Meta-finance: Part 2, the Basic Model
[Continued from yesterday’s Part 1.]
Yesterday, in pondering how to finance group-benefit infrastructure like public toilets, we introduced meta-finance, a means of lending to a contemporaneously formed group of people for their group benefit. On behalf of Development Innovations Group, and as research for a paper, Meta-finance, prepared for DIG as part of DIG’s Housing Finance for the Poor Initiative with the Gates Foundation, and now posted on AHI’s Web site (link in .pdf), it was to seek discovery of meta-finance that, like a nineteenth century explorer, I ventured off to India to meet Mumbai’s Jockin Arputham and the National Slum Dwellers Federation:
Portrait of the entrepreneur with a cell phone and the gift of gab: Jockin Arputham
and Ahmedabad’s Bijal Bhatt and Mahila Housing SEWA Trust:
Bijal Bhatt at her desk
I’ve previously posted my hypothesis that there ain’t no such thing as free infrastructure, which has a corollary: all public-benefit infrastructure has a non-recoverable capital cost. If you want infrastructure, you need to fund it from a benefactor: a private individual or charity, an emperor, or the state. This principle appears to hold since antiquity, as presented in an astonishingly apposite article, Thirst: A Short History of Drinking Water, by Duke environmental law professor Jim Salzman. In future posts, I intend to say quite a bit about Professor Salzman’s research, which is a gushing fountain of historical experience throughout two millennia of human urban habitation.
Both in Mumbai and in Ahmedabad, contrary to what had been reported at second-hand, the fabled creature of pure meta-finance did not exist.
When I got to
Neither NSDF nor MHT were operating entirely on their own – they had considerable financial help from their municipalities, which in both cases funded the hard costs of building the community-benefit improvements. So I formulated the Basic Model, which is a public-private partnership with clearly defined roles.
It’s only a basic model, but maybe it’ll fly
To put on a production, you need a script, a set of players, and a stage. In meta-finance’s Basic Model, you need:
All the ecosystem’s a stage, the men and women in it merely players
As described in the DIG report:
The counter at the Dharavi communal toilet, 1 rupee ($0.025) per walk-in
For meta-finance to work, the physical improvement whose cost is beyond the members’ capacity has to be fully created by a single funding source (in this case, government). Incremental construction and incremental financing work fine for private-benefit goods like houses, because people will protect the work in progress. For a public-benefit construction, you have to protect it until it’s completed (as every subdivision developer knows), which requires that you cannot afford to have construction stop halfway through. You need the improvements package, and the government funding to get it fully completed.
Jadibanagar, Ahmedabad: streets paved, street lights, and electricity
Courtesy of Ahmedabad Municipal Corporation and Mahila Housing
Then you further need a sustainable operating model: a mechanism whereby the costs of keeping the facility going are paid by the residents, so the whole neighborhood contributes to its upkeep. In Ahmedabad’s Jadibanagar slum, the public-space improvements are funded with monthly subscriptions that are collected by the savings co-operative. In Mumbai’s Dharavi public toilet, all resident households pay a monthly membership fee of roughly Rs 40 per household (or roughly five family uses per rupee), which is a very good deal for them since walk-in use costs Rs 1, five times as much.
In the Dharavi public toilet, walk-in charges are assessed, and maintenance is provided, by the operator family, who mans the desk 24/7 because the household lives upstairs, in a flat built as part of the overall package.
Operator’s flat, built on the roof of the communal toilet
The completed Dharavi public toilet is a self-sustaining venture that provides a group benefit, a family’s employment, and even revenue to the community (with the subscriptions covering the base operating costs, the walk-ins generate positive cash flow).
Once developed, it’s that most valuable of inventions, a machine that will go of itself.
Whoever patents the working perpetual motion machine is set for life
But it needs to be developed, and for that you need the actors, led by the entrepreneurial community development entity.
Mahila Housing’s Ahmedabad office: seeded by USAID, now sustained by Dell
B. Actors (government bodies, companies) that can use the business financial model
Infrastructure is enterprise, both in construction and operations.
Most of the academic or research literature regarding housing and infrastructure development focuses on the roles played by programs, or by the governments that create them. Too little focuses on how those programs (which we might consider the DNA of transactions) are turned into actual working properties – by entities acting as independent entrepreneurial enterprises.
It takes three for the match
Jayshree Vyas, CEO of SEWA Bank and Bijal Bhatt, CEO of Mahila Housing SEWA Trust
The ladies who make it go
Self-Employed Womens’ Association (SEWA) Bank
In some situations the roles can be combined (e.g. sponsors and facilitators combine in the global north as CDC’s or Housing Associations) but that combination is not essential.
Like an arranged marriage, meta-finance projects and schemes require three players: a capital provider (the lender/ investor, often a government offspring), a capital consumer (the sponsor), and a matchmaker (the facilitator, usually a CDC or technical assistance entity).
Normally the equities are fairly balanced between capital and sponsor
Of these, the facilitator is the most active — I say this from over twenty years’ making a living in precisely this role in the US — the sponsor takes the most ongoing risk, with the most operating control, and the capital provider is the one who has to be persuaded to come to the closing table.
Come to the closing table with me …
What does it take to persuade the capital? A favorable ecosystemic environment, both economically and politically.
C. Suitable local conditions (favorable environment)
The local environment is critical because each one is different, and its uniqueness defines the amount of government support or subsidy available, the type of physical improvements, the nature of the group entity to be created or elevated, and who can act as the facilitator, including these elements:
Personal in-house toilet, Jadibanagar, retrofitted into existing homes
Put it all together, and you have the condensed definition of the Basic Financing Model:
The more I work in housing, the more I come to appreciate the value of controlling the use of urban land. Land value is a residual, and urban land is valuable directly in relation to what it can be developed into. Municipally owned land and its corollary, zoning approval, are particularly useful as policy instruments because they are off-balance sheet assets that can be turned into affordability.
Really, the assets are totally off the balance sheet
You need both the malt and the brewmaster, and of the two, I have more affection for the brewmaster.
Jockin Arputham, facilitator extraordinaire
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