully serve low-income markets.”

– israel moreno, Director,

Patrimonio Hoy

Olivia Villanueva, a PH client, and children in front

of an upgraded house

CEMEX employees

at work

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 week is the PH membership fee.

the membership fee covers access to technical assistance, fixed pric-ing for materials during the 70 week project, materials storage, home delivery, community development projects through PH escolar, and the interest charged on PH financing.

after 2 weekly payments are completed in each cycle (20% of the ma-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 through 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.

unlike its parent company CemeX, PH mandates its distributors to be able and willing to provide a home delivery service and have stor-age capacity.

Additional social impact: school construction

additional programs have been launched for participant communities. one such example is PH escolar, which helps improve infrastructure of local schools. four per cent of the membership service fee is al-located towards PH escolar.12 CemeX provides participating schools technical assistance and building materials free of cost.13

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Patrimonio Hoy Timeline

Patrimonio Hoy Operations

The Patrimonio Hoy Value Chain

First launch in Guadalajara

2000

PH reaches self-sustainability

$1.6m USD

10,000

Patrimonio Hoy Timeline

Social Value Creation

Project Milestones

(Members served)

2001 2002 2003 2004 20072005 20082006 2009 2010

Re-launch including CEMEX

financing

Launch of additional programs (Te Impulsa,

Calle Digna, PH Escolar)

PH receives World Business Award by

UNDP

Cumulative credit extended$9.4m USD

36,000

$22.7m USD

68,000

$38.5m USD

103,000

(As of December of previous year) $52.9m USD

126,000

$66.6m USD

154,000

$82.3m USD

183,000

$112.1m USD

219,000

$134.8m USD

252,000

• all materials (CemeX and complementary products) by other manufacturers provided through CemeX distributors

• CemeX invested in launch and invests in expan-sion of profitable business unit PH

• savings in groups of 3 families, 76% product financing by CemeX

• CemeX provides integrated home improvement materials plus credit

• Distribution through selected distributors, storage facilities

• Technical assistance by cell at start of project (no construction services)

• Project and payment follow-up by promotoras

• Direct sales to families by local sales-people

Private sector actorssocial sector actors

ProCurement ProJeCt finanCe

retaiL finanCe

ProDuCtDesiGn

DistriBution ProDuCtDeV

after saLes

marketinG anD saLes

CEMEXOther building

material suppliers

Clients(groups of 3)

Promotoras

$

Product

Services

Payments

Legend

Citizen Sector Organization

Customer

Private Enterprise

PH Products Direct Sales of PH Products

Payments

Commission on Sales

Recruiting and Training

$

$

PH Products

Distributors

PH Products

Consumer Finance

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Is the solution SOLVING THE PROBLEM?

Patrimonio Hoy addresses a significant need among low-income communities — adding space to existing dwellings — through an integrated offering of all materials and necessary financing and technical assistance.

Problem Magnitude

• yearly housing gap of 750,000 houses in mexico.

• Half of homes built are in the informal sector, room by room at a pace of ~ 4 years and a cost of usD 1,500 per extra room.14

• 16 million self-built homes, 2.2 million rooms added each year.15

Quality of Solution

• access to full range of building materials to construct an additional room.

• Limited technical assistance in advising the right mix of products for the project.

Housing Impact- The Numbers Since Launch16

• 156,000 rooms built.

• approximately 750 school infrastructure improvement projects with PH escolar.

Housing Impact- Quality of Life

• increased family productivity and incomes based on ad-ditional usable space for work.

• improved quality of life attributable to greater space.

• Better health outcomes attributable to quality construc-tion and sanitation upgrades.

Other impacts

• new training and source of income for promotoras, who are often consumers themselves.

• Creation of deeper community networks through reach of promotoras.

PH is a profitable program for CEMEX and offers an affordable way for consumers to improve homes.

Solution is affordable and saves time for the targeted population.

• average consumer family of 5 people has an income of usD 8,500 per year, about 5 times the minimal yearly wage.

• Customer payment of usD 15 per week for building materials, interest payments and ta, allowing them to rely on financial discipline, rather than current assets, to finance home improvement goals.

• repayment rate of 99.8% since inception, proving affordability.

• PH estimates each extra room built through its program 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).

PH is a lucrative program for CEMEX.17

• CemeX has invested usD 21million since launch.

• Generated sales of about usD 100 million since 2000.

• extended usD 95million in credit to consumers in the same period.

• Donated usD 200,000 for public school infrastructure since launch.

• PH profitable since 2006.

• 20% of PH’s profits sent to CemeX corporate.

• Besides financial returns, recognition of CemeX in com-munities as a business with a social conscience.

For Social Stakeholders, Promotoras, PH is a source of income and pride18

• 750 promotoras paid directly from CemeX, based on the number of clients they attract and how long they stay in the program.

• usD 2.5 million in sales commissions to promotoras since launch.

• 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.

Is the solution ECONOMICALLY VIABLE?

Evaluation Framework

13


Post ScriptCognizant of the above outlined barriers to scaling its operations, Patrimonio Hoy is looking to partner with social sector 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 building materials company that produces, distributes, and markets ce-ment, ready-mix concrete, aggregates, and related building materials throughout the Americas, Europe, Africa, the Middle East, and Asia and has close to 47,000 employees worldwide. In 2008, the company recorded a revenue figure of USD 20.1 billion. In 1996, with the ac-quisition of Colombia’s Cementos Diamante and Samper Companies, CEMEX became the world’s third largest cement producer; and, in 2005, the world’s largest ready-mix concrete producer after acquiring RMC Group Plc of UK.

2 Michigan Ross School of Business Case Study, December 12, 2003

3 Technical assistance typically comprises guidance at point of sale on what items to purchase and design of new room.

4 Families are not required to buy all products from the list, or all products from selected suppliers/distributors. They can procure their own materials, which would fall outside of PH financing, delivery and storage services.

5 Patrimonio Hoy Escolar is a partnership with local public schools through which PH supports infrastructure improvements through technical assistance and provision of building materials. Roughly 100 school projects have been completed.

6 Habitat Business Award Application 2009; Best Practice, UN Habi-tat Website http://www.unhabitat.org

Is the solution SCALABLE AND REPLICABLE?

Patrimonio Hoy’s current structure as a pro-gram of CEMEX and its lack of partners with complementary skill sets constrain its ability to scale.

• in-house financing: limited amount available for loans and limited money available for re-investment.

• financial constraints of a business unit within CemeX: not open to social capital or international donor funds, and with funding streams subject to corporate processes in line with CemeX’s growth strategies, not PH’s.

• Lack of quality talent to manage growth and scale, knowl-edgeable about target communities (thus capable of identify-ing promotoras) and able to drive sales.

• Difficulty finding viable social sector partners to aggre-gate demand and recruit promotoras, in spite of trials with several Csos.

To be replicated by another manufacturer of construction materials, this model requires investment, appropriate financing and distri-bution systems.

• a materials manufacturer willing to invest resources into a business unit catering to a new target market.

• availability of finance partners to finance consumer pur-chases, or alternatively the capacity of materials manufac-ture to extend finance.

• Distributors capable of packaging complete offerings, and their willingness to extend storage and home delivery options.

• Community sales representatives with respect and reach in communities who can serve the function of promotoras.

Is the solution ENVIRONMENTALLY SOUND?

environmental sustainability is not articulated as a primary goal of Patrimonio Hoy.


8 Global Urban Development Magazine, Volume 4, Issue 2, Novem-ber 2008

9 Interview with Israel Moreno, Director Patrimonio Hoy, October 15, 2010

10 Habitat Business Award Application 2009; Best Practice, UN Habitat Website http://www.unhabitat.org




14 Global Urban Development Magazine, Volume 4, Issue 2, No-vember 2008

15 Harvard Business Case; Patrimonio Hoy: A Financial Perspective, November 1, 2007

16 Interview with Israel Moreno, Director Patrimonio Hoy, Septem-ber 14, 2010



market BaseD Case JAMII BORA

14

Jamii Bora

Executive Summary

With more than 300,000 members, Jamii Bora1 (JB) is the largest microfinance institution in kenya.2 Beyond micro credit, the organiza-tion provides savings accounts, life and health insurance, counseling services focused on community capacity building, business classes and larger ticket housing loans.

Leveraging its assets as a micro finance institution and its experience delivering a host of services to its mem-bers, JB launched its affordable housing initiative in 2002. it did so by purchasing and delivering private land3 60km out-side of nairobi. its vision was to create a complete ecosystem that would provide its members with residential, commercial and social services.4

ProJeCt DetaiLs

Geography:

kaputei town, kenya 60 km outside the city center of nairobi

Product:

new homes in new township

Stakeholders:

Private: Construction and environmental experts (e.g., architects, engineers, professors, and road builders); funding Partners social: Jamii Borafinance: Jamii Bora


Jamii Bora Provides homes, land tenure, commercial properties, loans for their purchase , infrastructure, community centers

Home loans are a new line of products cross sold to existing clients; additional revenues from rent on commercial units

PriVate funDers (e.g., acumen fund, stromme foundation)

Provide funding for the project

equity; interest income, impact investing related social value

HousinG ProfessionaLs (e.g., architects, engi-neers, professors)

technical, environmental and construction knowledge

service fee for technical advice, knowledge of a new market segment

inDustriaL / CommerCiaL enterPrises

Jobs to kaputei residents, rent for offices

Labor and new markets

Jamii Bora memBers

Demand for housing, con-struction labor

new homes, additional income through construction jobs

each resident of this new town, called kaputei, purchases new homes and therefore access titled land and infrastructure. all residents are existing JB clients who have a strong borrowing history with the mfi and are either entrepreneurs or can support local entrepreneurs. JB is the exclusive provider of financing for purchase of these homes.5

Cost of homes depends on how long the client has been a mem-ber of JB and can range from 350000 kes(usD 4320) for those who have been members over 10 years up to 750000 kes (usD 9375) for newer members.

in total, JB plans to include 2000 new homes (for 10000 individuals), cultural and social centers, and commercial/ industrial areas in kaputei. total cost is estimated to be kes 900 million (usD 11.25 mil-lion), half for residential development and the other half for commercial develop-ment. Construction costs have been re-duced through standardized design, local manufacturing of building materials and construction of homes by residents who are paid by JB. the project is financed through private loans, JB company savings and consumer down payments, with mini-mal funding through donations.

kaputei is still under construction6 as legal protests7 from local environmen-tal nGos and neighboring towns have delayed the process. as of september 2010, two neighborhoods, en-compassing ~500 homes in total, have been built and ~200 are un-der construction. Residents are moving into completed houses on an ongoing basis.8 Some fami-lies, that have already bought homes, have delayed their move due to personal considerations of distance to work, and impact on businesses. JB has also opened two schools in kaputei — a primary school


15

in January 2009 and a secondary school in January of 2010.9 management expects the township to be completed early 2012.10

With a current waitlist that far exceeds the available homes, JB is in negotiations for the purchase of additional land to cre-ate another township. as the company continues to expand, JB believes it must actively manage its costs, while looking for innovative ways to increase quality and service for residents.11

The Business Modelseveral features of the JB operating model, including engineering in-house materials production, implementing a standardized manufacturing process, and leveraging its existing client base and sales channels, have allowed JB significant cost reductions in delivering homes to low in-come households.

Procurement: Cutting costs through making building materials on-site

JB evaluated and reduced multiple cost drivers in the procurement of raw ma-terials. first, JB bought cheap land near the township to extract the raw gravel needed for construction. it also built a temporary, basic factory and hired

tHe story of Jane nGoiri

Jane ngoiri, a third generation slum dweller, lived in a small one bedroom shanty in the mathare slum of nairobi, along with her four children. Her home was a 6 square meter, mud structure. a half complete wall divided her home from her neighbor’s, who made a living from the illegal brewing of alcohol. Jane was a commercial sex worker who had been struggling for many years to support her family when she found out that she was HiV positive. in late 1999, it took the mathare branch manager, Jane njoki, several months to convince Jane and her colleagues that another life was possible for them. the entire group decided to be-come Jamii Bora members in December 1999 and their lives slowly but surely changed.

Jane took sewing classes and started her own tailoring business. she buys old clothes and recycles them into children’s dresses for sale. she purchased her first simple second hand manual sewing machine with a loan of usD 40 from Jamii Bora.

Jane’s business is growing and she has taken out and repaid Jamii Bora loans 11 times over the past 10 years. However, even with a relatively stable income, an improved home remained unrealized dream. Given her profile as a HiV positive former-sex worker with 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 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.

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.

Jane ngoirioutside her new home in kaputei

Jane ngoiri and family members in her new sitting room

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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: Professionals working with the community on standardized homes

to ensure quality construction, JB hired professional architects, en-gineers and professors to design and oversee the construction of the township, in consultation with residents.

With an emphasis on cost cutting, these hired professionals developed several standardized home layouts that could be mass produced, and involved simple, low tech construction processes and could leverage cost savings through scale. each home was built with either 2 or 4 bedrooms, a kitchen, sitting room and bathroom.14 Homes are basic and finishings are minimal, as emphasis is placed on structural sound-ness, quality and space efficiency.

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.15

Cutting costs in a low cost housing project is a combination of hundreds of aspects of building materials production, designs and construction methods, lay-out plans etc. there are no shortcuts or simple solutions to cutting costs. every little detail counts, and only the sum of all these minor savings can lead to a solution that is truly and affordable home for the poor.”

– ingrid munro, founder and managing trustee,

Jamii Bora


17

Financing: Installments roughly equivalent to slum rent, covering construction costs

as a microfinance organization leading an affordable housing initiative, JB offers financing to all of their home buyers. each client receives a loan with a tenure of 5-20 years and an interest rate of 8.5-10%.16 Clients make a down payment of 10% of the total cost of kes 350000 to ~700000 (usD 4,375-8,750) and the average monthly installment is kes 3,500 (usD 40).17

through lowering its own cost of capital by utilizing patient capital 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.

Housing projects for the poor fail because they focus only on housing. you can’t separate housing from the other issues because poor people have so many needs. Poverty has to be tackled from all angles.”

– ingrid munro, founder and managing trustee,

Jamii Bora

Aerial shot of Kaputei Township under construction

Phot

o : J

amii

Bor

a


18

Time Line

Jamii Bora Operations

Jamii Bora Value Chain

• JB set up local factory to mass produce tiles and cement blocks

• Project financed by consumer down payments, JB Trust and private loans

• JB provides housing loans at 8.5-10% interest for up to 15 to 20 years

• Professionals design the standard, green com-munity with the residents’ input

• JB provides community maintenance •Commeri-cal center provides livelihood to residents

• Professionals supervise and oversee quality of contruction; local resi-dents, most of whom are JB members, build homes

• Advertise-ment to cur-rent members and approval of those with strong credit record and livelihood opportunities in Kaputei



retaiL finanCe

ProDuCtDesiGn

ProDuCtDeV

after saLes

marketinG anD saLes

JB Purchases land from private

owner

Feb.2002

Sept.2002

Jamii Bora

Project MilestonesFirst plan for

Kaputei completed

Jan.2003

Oct.2003

June2004

Sept.2010

School finished, Com-mercial plan approved, 200 additional families

move to Kaputei

Temporary factory built

JB receives 1,000+ applications within

the first month

Kaputei project approved by County

Council

Jan.2005

NEMA rejects Kaputei project

JB wins High Court appeal and resumes

production one month later

2007 Mar.2007

2009 2010Sept.2009

To date 300 families moved into Kaputei

CLIENTS

INDUSTRIAL/COMMERCIALENTERPRISES

PRIVATE FUNDERS

JAMII BORACONSTRUCTON PROFESSIONALS

Labor

Employment Income

Offices

Rent

Technical Advice

Service Fee

Consumer finance

Home

Construction Income $

$

$

Equity Project finance$

$

$

Product

Service

Payments

Legend


Customer

Private Enterprise

Installments

Labor

$


19


Jamii Bora is providing quality home solutions with titled land to microfinance members by taking a comprehensive approach to low income population needs. Impact so far has been small as the project is in mid stages of construction.

Problem Magnitude

• ~1.5million slum dwellers in nairobi and 7.5 million in kenya.20

• many households (~6 members each) live in a single room without security of tenure. • ~ 94% of nairobi’s slum dwellers are without access to adequate sanitation.

Quality of Solution

• Design and oversight of home construction by professional architects and engineers, with quality control on each home.

• extensive consultations with potential residents to ensure needs are addressed.

• inclusion of commercial space for entrepreneurial busi-nesses and livelihood generation.

Housing Impact - The Numbers

• over 2000 JB member applications for a home in kaputei.

• 470 homes built and families served.

• 50 entrepreneurs currently working in township, providing jobs to other members (working from residential homes at time of writing, as commercial center is not yet built).

Housing Impact - Quality of Life

• ownership of a home and land title, a leverageable asset, is an immense source of physical and financial security and pride, elevating social status.

• expected increased health outcomes due to improved sanitation conditions, access to clean water and sewage systems.

• expected improved productivity outcomes due to increased space for livelihood activities and solar lighting increasing productive hours.

• expected improved education outcomes due to commu-nity access to new resources like nursery schools, play-grounds, sports facilities, library and communal halls.

The Kaputei Town Housing Project is a viable model for Jamii Bora, investors and involved stakeholders. The provision of finance for purchase of homes makes this solution a viable one for BoP communities in Nairobi desiring home ownership.

Slum dwellers pay roughly the same installment as their previous rent.

• Client families live in the nairobi slums, paying average rent of kes 3500 (usD 40 for 2-bedrooms), roughly equiva-lent to installments in JB program.

• typical client family earns between usD 80 to usD 200 per month.21

• 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 8.5-10% interest rates.

• new homes result in increased incomes for some resi-dents who are employed by JB in home construction.

Jamii Bora is striving for financial sustainability, ensuring loan repayment through selection of creditworthy clients.

• in 2010, JB repaid in full a usD 250,000 loan to acumen fund.

• Purchase price of homes allows break even on each home, land plot and related infrastructure.

• JB charges fees for additional services offered by JB to resi-dents (e.g., schooling, electricity, township maintenance).

• Credit extended at low rate of 8.5-10% made possible by a mix of funding sources including company savings, member deposits, and down payments.

• Home loans granted only to creditworthy JB members (minimum 3 years as JB clients, at least 3 loans already repaid, capable of 10% down-payment).22

Other stakeholders benefit from additional revenues and value created for communities.

• fee for service for housing and environmental experts, architects etc.

• Local entrepreneurs access new revenue streams and abil-ity to expand business/revenue with additional work space.

• Jobs created for 100+ JB members and local maasai community.

The solution is economically viable and is not 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.




20



Jamii Bora has attempted to build an eco-friendly township after legal fights with environmental NGOs.

• JB prevailed in court proceedings after a 2-year legal battle against nGos, who claimed kaputei would disturb wildlife migratory patterns.

Jamii Bora’s ability to scale is constrained by a lack of partnerships and access to funds:

• Limited amount of funds for disbursable loans due to lack of access to funds with low cost of capital and long term maturity.

• Difficulties convincing would-be BoP clients to relocate outside the city, especially to new townships, before a critical mass of residents is reached (due to limited liveli-hood options, increased commute times, and lack of public infrastructure in new townships).

• Lack of government relationships to effectively provide public infrastructure and utilities (and ideally limit JB’s involvement in creating access roads, electricity water and sewage systems).

• Lack of partnerships with private sector players that could boost employment opportunities in new townships or oth-erwise alleviate JB’s need to reinvest in various processes, such as training labor in construction practices in potential new townships.

Going forward, Jamii Bora is attempting to address these barriers by:

• recently becoming a registered bank, giving it access to funds with lower cost of capital.

• Considering partnering with other organizations to in-crease scale and reduce costs.

To be replicated, this model requires:

• Large pool of low income individuals willing to move, and an effective organization, with deep knowledge of the com-munity able to aggregate demand.

• understanding of low income individuals’ creditworthiness (likely require a long term relationship with clients).

• access to affordable, long-term financing with low cost of capital or subsidies to offer low-interest loans.

• availability of affordable and contiguous land, in close enough proximity to city centers.

• 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.

• inclusion of sewage system that cleans and recycles water back into the community.

• Homes powered by solar panels and technologies such as hybrid waste water management.


21

Postscript

at kaputei, Jamii Bora has been able to develop a sustainable, relatively closed ecosystem by allowing communities to engage in the construction of their own homes, by supplying infrastructure and relying on members’ entrepreneurial nature to stimulate livelihoods. However, as the organization considers growing their housing initiative both in kaputei and through new ecosystems, partnerships with the government and private sector players are likely required to more easily scale and replicate.

Partnerships with the government for the provision of infrastructure and public utilities, like the one being pursued with the kenya Power & Lighting Company, would allow JB to scale to new areas more efficiently. Private companies can provide more scalable employment opportunities, thereby allowing Jamii Bora to offer homes to a greater number of its members who do not fit the current entrepreneurial criteria. With more occupational opportunities, more slum dwellers 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

2 JB founded in 1999 as a small micro-finance operation for a group of 50 beggars

3 350 acres of contiguous land were purchased

4 Interview with Ingrid Munro, Founder and Managing Trustee, Jamii Bora, July 2010

5 Two types of homes are offered. The first, a 2 bedroom, sitting room, bathroom and kitchen layout is approximately 540 sq feet in size on a 2000 sq feet plot. The second type of home is 4 bedroom, 740 sq feet, on roughly the same sized plot.

6 Construction began in late 2007 and is ongoing.

7 Jamii Bora prevailed in a court case brought on by local NGOs alleging that Kaputei township blocked the animal migration corridor to Nairobi National Park.

8 Over 250 families had moved in at the time of writing

9 Roughly 250 students are enrolled in the primary school. In 2010, the government recognized both schools as official public schools.



12 Turana, Johnstone ole. Private Sector Now Steps In To Provide Low-cost Housing. February 15, 2010. http://www.businessdailyafrica.com/

Company%20Industry/-/539550/861970/-/item/1/-/514y0hz/-/index.html



15 Jamii Bora Company Website, http://www.jamiibora.org/index.htm


17 Yasmina Zaidman, Helen Ng & Adrien Couton. Knowledge Neces-sary to Meet Poverty Alleviation Goals: Building Enterprise to Reach Low-Income Markets.



20 Homeless International (http://www.homeless-international.org/standard_1.aspx?id=0:2350&id=0:276&id=0:262)


22 Jamii Bora Company Website (http://www.jamiibora.org/housing-time.

market BaseD Case HOUSING FOR ALL - INDIA

22

Housing For All - India

Executive Summaryashoka’s Housing for all (Hfa) initiative, supported by the Hilti foundation,1 works to catalyze sustainable and scalable new home and home improvement solutions for low income communities. it does so by advancing business models for collaborative action be-tween private and social sector actors capable of delivering solutions in this sector.2

Launched in 2008, Hfa3 india brings together real estate de-velopers with access to land and capital; Citizen Sector Or-ganizations (CSO) with the ability to aggregate demand in target communities; and housing finance institutions willing to lend to low income clients. all partners benefit from these engagements: low income communities buy affordable new homes with options to finance mortgages and down payments, real estate developers and finance institutions gain new clients, Csos receive a fee for their ser-vices and further their objectives to help communities through pro-viding access to housing solutions.

Beneficiary families have, on average, 5 family members collectively earning an average income of usD 6-104 per day. Low-income clients assume a mortgage against their new homes and repay regular loan installments to the finance provider. new home developments are

designed with a long-term commitment to community needs, notably through: 1) maximizing space utility according to the lifestyles of the target customers; 2) creating common spaces that preserve the social dynamics of low-income com-munities; and 3) in some developments, including the designation of physical space for Cso resource centers where capac-ity building activities such as training for livelihood development is provided.

Currently, four projects (all in ahmed-abad) are in various stages of develop-ment, with the first expected to be com-plete at the end of 2010. roughly 2500 units are on offer for low income customers across the 4 projects. All projects are scheduled for completion by the end of 2011.

Twenty five units5 in the first development have been sold to low-income communities. advance bookings (through payment of a deposit of below 5% of the value of the home) in the other three projects are ongoing and were at 1540 at the time of writing. Loan disbursements for mort-gages are also ongoing, with 6706

loans originated to date.

ProJeCt DetaiLs

Geography:

india, Gujarat; ahmedabad (more cities in pipeline). other Hfa projects in Colombia, Brazil and egypt

Product:

new homes in new apartment developments

Stakeholders:

Private: real estate Developers: santosh associates, Vintron, DBs. CHL (Community Housing Limited) - construction management company and ksa DPs - architecture and design

finance: seWa microfinance, micro Housing finance Company, GruH finance, Dewan Housing finance Ltd.

social: saatH and mahila Housing trust (self employed Women’s association, seWa)


reaL estate DeVeLoPers

Land procurement, delivery of complete housing units

access to new markets, Cso marketing partnerships, cash flow benefits of shorter term and pre-sold developments

finanCe ProViDers

Consumer finance for low income clients

access to new client base and opportunities to cross sell; support from Csos

ProJeCt manaGement ComPanies anD arCHiteCts

technical expertise, design innovation

opportunity to work on innovative design challenges, new market expertise

Community orGanizations

knowledge of target population, network of potential clients, input on appropriate design for homes and developments, community and livelihood generation projects

service fee for sales and marketing; opportunities for equity and diversified revenue streams; ability to extend housing to clients

LoW-inCome Customers

Demand for new homes titled and design customized new homes with access to basic utilities; continued sup-port from Csos


23

While pre-bookings look positive in early stages of the projects, the degree to which low income communities are able to assemble necessary down payments, and can access and then repay mortgage financing over several years, remains to be seen.

The Business Model Partnership: CSO and real estate developers

as of mid 2010, the above actors are en-gaged in three kinds of partnership models to deliver a total of 2500 new homes to low income communities by end of 2011.

1. Cso is engaged as one of many pos-sible marketing agents by the devel-oper and receives a commission for units sold.

2. Cso is an exclusive marketing agent for a period of time and receives commission. in one of the iterations of this partnership model in india, the partner Cso founder has assumed a position on the developer corpora-tion’s Board. this ensures greater 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 complemented by the services of finance providers, architects and project man-agement companies to enable target cli-ents to purchase high quality affordable homes.

tHe story of sunita kanHayaLaL

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 bank for the past decade.

now that her sons are grown up, and are wage-earners them-selves, the family – which is increasingly crowded in their one-room space – has the capacity to afford a bigger home. owning a home, a secure asset, has been a longtime dream of sunita’s. However, there was neither a home on the market that she could afford, nor did she have access to financing options which would allow her to consider such a large purchase.

today, her situation is much different. sunita has made an advanced booking for an apartment with an Lambha Hfa india project, and will soon realize her dream of owning a home with more space for her family and better facilities. the home costs usD 9050, and she is in the process of being approved for a mortgage loan that will have her paying roughly usD 85 per month for 15 years.

sunita was made aware of these affordable housing options through the work of community organizations who market these units. the community organizations also build the capacity of would-be customers like sunita, through livelihood training, access to govern-ment resources and other services.

sunita kanhayalal, Hfa india client, soon to move into her new home.

Phot

o by

: Elis

abet

h R

eal


24

Sales and Marketing: Aggregated demand through CSOs

Cso partners play the role of marketing agents who aggregate de-mand for the developer as well as the finance providers involved in the project. they market new homes to low income clients through various channels which include existing physical spaces organized by the Cso to address several needs of the community, and direct mar-keting managed by field workers.

Financing: New Market, New Products, Many Unknowns

Housing finance for low-income communities is a relatively nascent market in india. Hfa india works with several lenders from mfis to commercial banks who are all on a learning curve in terms of defin-ing products and services responsive to this market, which are in line with their cost structures and business models.

at the time of writing, 670 loans7 were originated, supplied by lenders at a maximum Loan to Value (LtV) of 80%. Loan amounts range from inr 300,000 to 600,000 (usD 6500-14,000), with a tenure of 15 years and at interest rates ranging from 12% to 14%. average monthly payments amount to roughly inr 3000 to rs 6000 (usD 65-140), and typically range from 35% to 40% of a household’s monthly income.

several potential buyers of homes, though confident of their capacity to pay monthly installments on a home mortgage, experience difficul-ty accumulating the nearly 20% down payment required to originate a mortgage loan.

today, finance providers including mfis housed within partner Csos, are looking to provide shorter-term loans to finance specifically this down payment. on the one hand, short term financing along these lines might be looked at as necessary to enable low income families to buy these homes. Conversely, conventional financial wisdom, which cautions against extending finance beyond 80% loan to value on a home, suggests that doing so would excessively increase the defaults on loans. the years to come will demonstrate the appropriate bal-ance of short term and long term finance and whether customers are able to afford down payments and the mortgages they take on.

A typical slum home, Ahmedabad India

Phot

o : A

shok

a

New housing development under construction for low-income clients in

Ahmedabad, India

New housing development site, Ahmedabad, India

Phot

o : A

shok

aPh

oto

: Ash

oka


25

Launch HFA India

Dec.2008

Feb.2009

Expansion in Ahmedabad and

signing of LOI

2,700 lakh INR

675 Families

HFA India Timeline

Financial Value Creation

Social Value Creation

Project Milestones

(Total familes served)

First project discussion and signing of LOI

May2009

Launch of Om Shanti Nagar

Nov.2009

Feb.2010

HFA partner CHL sets up offices in India

May2010

Launch of Umang Lambha

5,600 lakh INR

1,400 Families

June2010

Launch of

Swapna Sakar

976 lakh INR

244 Families

Oct. 2010

Launch of CHL project

June2010

Signing of LOI for Pune

project

1,000 lakh INR

250 Families

Jan. 2011

Expansion to Chennai and

launch of HFA India platform

Feb. 2011

Expansion to

Bangalore

8,000 lakh INR

2,000 Families

1,200 lakh INR

3,000 Families

Feb. 2011

Urban Design Challenge

‘‘Homechangers Competition’’

July 2011

First draft of National Affordable Housing Standard

CSO

HOUSING FINANCE CLIENT

DEVELOPER/TECHNICAL ASSISTANCE/

PROJECTMANAGEMENT

Payment

Housing Loans

Marketing, Demand Aggregation, Community Inputs

Exclusive Access to New Homes for Clients

Payment

Joint Venture

CSO as Developer Board MemberModel 2

Model 1

$

$$

Product

Service

Payments

Legend


Customer

Private Enterprise

Excl

usiv

e A

cces

s to

New

Hom

es

for

CSO

Clie

nts

Commission/Service Fee

$

HFA India Value Chain

HFA India Operations

HFA India Timeline

• Developer acquires land and subcontracts proc-ument of building materials

• Various avenues including developer’s revenues, CSO investment, commercial finance and private investors

• mortgage financing provided by Hfis. mfis provide loans for down payment

• Developers work together with CSOs and architects to design developments

• Livelihood generation and commu-nity services support by CSOs in collabora-tion with the developers

• Developer and developer/ Cso JV partnership sub contracts construction process

• Direct sales to families through CSOs engaged as marketing vendors or partners with developers



retaiL finanCe

ProDuCtDesiGn

ProDuCtDeV

after saLes

marketinG anD saLes


26


Through collaborative entrepreneurship models, HFA projects provide affordable and quality homes with clear title and access to basic services (water, electricity, sewage etc) to a small number of BoP families. In doing so, these projects illustrate successful busi-ness models to scale affordable homes for low income populations.

Problem Magnitude

• 17 million households live in slums8 in india.

• Deficit of 24.7 million units corresponding to 35% of urban population.9

Quality of Solution

• Well designed apartments with access to basic services and good quality material used for construction.

• Csos and clients’ input on design to ensure optimal utili-zation of common and individual spaces.

• maintenance not yet addressed: either administered by the developer, or Cso-led, or resident-managed.

Housing Impact - The Numbers

• 1540 families booked apartments in 4 new home develop-ments of average unit size of 300 sq ft10, first of which will be completed at the end of 2010.

Housing Impact - Quality of Life

• Pride, elevated social status and physical and financial secu-rity from owning a home and leverage-able asset.

• expected improved quality of life and productivity for ben-eficiaries, due to legal and organized access to basic services like water, electricity and physical security, and functional common spaces.

• expected improved health outcomes due to improved sanitation conditions, access to sewage and safe structures.

• expected improved access to social infrastructure such as educational centers and community centers, which are likely to follow housing developments.

Partnerships catalyzed by HFA India tap new, profitable market opportunities for developers and finance providers. They also bring new revenues to CSOs, while allowing low income customers to afford a home purchase.

Solution reaches the upper segment of the BoP. However, resulting new homes are a significant and difficult investment for even the upper BoP.

• 1 to 3 minimal incomes (~ usD 1-2 per person per day) per beneficiary family of 5.

• Customer receives loan for 80% of home value ( usD 6,500-14,000) over a 15 year term, at 12-14% interest rates, i.e. monthly installment of usD 65-140, typically represent-ing roughly 30-35% of a household’s monthly income.

• a previously absent affordable housing product for the upper BoP is now available in the marketplace and has the potential to stimulate positive market competition and potentially lower the prices.

• advanced booking fees have been withdrawn by roughly 20-30% of potential customers to date.11 it is estimated that most of these withdrawals have to do with the difficulty in assembling the 20% down payment.

For real estate developers, while low income housing developments are a lower margin venture than upper scale developments, sev-eral factors make these ventures comparable in terms of returns on investment.

• Potential lower cost of capital, due to several possible sources of investment for affordable housing projects, including social investor funds, or subsidized funding.

• margins reduced to 16-25%12 as opposed to a regular 30-60%, but comparable or higher return on investment due to advanced volume based sales of units by Csos and availabil-ity of down payment funds before project completion.

• Large market potential with few existing competitors.

• real estate developers gain first mover advantages and form relationships with strong Csos which form significant barriers to entry for later entrants.




27



To be replicated, this model requires finding the right set of partners, willing to tackle this market and work together, as well as collabo-ration with the public sector for infrastruc-ture and approvals. Replicability depends on:

• the ability to find:

1) Willing private sector developers interested in this mar-ket opportunity.

2) Csos with deep knowledge of communities and com-plementary marketing, training and demand aggregation competencies.

3) Diverse finance providers with willingness and capacity to finance short and long term capital requirements of low income communities who may not have formal documenta-tion of income.

4) architects with a keen sense of design for low income communities and ability to incorporate community input.

• Players who take on a role similar to ashoka’s involve-ment, convening disparate stakeholders with varying agendas around a complex, and potentially beneficial market opportunity.

• favorable policy environment which does not distort the market (for e.g. a policy framework that provides free land to all slum residents is not conducive to market sales of units).

• Cooperation from government for approvals and provision of external infrastructure (access roads, public transport, water and electricity supply).

Because it leverages the competencies and motivations of players that exist in the mar-ket (developers, financers and CSOs), this model requires each player to invest resourc-es (available land, finance, etc) in order to scale up.

The following circumstances constrain HFA India projects’ ability to scale:

• unfavorable policy environment with tedious and corrupt channels for construction permits delaying project timeline, a critical factor in optimizing cash flow and maximizing thin profit margins.

• scarce access to affordable land to build residential sites in the urban areas, especially land with access to public infrastructure.

• Csos and private sector partners unaccustomed to the others’ social versus business mindset and work culture, necessitating time to learn to work together.

• Limited interest on the part of private sector developers due to lower margins, limited awareness and lack of confi-dence in market size and prospects.

• Limited capacity of finance providers and lack of adequate finance products for financing requirements of informal borrowers.

• Low income communities’ hesitation with advanced sales before completion of actual physical structures, which is an important condition for acceptable return on investment for developers.

environmental sustainability is not articulated as a primary goal of the HFA program.

CSOs benefit from additional revenues and value created for communities.

• Csos compensated for marketing and promotion costs through their networks, while they build further skills and competencies working in partnership with private sector players.

• Csos also paid 1-2% commission for every unit sold through their networks.13

• Csos extending to their beneficiary populations, a customized home offering without bearing related develop-ment costs.

While the housing projects of HFA India are not subsidized by donor funds, the CSO part-ners of these models utilize grant funding for general operations.



28

Postscript Future subsidies possible, with potential impacts on price

subsidies of inr 200 (usD4.50) per sq foot14 are available from the state to real estate developers addressing the needs of low income populations. these subsidies are yet to be realized and incumbent on developers to pursue with the 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 standards

With a clear understanding that prospects for scale and replication are impacted by the project and context specific constraints 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 increased knowledge 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 online community and resource center for various stakeholders to assess market opportunities.

1 A joint initiative of the Martin Hilti Family Trust and the Hilti Group, based in Liechtenstein, the Hilti Foundation supports various initiatives with the common theme of empowering people to help themselves. http://www.hiltifoundation.org/Home.aspx

2 Housing for All initiatives are active in Brazil, Colombia and Egypt.

3 Ashoka and the Hilti Foundation do not provide any financial support to implementing partners who deliver housing solu-tions. While Ashoka Fellows are involved in HFA India projects, they no longer receive funding or stipends from Ashoka.

4,5 Interview with Vishnu Swaminathan, Director HFA India, September 1, 2010

6 Total number of loans disbursed as of September 6, 2010

7 Details of loan figures from interview with Vishnu Swamina-than, HFA India Director, September 1, 2010

8 McKinsey Global Institute, Housing Policy and Urban Planning in India, pg 59 & 119

9 McKinsey Global Institute, Housing Policy and Urban Planning in India pg 119

10 Interview with Vishnu Swaminathan, HFA India Director, September 1, 2010

11 Interview with Rajendra Joshi Managing Trustee SAATH, June 30, 2010

12, 13 Interview with Hemant Parikh, Managing Director V Worldwide Group June 28, 2010 and Manish Pancholi, CEO DBS Affordable Home Strategy Ltd June 29, 2010

14 Interview with Hemant Parikh, Vintron, June 28, 2010


29

Solutions Addressing Barriers to Scale

CODI - Community Organizations Development Institute

Saiban

Terra Nova

SPARC – Society for the Promotion of Area Resource Centres

soLution aDDressinG Barriers to sCaLe CODI

30

CODI - CommunityOrganizations Development Institute

BARRIERS ADDRESSED: FINANCING, LAND RIGHTS, SUPPORTIVE POLICY

Executive SummaryThe Community Organizations Develop-ment Institute (CODI) of Thailand is a CSO funded primarily by the Thai government. It currently administers a national platform for affordable demand-led housing, called the Baan Mankong1 program.

it is a compelling example of how a policy platform can catalyze community generated affordable housing solu-tions. these solutions appear to overcome significant challenges faced by other approaches to affordable housing, including scarce consumer financing and access to land title.

Based on the central principle that people are the most important agents of change in their own lives, CoDi’s approach, through Baan mankong, centers around building the capacity of individuals to determine what housing solutions are appropriate for them. CoDi provides funding (subsidies and loans) and technical assistance to community organized member based cooperatives or representative bodies emerging from within communities to realize these upgrades.2 each cooperative then uses the money for various types of housing projects, depending on the specific needs and desires of the members of each co-operative. some projects involve in-situ acquisition of land title and incremental home improvements, while others result in re-blocking of plots and relocation of some residents to new locations.3 Cooperatives largely handle their own construction, either by building them-selves, or working with local contractors.

CODI’s impact and scale in Thailand through the Baan Mankong program has grown to over 90,0004 families.5 the average income per

family is around tHB 10,000-20,000 (usD 333-666) per month. most hold unsecured jobs such as small vendors, daily labors, taxi-drivers etc.6

Background and evolutionA foundation of community group savings

at its roots, CoDi’s model of direct lending to com-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-poses were provided directly to the community once a group savings history was established. using this plat-form of savings groups established in the 70’s and 80’s as a foundation, the urban Community Development office (uCDo), set up in 1992 by the thai government to address urban poverty, began to link individual sav-ings groups together to form cooperatives, to scale up its provision of loans.7

in 2000, uCDo merged with the rural Development fund of thailand to form CoDi, which scaled up uCDo’s lending for affordable housing.8 its success over the past decade has effectively positioned its approach as a sound affordable housing policy framework for the thai government.

Cooperative members

participating in planning re-blocking

of plots.Baan Lang

Community, Charitaburi

Operational FeaturesAccess to funds for cooperatives

Community cooperatives mobilize on the basis of group savings and according to the rules and norms established by the communities and members served. With a six month proven track record of joint savings and payments, the cooperative can apply for loan funds


31

Creating policy is usually a top down ini-tiative led by politicians. However a housing policy that responds to the needs of the people will always be a bottom up effort, led by the people themselves.

- somsook Boonyabancha, secretary General of asian Coalition for Housing rights,

founder of CoDi

through Baan mankong. the cooperative then manages the loan disbursal and repayments, making funds avail-able to individual families, according to their needs.9 ad-ditionally it allocates funds for cooperative infrastruc-tural developments (access to basic services, sanitation, access roads etc), supported by CoDi technical assis-tance (architects and engineers) at the discretion of the cooperative and its membership.10

Community cooperatives acquire funds from CoDi at an interest rate of 4% and loans these funds to individu-als within the cooperative at 6%, allowing a margin for default and the cooperative’s ongoing activities.11 these additional activities include community development, income generation or educational initiatives, daycare centers and programs, etc.12 the specific conditions of loans vary greatly depending on each individual project. repayment rates back to CoDi are roughly 90%.13 the cooperative system allows some flexibility for commu-nity members facing financial difficulties to find a solu-tion that will suit them and the community.

Communities are encouraged to do full surveys of the households living in the community, to assess the finan-cial capacity of each household to take on a loan, to ensure that no one takes on a debt that they will not be able to repay. Loan amount per household varies depending 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 with private land owners are settled through land sharing deals where the community vacates a prime portion of

Diagrams of community before and after cooperative re-blocking, Charoenchai Nimitmai Community, Bangkok

Charoenchai Nimitmai Community, Bangkok,before and after upgrading projects.


32

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 land title is held by the cooperative until members complete payments on their loans and in doing so obtain indi-vidual leases.

in the more common occurrence of public institutions owning the occupied land, CoDi has assisted residents in negotiating long-term occupation leases to mitigate against the threat of eviction. in all cases, whether land title is acquired, or long term leases are secured, the cooperative holds title or lease for a period of roughly 15 years until individuals have completed their loan re-payments to the cooperative.16

Ensured quality of construction

in 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 national boards ensuring standards of quality.

Partnerships with private and social sector players

other social sector organizations partner with CoDi, or more directly with the cooperatives themselves, in various regions. these partnerships are in two primary capacities; either technically supporting construction, or building the people’s organizational capabilities.

a democracy that does not believe that any human being can manage their own lives is not a democracy at all”

somsook Boonyabancha on the role of government in affordable housing.

somsook BoonyaBanCHa, of CoDi on tHe CHaLLenGes tHe CoDi moDeL Has faCeD

· Accessing funds is difficult. CODI’s flexible system of delivering funds directly to community cooperatives is mismatched to the systems and processes of formal financers.

· The model assumes the capacity of the poor to 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.

· Also local politics have proven problematic and can slow progress for a model that hinges on the community self-aggregating and mobilizing.

Naa Technicque community site before and after. The community relocated to a nearby area with new homes

Community participating in construction


33

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.

as a result of the Baan mankong program, a network of community actors has formed that is very active across thailand. Called the national union of Low income Community organizations (nuLiCo), this network provides assistance to other communities wanting to upgrade, in terms of managing finances, how to ap-ply for funds, how to organize the community, how to manage themselves through the entire upgrading pro-cess.17

Cooperatives themselves build relationships with private sector players, occasionally going directly to producers and negotiating the wholesale bulk on-site delivery of housing construction materials.18

Mixed sources of income for CODI

CoDi receives a stream of funding from the thai gov-ernment. in the fiscal year 2011 (oct 2010-sept 2011),

the government has approved tHB 186 million (usD 6.2 million) to CoDi as subsidies for 2,325 new units of Baan mankong additionally, CoDi has three main sources of revenue; interest from loans, interest from investments and fees from managing government pro-grams such as welfare distribution programs (which cover management and administration costs). for the 2011 operating budget, which is set at roughly tHB 250 million (usD 8.3 million), interest from loans accounts for 30%, fee income 20%, and investment income 50%.19

CoDi has been unsuccessful at partnering with com-mercial banks to gain access to additional sources of funds due to a mismatch between CoDi’s unstructured lending practices directly to communities and the sys-tems and standards based lending practices of formal financial institutions.20


34

While CODIs work is rapidly scaling up in Thailand, replication depends on a unique set of circumstances.

• a culture of community organizing and cooperatives mobilized around savings.

• 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.

Is the solution REPLICABLE in otherlocations?

Is the solution SCALABLE?

CODI’s work is rapidly scaling up in Thailand, especially due to increased 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.



35

1 Baan Mankong translates to ‘secure housing’

2 Interview with Somsook Boonyabancha, Secretary General of Asian Coalition for Housing Rights, Founder of CODI August 7, 2010

3 50 Community Upgrading Projects, CODI Update, No. 5, March 2008, Pg 10

4 Correspondence with Diane Archer, PhD, Asian Coalition for Housing Rights (ACHR), Bangkok, November 2010

5 The government target is 200,000 houses total. So far around 90,000 are complete.


7 Interview with Somsook Boonyabancha, August 7, 2010

8 Baan Mankong: Going to Scale with ‘’Slum’’ and Squatter Upgrad-ing in Thailand, Environment & Urbanization Vol 17 No 1 April 2005, page 21, Somsook Boonyabancha

9 Baan Mankong: Going to Scale with ‘’Slum’’ and Squatter Upgrad-ing in Thailand, Environment & Urbanization Vol 17 No 1 April 2005, page 24, Somsook Boonyabancha

10 A conversation about UPGRADING at Bang Bua, Asian Coalition for Housing Rights (ACHR)


12 As of now, about 73 childcare/community centers and 60 com-mon houses for elderly and underprivileged have been built under Baan Mankong program.

13 1-2% of the portfolio is non-performing loans (NPLs). In these cases, the loan may be restructured, e.g. lengthen loan period, or decrease the interest rate. If cooperatives have some members who cannot repay, they can use the 2% margin to cover this.


CODI is a government funded initiative. In an effort to advance its sustainabil-ity as an organization, CODI attempts to diversify its income streams, while generating income from its performing portfolio of loans.

• 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).27

15 50 Community Upgrading Projects, CODI Update, No. 5, March 2008, Pg 6

16 Interview with Somsook Boonyabancha, August 7, 2010. In case a family makes its repayments early and then wants to sell the title, it will have to sell its debt and right to a title back to the cooperative. The cooperative will then arrange the reallocation of the right to the house to other needy community members. The house cannot be sold for a profit. Tenure is normally granted for 30 years in the case of lease. The loan period is 15 years.


18 Interview with Somsook Boonyabancha, August 7, 2010.






24 Increasingly, low income communities in Thai cities are coming together to form City Development Funds, which provide funds through a revolving loan system, for housing, income generation, education, and other needs. This CDF is supplied with contributions from the communities, the municipality, and possibility seed funding from donor organizations such as ACHR. The CDF system provides communities with another option to access finance other than CODI.




Is the solution COST-EFFICIENT?

soLution aDDressinG Barriers to sCaLe SAIBAN

36

Developed lane in one of the Khuda Ki Basti developments with homes and shopsKarachi, Pakistan

SaibanBARRIERS ADDRESSED: LAND RIGHTS, CROSS SECTOR COLLABORATION

Executive Summary

established in 1991, Saiban is a citizen sector or-ganization in Pakistan that sells affordable titled land complete with basic infrastruc-ture i.e. water, electricity and sewage to a target population of urban squatters with a household income of USD 2–4 per day1

(through its more recent projects). it is being profiled for its unique approach to ensuring that the appropriate low-income families (i.e. families with low-incomes, but yet with means to self build homes) benefit from the ability to purchase titled land. addi-tionally, saiban has been able to evolve its model under varying levels of government involvement and collabo-ration, while continuing to address access to land for low income groups.

through clear, established mechanisms for selection of clients, and an emphasis on hassle free processing of land purchases, saiban alleviates hurdles to accessing titled land typically faced by low income populations in Pakistan. in addition to the price point of available land being out of their reach, these communities also lack the capacity to produce the paperwork and documen-tation required either for purchase of land, or eligibility in traditional lottery based processes of allocating land to low-income populations.2

saiban provides access to land, minimum in-frastructure and basic services. The land is purchased by low-income families, who typi-cally make an initial down payment, which is followed by installments to saiban over several years. Land sold by saiban to low income groups is cross-subsidized by other sections of the plot sold at commercial rates.

saiban aims to establish proof of concept of avenues to viably provide land title to low-income groups. it has

piloted four different business models in four cities,3

reaching 6300 families across Pakistan. saiban’s vision of scale involves influencing government policy and private sector companies to serve the affordable housing and land needs of low income populations.

Background and Evolutionthe Khuda ki Basti or “God’s Settlement” models (saiban settlements, hereafter kkB1-4), all focus on effectively providing target low income clients affordable and less complicated access to land rights. all four models have been implemented under varying levels of government involvement. kkB models 1-4 have evolved from being completely government funded in Hyderabad (kkB1), to selling privately acquired land in Lahore (kkB4). Consequently, the sale price of the land plots and there-fore the targeted income segments of the BoP have in-creased over the 20 years across the four projects, to include higher income segments of the BoP.

over the years, saiban has evolved to engage with every aspect of the affordable housing value chain – right from sale of plots and provision of related infrastructure, to construction and sale of complete homes. However, the fundamental principles of client selection and the provision of access to plots with infrastructure, basic utilities and social services apply in all projects.


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Developed lane in KKB3 with homes and shops

KKB1 and KKB2: Completelygovernment subsidized

kkB1 and kkB2 addressed the population segment which ranged between the bottom 5–15 % of BoP (as-suming that bottom 5% has negligible disposable in-come). Land was granted to saiban by the government.4

residents paid a subsidized total amount of about usD 1105

for the plot (usD 12 as down payment and the rest as usD 2 monthly installments over 8 – 10 years). they also paid a regular maintenance fee of usD 16per month for internal7

and external infrastructure.8

kkB1, was established in 1986 on a plot of 150 acres in Hyderabad. the project was delivered as a government program by the founder of saiban while he was employed by the Hyderabad Development authority, Pakistan.9

saiban, as a formal organization, was formally estab-lished five years later in 1991.

kkB2 was launched in Gharo in 1992. in this project saiban managed the delivery of 50 plots granted by the government.

KKB3: Market based delivery supported by government

in 2000, kkB3 came into being as a more autonomous model in karachi. the government assisted saiban by ini-

tially allocating 60 acres and then another 40 acres (for 2800 plots of 80 sq.yds. each) on deferred payment.10

saiban collaborated with the government to provide in-ternal and external infrastructure, mostly incremental-ly, i.e. after residents had moved in and started to build.

Purchasing land, as opposed to having been grant-ed land by the government in kkB1 and kkB2, meant comparatively higher plot sale prices, which in turn meant that kkB3 addressed a higher in-come population — roughly the bottom 10-20% in-come segments. Land was priced at usD 430-48511

per plot (usD 90-115 as down payment and the rest as usD 4 monthly installments over 8-10 years). the project generated a profit for saiban, enabling expan-sion of operations.

KKB4: Privately accessed land with greater need of cross subsidy

kkB4 was launched in 2006, with 20 acres of land for 460 plots. Land was purchased from private owners without any subsidy or assistance from the govern-ment. Purchasing the land from private owners had im-plications on price point offered to low-income clients, the target income segments served and the dynamics of saiban’s engagement and offering. in kkB4, land was 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

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


38

tasneem siDDiQui, founDer of saiBan on tHe key CHaLLenGes saiBan moDeL Has faCeD:

· It is difficult to change the mindset of policy makers about selection processes that provide land tenure for low income groups.

· Entering each new geography requires new relationships with municipality, private players and trust with the community. This results in lag time between purchase of land and correspond-ing sale of plots.

· Saiban has had to invest considerable resources into providing external infrastructure to affordable private land which is much further from the city.

A room in reception area

Operational FeaturesIntegrated access to titled land and basic services

While 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 services and livelihood generation. Basic infrastructure like ac-cess to electricity, water, sewage, roads etc. is provided in advance of sale of plots or sometimes incrementally, after establishment of residences.

Client selection through marketing plus vetting

availability of land is marketed within slum communi-ties through printed flyers, word of mouth, direct mar-keting campaigns in marketplaces and banners outside the saiban reception office onsite.15 once potential cli-ents are aware of plots for sale, saiban’s selection pro-cess begins. Potential clients are required to move to the site with their possessions and register to live in small units (shacks with beds/mattresses or very small rooms) in the reception site for 15-20 days.16

requiring onsite living for 2-3 weeks, with very mod-est amenities, establishes the potential client’s genuine need for affordable land title ownership. this also al-lows saiban to conduct a comprehensive background check of potential clients and assess their capacity to start self construction on a home. this vetting pro-cess reliably surfaces; 1) legitimate low-income clients, rather than speculators, and 2) low-income clients who will not perpetually squat on the land, but have enough income or savings to start to self build quickly. selected clients are then allotted land plots without extensive paperwork or other requirements.

Ensured land use through mandatory build requirements

Clients who are approved to buy plots are required to begin building their unit upon allotment, albeit incre-mentally. Clients build their homes based on their ca-pacities, using their own labor and the support of local technicians, friends and relatives. if construction does not begin within one month of allotment, saiban can cancel the allotment and offer the land to another family.17

Financial viability through cross-subsidy

saiban generates revenues through multiple offerings which cross subsidize18 the price point of residential plots for low income families. these other offerings in-clude selling more valuable plots of land and commercial plots at market rates, sale of complete homes to higher income groups and plots to nGos (operating schools, hospitals etc). the cost of basic infrastructure is borne by residents and other users of the Basti through main-tenance fees.


39

Demarcation of 80 sq. yds plot

Children playing in common areas in front of a typical self built home

Affordable client financing through credit by Saiban and partner bank

saiban allows low-income families the ability to pur-chase land through a series of payments divided into an immediate down payment and monthly installments paid over 8-10 years. Land title is transferred once the entire purchase amount has been paid to saiban. Where higher income families purchase complete homes, part-ner bank HBfC19 provides clients access to flexible long-term finance options.

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-cent attempts to deliver access to land for low-income groups.21

saiban also aims to catalyze private sector interest in serving the needs of low-income populations. its abil-ity to demonstrate a financially viable business model, under widely varying circumstances has cast saiban in an advisory role to organizations like People’s Hous-ing Cell in sindh and ansaar management Company, a newly formed private company interested in exploring this market.

ansaar management Company is attempting to create a for-profit venture developing homes for low-income populations using the principles of the saiban model.22


40

Saiban’s model provides proof of concept to public as well as private sector players, on ways to address provision of affordable land and housing

• 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.

Is the solution SCALABLE?

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.



41

Saiban’s business models have established their economic viability under varying levels of subsidy and government support. The client selection process has ensured that target BoP consumers have been able to afford land in all 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).



Saiban’s model requires a unique set of motivations on the part of potential implementers, as well as specific local conditions for effective replication:

• access to affordable and contiguous land.

• 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).

1 Rahman and Hassan (April 2009), Acumen Fund Report: Scaling affordable housing for low income groups in Pakistan

2 Hasan, Arif (2000), Housing for the poor: Details of history of land allocation schemes in Pakistan

3 Saiban Founder Tasneen Siddiqui was involved in the first model in Hyderabad in 1986, prior to the formal creation of Saiban as an organization in 1991. Saiban piloted subsequent projects in Gharo, Karachi and Lahore.

4 Davidson, Cynthia C. (1995). Khuda-ki-Basti Incremental Develop-ment Scheme. In Architecture Beyond Architecture. Cynthia C. Davidson, and Ismail Serageldin, eds. London: Academy Editions

5 Based on conversion rate as on 10/3/2010

6 Based on conversion rate as on 10/3/2010

7 Sewage system, electricity and water connections for individual land plots

8 Access roads, public transport, supply of electricity and water for the entire community

9 Saiban Founder, Tasneem Siddiqui was at the time the Director General of the Hyderabad Development Authority, Pakistan

10 Interview with Tasneem Siddiqui, July 6, 2010

11 Based on conversion rate as on 10/3/2010 – Since we have not

used this anywhere else, should we delete this footnote?


13 Rahman and Hassan (April 2009), Acumen Fund Report: Scaling affordable housing for low income groups in Pakistan

14 Interview with Tasneem Siddiqui, August 31, 2010



17 Interview with Tasneem Siddiqui, August 31, 2010

18 Salman and Aslam (Jan 2009), Acumen Fund working paper: Prop-erty Rights: Ensuring well being through low income housing

19 House Building Finance Corporation (HBFC) is a 55 year old leading housing finance in Pakistan, the first to offer mortgage loans to the BoP clients for home construction http://www.hbfc.com.pk/Home.htm



22 Interview with Jawad Aslam, Founder Ansaar Management Com-pany, July 20, 2010

23 Interview with Tasneem Siddiqui dated xx

soLution aDDressinG Barriers to sCaLe TERRA NOVA

42

Terra NovaBARRIERS ADDRESSED: LAND RIGHTS, CROSS SECTOR COLLABORATION, SUPPORTIVE POLICY

Executive SummaryTerra Nova is a private company that special-izes in securing land rights for low-income populations in Brazil, resolving stalemates between informal squatters (“settlers”) and legal land owners, through the settlers’ acquisition of the plot they live on. the pro-cess also benefits the local authority (city, region or state) which is able to charge taxes and improve urban infrastructure and services as a result of the regulariza-tion process.

this initiative has been profiled for its “negotiated ap-proach,” leading to tailored win-win resolutions of ille-gal settlements for all concerned stakeholders (private-community-public) at minimal cost to the government (which finances only public infrastructure).

During the period of 2003-2007, CoHaPar, the hous-ing agency in the state of Paraná, regularized 7,000 fami-lies in partnership with terra nova, compared to only 1,500 families that CoHaPar managed to regularize over a similar time period when acting alone.1

Since its first project in 2001, Terra Nova has assisted/enabled more than 20,000 families in 4 areas2 across Brazil in gaining ownership of their plots. the resolution of illegal settlements during this nine-year period is estimated to have saved the government roughly usD 82 million.3

Background and Evolutiontoday in Brazil, 1.8 million households live in illegally occupied urban areas, most of them in improper dwell-ings.4 the public sector has not had the capacity to solve this problem at the scale required, notably due

to conflicting political interests, the discontinuity of governmental plans, and the high level of resources needed for government led regularization programs.

Operational FeaturesLegalizing occupied land, preserving settlement plans, with gradual upgrades

Land plots addressed by terra nova have, in some cases, been illegally occupied for more than 15 years. terra nova preserves the existing plan of settlement, relocating, through compensation, only the families liv-ing on plots improper for housing (due to safety risks or environmental reasons for example). it widens streets, and develops plans for building infrastructure including water, energy and basic sanitation. infrastructure is ex-tended gradually, taking into consideration the capacity of the municipality and the needs of the community in each area.

A win-win-win situation for owners, occupiers and the local governing body

through a “Judicial agreement” — a binding legal con-tract ratified in court — owners agree to be compen-sated a negotiated amount, that settlers share propor-tionally to the area they occupy. although owners may be paid less than the market value of the plot, this is a reasonable compromise given the alternative of being unable to make any use of their occupied property. set-tlers pay monthly installments for a duration (averaging 8 years5) calculated so that their monthly payment is compatible with their family income. their installments also include compensation for those who need to be relocated, a set amount to build infrastructure that the government will not provide, and terra nova fees (tar-geted at ~usD 2,900 per family6). at the end of the payment period, the settler families become owners of the plot.

as a result of this process, the city is able to integrate the zone with the urban planning of the city, adjust-ing infrastructure based on its priorities. it is able to relocate families who were living in risk prone areas, in areas of environmental preservation or where streets should be built, without bearing the corresponding costs. additionally, the city begins to receive taxes from previously excluded areas.


43

A tailored approach through feasibility studies

the first step of the process is a mapping of the infor-mal settlement. terra nova then conducts a feasibility study, which includes a survey of the legal documents of the area (school registrations, ownership history, etc), the identification of community associations and leader-ship, and a technical field visit (notably to identify areas at risk). this is followed by a more in-depth “diagnostic phase”, including a contract between terra nova and the owner that guarantees exclusivity to terra nova in the regularization process; a preliminary urban, legal and social evaluation of the needs of the community, to be used in the later phases of the negotiation; and finally efforts to secure the support of community leaders.

An integrated project taking into ac-count urban, environmental, and social considerations

terra nova’s approach takes into account:

City planning - redefinition of land plots, streets, squares, road systems, space for basic infrastruc-ture, green and institutional areas;

the environment - revitalization of areas to be pre-served, environmental education, set up of recycling systems;

social dynamics - recording and profiling of all in-habitants and neighbors (for relocation of those in improper houses), set up of a technical Chamber, discussions and negotiation with each family indi-vidually, and community social work.

Involving the community in all steps of the process

it is the residents who, at times, solicit terra nova to solve their situation (it can also be land-owners or the local authority or the governing body). When the pro-cess starts, terra nova identifies community leader-ship and trains them, organizes the community, demon-strates the advantages of having ownership of the lots where they live, and discusses the process with them. Both, before and after the signing of the Judicial agree-ment, the community, through workshops, participates in the urban planning aspects of the project to decide on what infrastructure they want to include. these workshops also build community capacity for the longer term. through chosen representatives in the “techni-cal Chamber,” the community participates in decisions on each family’s payment terms and on resolution of issues arising during the project.

the community participates in the actual construction work and the reorganization of the space (relocation of ill-located houses, road construction, etc). this partici-pation leads to peer pressure that has so far succeeded in convincing reluctant residents to join the project.

1998

Impact of Land Regularization Jd. União | Curitiba | PR | Main Street | Before and After

2010

Sour

ce:

Terr

a N

ova

the idea of having property rights is a real stimulus for people. it motivates them to find a better job, they start looking for better opportunities, and they usually find ways to pay after a few months.”

– andré Luís Cavalcanti de albuquerque,managing Director,

terra nova


44

Negotiated approaches eliminating the need for external finance

external financing is not utilized and families who have difficulty paying the proposed amounts are accommo-dated in two ways. they are either allowed to pay small-er increments over a longer term, or if these amounts are still excessive, families can pay a nominal amount as “rent” until they have the means to make payments for the purchase of land.

Activating the agency of the community in acquiring land rights

tn redefines the role of the government and occu-pant vis-a-vis regularization. Before terra nova was established, the government was the primary entity responsible for regularizing privately held property, re-quiring it to expropriate the land i.e., the government paid the proprietor for the land. this purchase is done at a substantial cost to the taxpayers. taxpayers’ mon-ey, which could be used to improve social and environ-mental conditions was instead used to regularize land.

terra nova has created an alternative where the cost of purchase of land is the responsibility of those who occupy the areas. this has significantly shifted the role of the government as a “paternalistic benefactor,” by encouraging occupants to assume their responsibility in the process of regularizing land ownership. terra nova’s methodology transforms this relationship to one of equal partners, empowering entire communi-ties to assume responsibility for past actions and for constructing their future. the occupants, through their own efforts and resources and with terra nova’s sup-port, act as agents of transformation.

anDré LuÍs CaVaLCanti De aLBuQuerQue, manaGinG DireCtor of terra noVa on tHe key CHaLLenGes tHe terra noVa moDeL Has faCeD

· Today our biggest constraint to scale is our working capital. Most of our expenses are upfront in the two years needed to build the com-munity project, negotiate an agreement and get it ratified by the court, whereas settlers start pay-ing only after these two years and their payments (and thus our revenues) are then spread over an average of 8 years.

· Initially projects were slowed down by bureau-cracy and the lack of understanding of the land regularization by the public, state and municipal agencies in the process of approval of the proj-ects and environment licenses. This has now been improved as we use a provision of the civil law called “Original Acquisition”, by which the court only needs to approve the private agreement between the land owner and the settlers which allows the settlers to get their land title when they finish paying the installments. This reduced a lot the paperwork and time needed for the set-tlers to get their title.

· It takes time to build trust with the commu-nity, especially in areas where relocation had already been tried and had failed. Even once the project starts, some residents do not participate and only look at what is happening, waiting for others to do the work. This attitude is a result of the paternalist policy of the state, wherein the government promises to help and deliver social benefits, which leads to people waiting for that to 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 the only legitimate actors to decide and act on this matter, arguing that the private initiative only aims at profit.

this concept can be replicated anywhere, because all we do is set up the process for the population to solve its own problems. the com-munity has the power and capacity to improve their lives.”

– andré Luís Cavalcanti de albuquerque, managingDirector,

terra nova


45

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.


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.

2010 Implementation of formal water lines by government

2005 Makeshift water lines improvised by community residents

Impact of Land Regularization Jd. União, Curitiba, PR, Main Street, Before and After


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Is the solutionSCALABLE?

Replication would require:

• similar legislation allowing land rights registration based on agreement between owner and settlers (existing in Colombia and other Latin american countries), notably:

- formalization of legal agreements between land owner and settlers which are recognized by the 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.

Is the solution REPLICABLEin otherlocations?

Terra Nova has proven itself more efficient and scalable than government led initiatives in land rights provision:

• 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.



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1 COHAPAR http://www.cohapar.pr.gov.br/

2 State of Parana, Cities of Sao Paulo, Porto Velho and Cuiaba.

3 Terra Nova, Land Regularization as an Instrument for Social Transformation, Document used for Stage 2 of WORLD HABITAT AWARDS 2007 COMPETITION

4 Fundação João Pinheiro, Ministerio das Cidades, Secretaria Nacio-nal de Habitação – Deficit Habitacional Nacional, 2006

5 Interview with Diana de Castro, Investor Relations, Terra Nova, October 19 2010

6 Interview with André Luís Cavalcanti de Albuquerque, Managing Director, Terra Nova, October 8, 2010

7 COHAPAR http://www.cohapar.pr.gov.br/

8 The evaluation stage is before the repayment contract is signed between the settler families and the land owner.

9 Interview with André Luís Cavalcanti de Albuquerque, Managing Director, Terra Nova, October 8 2010

10 A key component of the Terra Nova process, where the organiza-tion works with community leaders and informs them of the benefits of ownership with the purpose of convincing them about the project and getting them involved.



13 Terra Nova, Land Regularization as an Instrument for Social Transformation, Document used for Stage 2 of WORLD HABITAT AWARDS 2007 COMPETITION

14 Interview with Diana de Castro, Terra Nova, October 19 2010

Terra Nova model is entirely funded by the resident beneficiaries. Revenues generated from the community are shared between financial compensation to owners, revenues for Terra Nova, and money set aside for public infrastruc-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.


soLution aDDressinG Barriers to sCaLe SPARC

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SPARC – Society for the Promotion of Area Resource Centres

BARRIERS ADDRESSED: SUPPORTIVE POLICY, CROSS SECTOR COLLABORATION, FINANCING

Executive Summarysociety for the Promotion of area resource Centres or sParC, is a large Citizen sector organization in india that advocates for participatory policy changes in affordable housing and relat-ed infrastructure on behalf of low-income groups, while building the capacity of these communities. it is as an example of an organization catalyzing a policy environment more responsive to the housing and infrastructure needs of low-income communities. it does this by bridging the gap be-tween the government and the grassroots citizen’s sector groups and federations that represent low-income populations.

sParC programs are rooted in the belief that long-term collaboration between governments and commu-nities is necessary to benefit the most disadvantaged segments of society. the organization enhances the ca-pacity of mature, well networked grassroots organiza-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-cess to urban resources. it also advocates on a policy level on behalf of its alliance partners through building relationships with state agencies.

sParC works in particular with two alliance partners — the national slum Dwellers federation (nsDf), a national network of slum-based community groups, and mahila milan, a women’s savings group. it supports these community-based groups through provision of institutional finance, financial and technical expertise, leadership development services, access to physical

space to conduct meetings and activities; and advocacy on their behalf at policy platforms.

this support notably enables communities to develop their own housing projects, with the aim of demon-strating the value of community driven solutions and contributions to the government.

SPARC, through its alliance members, is present in 72 cities in 9 states of India. Since its inception in 1984, it has served a member base of close to 2 million people.1 Addition-ally, it has supported the construction of ap-proximately 50002 houses since 1998. SPARC has also participated in forming Slum Dwell-ers International (SDI), a confederation of slum dwellers groups, operational in 28 countries.3

Background and EvolutionsParC’s initial work in 1984 aimed at helping those at the very base of the pyramid — 1.5 million pavement dwellers of mumbai with the least access to resources.4 the propelling idea was that a solution that would work with the most vulnerable would have implications for those higher up in the economic pyramid. sParC real-ized that among the pavement dwellers, while women were the most vulnerable, they were also the most innovative when it came to surviving with limited re-sources.5 thus sParC started supporting mahila milan, a women’s collective, to encourage women to engage

Aerial view of Dharavi Slum, Mumbai, India

Phot

o: Jo

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/ Dar

by C

omm

unic

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in roles of leadership, and to organize and empower them to participate in more significant projects. sParC focused on training and supporting mahila milan leaders to professionally manage the credit and savings of mem-bers, as a buffer against crises and emergency needs like medical treatment and loss of employment. these funds were also eventually used as collateral to access institutional credit.

sParC also partnered with the national slum Dwellers federation (nsDf), advancing the leadership capacity of slum dwellers federations at the national level and providing them with access to advocacy platforms. the underlying belief was that successful and longer term development strategies would have to involve the com-munities as important and engaged stakeholders.6

in 1998, sParC created nirman, a not for-profit7 com-pany. nirman provides slum federation leaders with critical financial and technical support to help them de-code the housing and infrastructure schemes offered through national and state agencies,8 so that they can participate in their planning and execution. this not only strengthens and empowers the community to ad-dress their own needs but also legitimizes their political existence.

additionally, in 1996,9 sParC co-founded slum Dwell-ers international (sDi), a confederation of slum dwellers groups operating in 28 countries. the sDi facilitates cross-learning, provides slum federation leaders with more re-sources and confidence, and fosters a stronger sense of solidarity between the urban poor communities in devel-oping nations.

Operational FeaturesEmpowering federation action through Area Resource Centers

Physical spaces called area resource Centers, provid-ed by sParC to the alliance members, allow alliance partners to organize, plan and execute their activities as autonomous groups. for instance, mahila milan loan officers use the space to collect savings and maintain books of accounts and nsDf coordinates community organizing efforts.

Impacting policy through demonstrating value of low-income communities’ input

to counter the sense that low-income communities have little to contribute to their own advancement, sParC and nirman support projects designed and implemented by community members. the objectives are 3-fold:

1. Build their capacities; 2. illustrate the weaknesses in current government programs and policies; and 3. Demonstrate the positive value of solutions emerg-ing from community action and leadership.

this support, in addition to effective articulation of needs and advocacy on behalf of these groups, aims to attract the attention of policy makers and government. in fact, a number of Jnnurm10 development schemes active in many parts of the country, such as slum rehabilitation authority (sra) scheme for pavement dwellers and Dharavi redevelopment Project11 (under sra) have been influenced by sParC.12

sParC has been supporting the federation members and mahila milan leaders to work on resettlement & rehabilitation as well as in-situ upgrades in several sra schemes.13 sParC focuses on helping the community develop their own solutions, providing them with train-ing, financial support and guidance to comprehend the bid process for sra projects as well as execute them. in doing so, sParC highlights that community input is of value and that the poor are active citizens of the city, justifying their right to access urban resources.

Meeting of NSDF members at the Area Resource Centre in Mankhurd, Mumbai


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the broader sra initiative has been criticized for in-comprehensive eligibility criteria, which in several cases has led to eviction and displacement of low income fam-ilies, and for developing vertical slums with inadequate thought to associated infrastructural development. those who oppose the sra are critical of sParC exploring community based solutions within the sra framework. these criticisms not withstanding, sParC continues to explore projects that communities can un-dertake themselves within the sra framework.14

Leveraging useful policies to benefit the community

nirman, through strategic project interventions, has leveraged financial and non-financial resources, such as existing policies, to implement community projects while simultaneously building its own capacity for sus-tainable operations. for instance by participating in sra they received transferable development rights15 (tDr) which they used to access private land for several re-habilitation housing projects. By participating in sra projects, nirman can generate its own resources by either partnering with private companies to implement projects or by receiving tDr by administering projects themselves. this creates a win-win situation for gov-ernment, companies and the community, wherein the government can efficiently deliver a pro poor housing scheme, private developers can benefit from the tDr and communities receive compensation for efforts as well as access to new houses.

Informing policy through more educated advocacy and accurate surveys and documentation

With surveying and documentation support from sParC, federations and grassroots groups assemble ac-curate information and data on the communities repre-sented. this is done primarily through community-led studies, research and mapping projects. these studies 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

sHeeLa PateL, founDer, sParC on tHe key CHaLLenGes faCeD By tHe sParC moDeL

· Mainstream politicians do not look at the problem of housing for low-income communities in its broad economic and political sense and thus often address the issue only partly, not thinking of coupling housing with economic opportunities for example.

· The policy framework is a top down approach, built by experts, but the reality comes from below. The exclusion of community input in policy making makes such programs and schemes un-suitable to reach and impact the target segments.

· Governments work with small pilot projects, and let them evolve until they become dysfunctional. Then they try the next approach that is offered to them, without learning from the past. No one really tries to find solutions for the long haul and look at the bigger picture. There is not enough intellectual exploration, and the political system is not learning from what has already been done.

Survey team maps the settlements in Wadala, Mumbai


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BARRIERS ADDRESSED:1) SUPPORTIVE POLICY:

Creating responsive policy through advocating on behalf of grassroots community groups, and illustrating where policy initiatives can be improvedsParC 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.


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.

necessarily tangible or guaranteed. this approach re-quires that sParC’s own funding come from multilater-al and international donors with a similar understanding of a long-term and experimental nature to community capacity building and advocacy.

Strengthening collaboration internationally

sDi, co-founded by sParC, gives slum dweller associa-tion leaders access to international peer networks to meet and gain cross-cutting understanding of urban issues and possible solutions through local, national and international exchanges.

to further strengthen federation members across the globe, sDi launched the urban Poor fund international (uPfi), an innovative financing facility directly managed by federations of the urban poor. initiated in 2007, the fund was capitalized by a usD 5 million grant by Bill and melinda Gates foundation and was further strength-ened by usD 2 million contribution in 2008 by the Gov-ernment of norway.17

this pool of money supports federation groups, allow-ing them to take risks and set precedents to explore scalability and cost efficiency of projects. access to these funds, allows communities to negotiate effective-ly with formal bodies in the public and private sector, furthering their autonomy and decision making power.


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Is the solutionSCALABLE?

SPARC’s replicability in other locations depends on the receptiveness of a government to community demands and the existence of strong community federations. More specifically, replication requires:

• Government and public sector agencies open to sharing advocacy platforms with federation leaders; 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.


SPARC is active in 72 cities in India and SDI in 28 countries globally. Because they focus on building the strength of existing alliance partners who work in 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.



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SPARC is primarily donor funded. Programs reach the lower BoP through the double subsidy of government housing programs coupled with SPARC’s own donor funding, reaching deeper into low income communities than market 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.



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1 SPARC Annual Report 2008-09

2 Interview with Sheela Patel, Founder, SPARC, August 26, 2010


4 Article from SPARC website resource centre titled “SPARC” http://www.sparcindia.org/docs/sparc.txt

5 Article from SPARC website resource centre titled “Alliance” http://www.sparcindia.org/docs/alliance.txt


7 According to the Indian Companies Act, 1956: A section 25 company is a company with limited liability that may be formed for “promoting commerce, art, science, religion, charity or any other use-ful object,” provided that no profits, if any, or other income derived through promoting the company’s objects may be distributed in any form to its members. http://www.ngosindia.com/resources/ngo_reg-istration1.php

8 Nirman Annual Report 2009-10

9 Website of SDI www.sdinet.org

10 Jawaharlal Nehru National Urban Renewal Mission is a seven year mission which started in 2005-06 with the aim of establishing fast tracked urban infrastructure in India with a budget of INR 50,000 crore for this period (JNNURM brochure www.jnnurm.nic.in)

11 Dharavi is the largest and most highly populated slum pocket in Asia. The Govt. of Maharashtra has accepted the proposal for the redevelopment of Dharavi which, after suitable modifications, will be implemented through the Slum Rehabilitation Authority (SRA) (source: www.sra.gov.in)


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.

13 Slum Rehabilitation Authority serves to facilitate the rehabilitation of slum dwellers in authorized dwelling units. Under SRA, anyone can propose to develop rehabilitation housing – private developers, NGOs or the residents themselves – provided there is agree-ment from the landowner and 70% of the residents. SRA provides market-based incentives to encourage landowners and developers to participate.

NGOs are given additional incentives to encourage their participa-tion in rehabilitation projects. Nirman, for example receives ad-ditional benefits (additional density permits for construction at other sites) for implementing such projects. Nirman has worked notably on projects such as Rajiv Indira Suryodaya, Bharat Janta, Milan Nagar and some others in Mumbai (Nirman’s Annual Report, 2009-10)

14 Correspondence with Sheela Patel, Founder, SPARC, October, 2010

15 TDR is earned through the construction of rehabilitation floor area, and has market value equivalent to the price of land in another area.


17 Website of SDI www.sdinet.org




21 Correspondence with Sheela Patel, Founder, SPARC, October, 2010


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Draft Recommendations for Various Stakeholders

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Draft Recommendations for Various Stakeholders

multiple actors play a role in building the market for affordable housing: the Private sector (real estate Developers, 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 market and 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, the assets 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 implications for other players in the value chain.

Financial Institutions: Commercial Banks, MFIs, and HFIs

extending 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 housing finance 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’ money management practices. relevant innovations include quick loan approval and disbursement, smaller and more frequent (e.g. weekly) repayments, lending to groups (that, in turn, prorate and collect payments from members), requiring participation in prior savings programs (either individual 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, implementing these business process changes are often more challenging and vital than changes to pricing policy (interest-rate charged per annum).

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Commercial Banksthe 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. 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 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 emerging country 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 United States 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 global economy 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 on track to become the biggest global financial institutions.

1. Create a dedicated unit to serve 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.

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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 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 and

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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-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 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

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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 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 leverage public subsidies which can take many forms including; partial loan guar-antees, subsidized cost of capital and complementary grants concur-rently administered with housing micro-loans.

5. Partner with diverse players (materials manufacturers and retailers, real estate developers) interested in grow-ing this market

strategic collaborations with diverse players (construction material pro-viders and retailers, real estate developers) can help you access the capital needed to provide attractive housing loans, as you leverage deep knowledge of, and access to low income markets. for example, operate branches inside hardware/building materials retailer store partners and on the sites of projects of affordable home developers with whom you collaborate. as an mfi, you have expertise in aligning repayment terms to the existing money management practices of clients. you can also leverage existing joint liability groups using the same social collateral dynamics for home improvement loans as for your traditional microfi-nance activities. these competencies can be of great value in the right partnerships.

Creating the new process-es required to offer hous-ing loans requires signifi-cant investment from an

mfi as well as a long-term strategic commitment to

housing. this complex un-dertaking suits those mfis

with an established, siz-able, profitable and stable micro-enterprise lending business. the larger your

customer portfolio, the more attractive to the other partners you will

be, and the easier it will be for you to make it a new,

profitable business line.

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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 15,000 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 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.

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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 funCtionLocal Csos or mfis supporting income generating activities

sales and marketing / activating demand

Local Csos or mfis with a network of potential clients

Bulk sales and processing / Demand aggregation

Local Csos, community groups, knowing opin-ion leaders in the community

Promotoras (sales forces for other businesses) recruitment

mfis, local savings groups, community groups financing (including mobilizing savings)

advocacy groups, community groups, provid-ers of low cost legal services

Providers of complementary services such 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:

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.

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2. Alternatively, provide services (for a fee) to business partners (e.g. real estate developers)

as you engage with business sector players, focus on the services that 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.

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• 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:

1. Develop a comprehensive offering (financing, social services) for low-income clients

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-cess of your engagement. for instance, arranging space for vocational training, or including the community in construction empowers your future client base to purchase homes you develop through increased income or sweat equity, and has the added benefit of creating loyalty among your new client base.

2. Partner with CSOs for greater access and deeper understanding of this market

this market is a departure for you, therefore it is important to work with players who know your market well. Csos have intimate knowl-edge of these client segments and understanding of their motivations, preferences and living conditions. they can therefore help you create homes that are responsive to micro level demand by gathering clients’ inputs. Csos can play an effective role in the marketing and sale of homes. Because they are a trusted and long term presence in the com-munity, and are likely to be the best sales force you can find for your project (provided of course that they themselves are convinced that your offer is appropriate to the needs of the communities they serve).

as a real estate developer creating a successful prod-

uct for BoP/low-income markets, will be a long,

often frustrating road with much trial and error. Large

scale operations and ac-cess to capital are not the primary assets required in

this market. rather, strong local ties coupled with

commitment to a specific area are crucial to real

estate developers seeking gains in this market. the

benefits of engaging in this sector are more tangible at local levels, thus those

local players who have ties to the community, who

are in a position to lead, and can leverage this social

capital will succeed.

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3. Partner with MFIs and HFIs to 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 Improvementsand 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.

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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

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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 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.

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1. Create a dedicated Affordable Housing unit, with 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. 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.

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:

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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-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.

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New Homes

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 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.

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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:

1. Create an Affordable Housing product and service offerings

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, Mexico and 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-X92S12R12

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Public Sector Actors: National Government, Local Government, Municipalities and Public Housing Finance Agencies

the “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 their specific context.

as a public sector actor, you are likely already involved in the space of affordable housing. you likely intervene by disbursing subsidies, building basic infrastructure, designing and enacting regulations and branding social housing programs designed to grant or deeply subsidize new homes for low-income populations. such government interventions are necessary to provide housing solutions for the most marginalized populations for whom market-based approaches are infeasible.

Largely as a result of the heavy subsidization and focus on mortgage finance of developer-built units, the financial resources at your disposal are often insufficient to satisfy the needs of the bottom two thirds of your constituency.

4. Partner with manufacturers to share market development investments

Preferred supplier offerings to the right partners are great ways to pro-vide partnership incentives that can result in integrated product offer-ings that sell.

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

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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:

1. Create a favorable policy environment for access to 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 thefield andCSOs 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.

• Encourageandincentivize“negotiatedandtransparentap-proaches”to enable access to property rights. “negotiated approaches” (where land owners and land occupiers agree to

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trade titled plots in exchange for part of the land value as in 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; 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 guaranteesof 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.

• Introduceotherincentives, including tax breaks, preferential status or other benefits for finance institutions serving these markets.

• Removecurrentlegalbarriersto 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 by Dean 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).

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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 FoundationsDonation 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.

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).

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1. Invest in public goods (e.g. land registries) needed 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 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.

thus, we recommend that you intervene in a strategic way, as only “free agents” like philanthropists can:

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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:

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.

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.

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Private Investorsif 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

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.

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