The challenge and opportunity of slums: Part 2, the opportunities
[Continued from yesterday's Part 1.]
Yesterday’s post covered half of my little talk – the challenges part – on the Infrastructure and Real Estate panel at
“So far out there I can’t be contained behind a dais!”
My main text is in Times New Roman.
So with all those challenges, where is the opportunity? Let’s call it the necessary opportunity.
4. Which comes first, the slum or the city?
Private structures or public infrastructure?
Because there ain’t no such thing as free infrastructure, slums exist and expand long before communities embrace them. Eventually incumbency, physical durability, and sheer mass mean that municipal powers-that-be have to formalize slums in municipal and political self-interest and self-defense.
Jockin being interviewed by journalists:
Dharavi’s elected representatives to the Indian Parliament and Senate
5. When does a slum formalize?
When (a) slum land becomes really valuable if redeveloped, (b) residents secure anti-eviction protection, either judicial or political, and (c) development becomes so profitable it can fund the non-recoverable upgrading costs.
Chemist, Mukuru Sinai,
Good government has taken an interest. Many governments choose to ignore slums (or, like Mr. Mugabe, to bulldoze them). At Dharavi, both the national and state government are active partners in the redevelopment:
Govt. of
Among government’s four essential roles, aside from the enabling environment for capital, government has to provide capital to close the cost-value gap. Here
The Central Government has already announced a grant of Rs.500 crores [a ten-million, so 500 crores is Rs 5.0 billion — Ed.] for the project, which will go towards the infrastructure. “I would like to integrate Dharavi with mainstream Mumbai and convert it into a cultural, knowledge and business centre. The main idea is to convert the whole population into a middle income community by 2010,” adds Mr. Mehta.
Meanwhile, Dharavi is still not redeveloped, because of the interlocking puzzle of politics, economics, law, and real estate.
Proof that slumdwellers can be developers: Oshiwira II,
6. Home Asset Finance and its role in slum upgrading
Between microfinance and mortgage finance is a netherworld that we have dubbed Home Asset Finance; lending to finance purchase or improvement for quasi-formal or quasi-legal structures.
I figured this out last summer, when I taught a three-day course in housing finance for the very poor, at the Boulder Institute of Microfinance (held, confusingly, in
Flying blind, I structured the course into three modules:
Part 1: Economics and structure
Part 2: Roles in a mortgage loan system
Part 3: Current practice around the world
[Snip]
I expected the participants to be heavily represented by Mission Entrepreneurial Entities — actual lenders who were doing business in microfinance loans, and who had elected the one-week housing-finance course (as part of the three-week comprehensive MFI course) to learn about housing finance and whether they should expand their activity into housing finance.
[Snip]
As I said to them about five minutes into the course:
To a housing lender, a microfinance loan is a tiny amount, with an exorbitant interest rate, for an insignificant interval, and with no collateral – hence really risky.
Having paused just long enough for them to wonder, I went on:
Of course, to a microlender, a housing loan is a huge sum, with a minuscule interest rate, over a really long interval, and with no knowledge of the borrower – hence really risky.
With that out of the way, Day 1 dug into the practicalities of making a loan with secure collateral – fixed collateral that you cannot repossess. Most of the participants were used to making loans on personal credit – I lend to you because I’ve checked you out – and on chattel – movable personal property like television sets, cell phones, and cards. But housing is a whole ‘nuther ballgame, because you can’t move it.
Savings passbooks, Mukuru Sinai residents cooperative Akiba Mashinani Trust,
The value chain of an asset-based loan is quite different from classical microfinance:
I’d printed up name tents for each of the major roles I wanted played:
Home seller
Home buyer
Loan originator
Appraiser
Underwriter
“Funding desk”
Securitizer
Security holder
One by one, we introduced our dramatis personae, and I took volunteers from the group. It wasn’t hard; give people who know something a chance to ham it up, and you’ll be amazed at the results. Sure enough, the Brazilian district attorney volunteered to be the home doctor; Muaffaq the Palestinian community organizer was ready to be the buyer, and Hemantha the Indian microbanker (from Hand-in-Hand) was happy to be the loan originator. As we introduced each one, we asked:
What does he or she want from the transaction?
How does he or she get paid?
What are his or her incentives?
We are working with SEWA Bank in Ahmedabad on such housing-finance products.
My traveling office, at SEWA’s offices,
7.
Mumbai and Dharavi are a quintessential urban problem. Mumbai’s combination of anti-eviction laws and Transferable Development Rights (TDRs) gives slumdwellers leverage. Meanwhile, Dharavi’s scale and complexity make its redevelopment a highly complex challenge. We work with SPARC and the National Slum Dwellers Federation on places like Dharavi.
Mission Entrepreneurial Entities are the change agents.
Change-making personified: Jockin Arputham of Slum Dwellers International
Twenty-first century cities will be competitive precisely to the degree they harness the brainpower and entrepreneurial energy to be found in their slums. To do that, cities must, in self-defense, formalize and embrace the informal.
Dry-goods store, Mukuru Sinai,
Comment from Bassey Ekpo (Arc)
Date: March 29, 2009, 7:01 pm
This is quite informative. I read your article “Housing the world Poor” and found some ‘food for thought’ I’ve done some works on low-income housing finance. ‘seems like up to 50% subsidy could increase housing production by more than 100%. Loan-to-value ratio of $1:$2, should really be attractive to mortgage lenders. I can send you more on this if you wish