Who ordered the large?

That’s the sinking feeling probably being experienced by the government public-private team trying to recruit developers into their Herculean effort to redevelop Mumbai’s Dharavi slum, as the global credit crunch thins the ranks of potential development consortia.  As reported on Live Mint:

Six consortia opt out of Dharavi project bidding

Bangalore: Six of the 14 teams in the fray to bid for a Rs15,000 crore [$3.2 billion – Ed.] Dharavi makeover project have opted out, jeopardizing the scheme.

Five consortia have to be chosen to develop one sector each of the 535-acre shanty town in Mumbai, to make it a part of the growing residential and commercial development within Mumbai.

It always looks so easy on the maquettes

With only eight candidates in the bidding, it will be hard to create the sense of government leverage necessary to extract a favorable deal for each parcel.

“I am going to raise this issue with the committee of government secretaries that the number of participants does not give scope for adequate competition,” said Gautam Chatterjee, chief executive of the authority. “The committee will take a final call on what should be done with the bidding process.”

When it negotiates with the private sector on a macro project, government is usually out-traded: for several reasons: the talent updraft, government’s slow OODA loop, their information/ analytical disadvantage, and the necessity for government to have a consensus outcome.  [And that's even omitting entirely the possibility of corruption and bribery in the award process – Ed.] 

Will Dharavi disappear in favor of high-rises?

It’s been a particular challenge at Dharavi, which, as I’ve posted, has been politically contentious from the beginning. 

On Friday, the Dharavi Development Authority asked the 14 short-listed groups to submit to it the memoranda of understanding among the team members.

A very good idea – it flushes from cover who is actually a team and who is simply a mob hoping to win the beauty contest and then plunder the opportunity.

We had fourteen, but six of us were shams

This was asked after rumours that many of the international and local companies wanted to opt out of the project in the wake of the global economic downturn.

The DDA asked a question, and got an answer it didn’t like to hear, but needed to hear:

Lanco’s flame has gone out

Some lead members of teams that are not a part of the project any more are Unitech Ltd, K Raheja Universal Pvt. Ltd, Lanco Infrastructure Ltd, RNA-Videocon, Runwal group and Kalpataru group.

Videocon tuned out

Runwal ran away

Kalpataru got lost

Normally when you’re negotiating, you assume that any offer the other side makes will be on the table indefinitely.  Public-sector and pro-poor groups conducting such negotiations, who are at an information and analytical disadvantage, tend to play their cards by instinct, judging what they can squeeze more by how the other side behaves than by their own internal analysis.  Most of the time that works, especially when there are multiple private bidders competing for the same business. 

When the number of bidders shrinks, the public sector’s disadvantage gets worse.

Among the remaining teams are Lodha Developers Pvt. Ltd and DB Realty Pvt. Ltd. The two firms recently filed their draft red herring prospectuses to raise money through initial public offerings.

Financing their Dharavi development through an IPO??  You’re kidding, right?

That’s a joke, right?

Lodha has tied up with a Malaysian construction firm, LBS Bina Group Berhad, as its technical partner, and DB Realty has teamed up with its subsidiary, Conwood Agencies Pvt. Ltd.

Slum redevelopment is challenging, because it is so much more than simply large-scale construction.  Further, the public-private negotiations are extensive, time-consuming, and fraught with uncertainty.  The private sector converts uncertainty into cost, and cost reduces profit/ equity potential. 

Less profit to work with

The value of urban land depends on the net residual profit to be derived from developing it; as a result, land price is the most volatile line item in the total uses of funds.  To that uncertainty, add the uncertainty inherent in dealing with government.

Looks yummy but perishable

Then put another scoop of uncertainty for the slumdwellers themselves, who have an effective voice and are not shy about using it.

“Developing slums in Mumbai needs expertise because such projects have serious socio-political complications,” said an analyst with an international property consultancy, who didn’t want to be identified.

At some point it becomes unstable

With slums being hard to redevelop, the surprise is less than some opted out, but that that so many have stayed in so long:

In March, following a harrowing six months of liquidity crunch and slow property sales, five out of 19 teams had opted out, leaving only 14 in the fray. Some the prominent firms that exited were Housing Development and Infrastructure Ltd (HDIL), and Reliance Engineering Associates Pvt. Ltd and Urban Infrastructure Venture Capital Ltd.

Big bids always have big consortia – and if one or two team members get cold feet, the team can disintegrate.

HDIL, one of the country’s biggest slum redevelopers, was forced to opt out after its US-based partner Lehman Brothers Holdings Inc. went bankrupt in September 2008.

Sorry, Lehman

“We had been getting a little jittery about the project and don’t want to be a part of the project anymore,” Sandeep Runwal, director of Mumbai-based Runwal group, had said in September.

Don’t throw me out with the bath water, okay?

Property consultants who have tracked the Dharavi project closely said the biggest problem with the participants now is that none of them really has experience in redeveloping slums.

Said an analyst with an international property consultancy, who didn’t want to be identified, “besides DB Realty, no other team is equipped for that.”

Dharavi is still the fixable slum.  Still, government may have played its cards too slowly, and there may be much less financial ice cream.  If I were advising government, my advice would be move quickly and designate some developers.  The ice cream cone is melting fast, and you may be contending over nothing.

The way to think about development opportunities

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Yesterday’s post covered half of my little talk – the challenges part – on the Infrastructure and Real Estate panel at Harvard Business School’s 2009 India Conference, one of the largest student-run events in the country, attracting several hundred people. 

“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: Mumbai, India

“Money + Votes = Power“

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, Nairobi, Kenya

It also requires:

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 Maharashtra has accepted the proposal submitted by Architect, Mr. Mukesh Mehta for the redevelopment of Dharavi which, after suitable modifications, will be implemented through the Slum Rehabilitation Authority (SRA), according to the norms of S. R. Act of 1971.

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 India’s government has been pump priming for municipal infrastructure. As The Hindi reported two years ago:

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, Mumbai, India

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 Torino, Italy):

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, Nairobi, Kenya

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, Ahmedabad, India

7.  India, Mumbai, and Dharavi

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, Nairobi, Kenya

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“Who knew slums could be funny?”

My fellow panelists were:

Abha Joshi-Ghani, Urban Sector Manager for the Finance, Economics, and Urban Department (FEU) in the Sustainable Development, World Bank.

Songsu Choi, Lead Urban Economist, South Asia Region vice presidency of the World Bank,

Kenneth Munkacy, Senior Managing Director, GID International Group

Dennis Pieprz, president of Sasaki Associates, who’s worked on Dharavi.

Kenneth Munkacy, Songsu Choi, Abha Joshi-Ghani, Dennis Pierpz, David Smith

Our panel, being flanked by Mary Ellen Hammond, HBS ‘09 (left) and Tulika Khemani, HBS ‘09 (right)

Since the conference was all about India, and our particular topic was Real estate and infrastructure, I decided to assemble a handout concentrating on the intersection between the two, and to my surprise, the resulting little piece neatly encapsulates many of the main themes informing AHI’s work. 

My main text is in Times New Roman.

Storefront shop, Mukuru Sinai, Nairobi, Kenya

1. The 21st century’s great problem; see Century of the City

Making cities work is the 21st century’s great problem. 

Between 1995 and 2025, the world will undergo urbanization never been seen before and that will never be seen again. 

[The authors of] a fascinating new PNAS paper, Growth, innovation, scaling, and the pace of life in cities, by a
quintet of authors bookended by Luis M. A. Bettencourt and Geoffrey B. West … make no bones about their
interest in cities and their reasons for tackling the problem now:

Humanity has just crossed a major landmark in its history with the majority of people
now living in cities.  Cities have long been known to be society’s predominant engine of
innovation and wealth creation, yet they are also its main source of crime, pollution, and
disease. 

I really like a crisp, clear expression of the challenge: cities have always been where wealth was born, yet
bringing so many people together in proximity has all those negative externalities.  When one vector (wealth)
goes one way, and another (disease) goes the other, we want to know which (if either) will prevail, or whether
they can reach a happy medium.  Moreover, the problem is urgent:

The inexorable trend toward urbanization worldwide presents an urgent challenge for
developing a predictive, quantitative theory of urban organization and sustainable
development. 

We may pine for the country villa, but we create the means of building it in cities. 

Musket, silk clothing, wrought-iron bench — all from cities

The world’s success or failure in its transformation to cities will define the twenty-first century. 

A slice of downtown Sao Paulo

As Rakesh Mohan put it when I was at Bellagio:

If the world is urbanizing, it’s because people think it’s a good idea.
 

Despite the problems of urban environments, overall welfare has increased in cities in every dimension
we can think of.  Despite massive inequality, even Mumbai pavement dwellers have access to municipal
schools.  They still have a benefit compared to where they came from; they all say, “We are much
better off than our relatives back home.” 

Reversing my frequent quote from Fields of Dreams, if they come, you must build it. 

We’re here for the jobs

2. Cities will compete on their relative efficiency

To quote Rakesh Mohan, Deputy Governor of the Reserve Bank of India:

With increasing free trade in services, the price of traded products has almost stabilized across the world.  Goods now have very similar prices everywhere; therefore, no city has any advantage over any other in traded goods.  Comparative advantage of nations will increasingly lie in the relative efficiency of their cities.

While it was not exactly Saul on the road to Tarsus, my hearing of that talk represented a major epiphany in my thinking about slums and cities. 

Gives you a new perspective, doesn’t it?

After all, a city is defined by its housing:

Cities are homes plus jobs plus density (which means verticality). 

Without housing, there would be no cities – for what is a city without housing?

All of these are parts of a city, but without housing, at night they are just so many dark shells.

Housing is what makes cities bright at night. 

It’s not their jobs that keep those lights on at night

City efficiency demands slum upgrading, for it is impossible to have an efficient city with enormous slums, as they generate massive negative externalities, including:

Pollution.  Sao Paulo’s slum upgrading was forced upon it by the encroachment of squatters on the slopes around the Guarapiranga reservoir.

Traffic.  That many people living in that close proximity without access to proper infrastructure means that they crowd the roads or the trains or the ‘taxis’ that crowd the roads and highways of every African city I’ve visited.

Disease and health.   Air and water respect few zoning boundaries.

Crime.  Slums are a place of refuge for clandestine occupancy.

Broken window, health clinic, Cite Soleil, Port-au-Prince, Haiti

Making cities efficient requires improving their slums.  People move to cities to make money, and slums arise when private investment outruns public infrastructure.  Mohan again:

If the world is urbanizing, it’s because people think it’s a good idea.  Yet our urban planning has a ‘third-class carriage’ mentality: I’m inside, don’t you dare come in, you’re much better off where you are. 

Clothing for sale in the open air, Mukuru Sinai, Nairobi, Kenya

3. What defines a slum?

Readers know that this question continues to occupy me, because in its diagnosis lies an understanding of the next quarter-century of living for over a billion people. 

Many different indicators …

Spontaneous community of people pursuing urban work (even if informal).

Low-value land in close walkable proximity to urban jobs (even if informal).

Where private investment has outrun public infrastructure.

Wealth is extracted from slum dwellers and not invested in the community.

If we are to improve slums, we have to see them for what they are: robust, vibrant, complex, interdependent triumphs of human entrepreneurialism – and at the same time concentrations of poverty, disease, and lawlessness.

A moment of wariness, Vila Nilo, Sao Paulo, Brazil

Having laid out the challenge, I ask, where is the opportunity?

[Continued tomorrow in Part 2.]

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Yesterday’s post commenting on the Economist’s lengthy year-end article about Dharavi (Asia’s largest slum) had reached the point of asking, how can one bankrupt a slumlord? 

It takes the output from the government factory: laws and money. 

It has become safer for two main reasons.

Laws.

[1] One is that in 1976 the state government gave the slum-dwellers limited rights over their hutments. They were recognised as “identified encroachers”, a status guaranteeing compensation in the event that the government bulldozed their shanties. In return, the government began collecting peppercorn rents—currently around 100 rupees a month for each hutment—on the encroached land.  

Money, in the form of free infrastructure.

[2] It also started supplying Dharavi with mains water and power, which the gangsters hitherto had stolen from the city and sold in the slum.

Infrastructure creates community.  Housing leads infrastructure.

This step put the slumlords out of business, and started a modest property boom. Today, tiny hutments in Dharavi are sold, without title, for 500,000 rupees.

The best proof of a successful municipal government is rising values for urban land.

The evening is darkening. And beside a barrow heaped with bright orange vermicelli—a sticky fibre eaten during the Muslim festival of eid—Mr Korde introduces a local celebrity. He calls himself Raja Bhai, or King Brother. A handsome Bihari, and comic, Raja Bhai has in 15 years built a garment business employing 200 people. His success is impressive. Yet it has left him exposed to the predators of the informal economy: rent-seeking officials. To protect himself, he is now launching a second career, in politics.

In Dharavi, Raja Bhai is looking for a ticket with the Congress party, for the next municipal, or even state, election. Meanwhile he is campaigning for the Lok Jan Shakti party, a champion of low-caste Biharis, in his native state. Either way, he is sure he will soon get elected office—and with it the clout he will need to drive away the shake-down merchants.

For thousands of men like these, Dharavi is a wonderful opportunity. But for millions of Mumbaikers, it represents a cost. Their city, South Asia’s biggest, is choking. Its infrastructure is a crumbling disaster. And yet over the next decade, the UN says the population of Mumbai will almost double, making it the world’s second-biggest city after Tokyo. Massive urban redevelopment is required—starting with Dharavi, at the city’s heart.

Improving a slum is so easy on a glossy wallboard

By one estimate, the slum’s land alone represents $10 billion in dead capital.

And much of that wealth is extracted and invested outside the slum:

Rent day

Out goes a torrent of wealth, a concentrated beam going to the slumlords, almost none of whom ever live in the slums they exploit.  Their rent collectors may live in the neighborhood, much as every prison has trusties, but there are the thin upper crust little different from those whose rent they collect. 

From the slumlord’s perspective, therefore, a slum is a place efficiently to extract rent from those who must live somewhere and will live wherever it is cheapest to live. 

Tent extraction depends on the customer’s income, not the quality of accommodation — where else can the poor live?  Thus a slumlord suffers no penalty for not improving his property.  In fact, because the slumlord lives elsewhere, in the land of property and plenty, he has no positive incentive to reinvest in the community. 

(Now you understand why “absentee landlord” is so often a pejorative — the absentee landlord’s economic incentives can be diametrically opposed to the neighbors’ and the community’s.)

That’s why government plays an essential role; it competes the slumlord out of business.

Co-operative housing being built in Mumbai: Oshiwira 2, going up

For a decade, the state government has tried coaxing the slum-dwellers to let it bulldoze their hutments and build high-rise apartments instead. Each dispossessed family is entitled to a flat of 225 square feet. After 30 years, they will be allowed to sell it. But only a few have accepted this offer. So now the government is trying to enforce it. In August it put the bulldozing and redevelopment of Dharavi, in six parcels, out to tender. The work was due to begin this year. But it has been stalled by bad press nationally and local protests, organised by Mr Korde.

Change is disruptive but not always bad — in fact, it’s usually good.

So, these may be the last days for Dharavi. If so, much that is wretched will be lost. And, who knows, maybe something better will arise. Most of the slum-dwellers doubt this. And a few high-rise blocks, scattered across the slum, do not inspire great hope. Many are half-built and slowly mildewing. Lots of their residents, it is said, have already sold up illegally, and moved back to the slums, seeking things that town-planners cannot provide: a sense of history, community and freedom. Dharavi has these, as well as many horrible problems. It is organic and miraculously harmonious. It is intensely human. Unlike the random tower-blocks, Dharavi makes sense.

Actually, so do resident co-operatives, like Mankhurd in east Mumbai.

Mankhurd resettlement co-operative, built by the National Slum Dwellers Federation, in east Mumbai

The issue is financing, maintenance, and incentives — but those are posts for another day.

For small businessmen like him, the redevelopment plan is a nightmare. The slum’s hutment factories, havens from tax and regulation, would be destroyed. In their place would be purpose-built workshops, for rent at commercial rates. “I will be finished,” says Mr Khan, the scholarly looking tailor. For poorer residents, like Ms Ishwar, the widow living in rubbish-blown misery, the story would be different. Her new apartment, unlike her current hovel, would be fit for human habitation. If she, or rather her relatives, sold it, they would be rich. Either way, Mr Korde admits, the scheme will eventually happen.

Count me among those who believe it should happen, because Dharavi is a fixable slum:

We think of land as immutable, but it changes, including its topography, and the presence or absence of clean water is a crucial element in urban success (which is why so many cities are built on rivers). Dharavi was always in urban Bombay, and as other parts of Bombay were built and filled, Dharavi’s sanitary viability plummeted. That dropped land values, making it a promising place for immigrants.

Time and again we see affordable housing — whether slum or almshouse or mobile home or public housing — situated in the worst physical land located closest to the urban core. ‘Worst land’ means lowest, dankest, softest, least serviced (by roads or water/ sewer or power). 

Why do the poor come there?

Because that’s where the money is, and they have to walk to their work.

To fix it, the residents need to be at the table making it happen:

People are smart; communities of people always have some very smart people. Communities can be even smarter than individuals, if the community is knowledgeable and participates constructively — not naively but with an ability to engage and debate and negotiate and learn. That takes some doing, and some time, and the right mix of community people in the community leadership. It’s hard to define how to achieve it, but easy to recognize when it occurs — when the community group or resident council is participating actively in the deal structuring with the explicit goal of making happen not the best possible result, but the best result possible.

To do that, the residents will need both political savvy — which in Mumbai they have, and plenty of it:

Jockin and his colleagues explaining their high-rise co-op to a USAID delegation

And also a financial advisor, and some working capital.  Did someone say Thanksgiving miracle?

Gates millions, slum-dwellers: Thanksgiving miracle?

By NEAL R. PEIRCE

Call it, if you will, the unlikeliest marriage in the world — high-flying capitalist dollars earned by multibillionaire Bill Gates flowing to a network of Asian, African and Latin American slum dwellers who are often obliged to struggle for shelter, fresh water, even access to a toilet.

But in a Thanksgiving Day announcement, the Bill and Melinda Gates Foundation have made it official: It is making a $10 million operational and development grant to Shack/Slum Dwellers International.

[…]

Affordable housing expert David Smith defines the breakthrough in other words: “SDI has cracked the problem of creating bottom-up pressure that catalyzes the poor from inchoate mass into an effective, intelligent counterpart of government and the private sector.” Smith’s nonprofit Affordable Housing Institute will help SDI implement the Gates grant.

Me and my laptop, in Mumbai traffic, as I try to sketch the elements of an International Urban Poor Fund 

Here’s to better tomorrows in Dharavi:

Santa Cruz slum, Mumbai, night

It is 2am, and a violent drumming erupts outside Mr Korde’s house. Booming in a six-beat rhythm, it ends in a crashing roll. This is repeated, again and again, rising as the drummers approach.

The sound is thunderous. A few huge rats rush by the window, fleeing the noise like driven pheasants. And suddenly the drummers appear, parading through the slum, dragging on wheels a huge statue of Durga—a Hindu goddess, a multi-limbed and multi-coloured giantess, astride a tiger.

Flower stall near the temple of Mahalaxmi

On the drum-roll, the processors pause, and golden flares explode either side of the statue. In every doorway, along the alley, slum-dwellers are watching in silence. It is a thrilling and dream-like sight. This is apparently quite normal in Dharavi.

A living place — that can be made better.

I’m hoping to soak up some serenity from the garden Buddha

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As begun in yesterday’s post, the Economist’s lengthy year-end article about Dharavi (Asia’s largest slum) vividly and sympathetically show us life for Mumbai’s poor, and also illustrates so many of the principles about which I’ve previously posted.

Slums are where housing has outrun public infrastructure, and since there ain’t no such thing as free infrastructure, private infrastructure is relatively low quality:

Here beginneth the housing implications – because it provides us a bridge into the relationship between housing and municipal infrastructure.

The house and home is a private good.  My home, my plot of land.  All of its essential benefits are private goods.  My cost of improvement, my appreciation, my security of tenure.

But the modern home is not complete without access (meaning roads) and utilities – meaning power, and water/ sanitation (which we in the developed world call ‘water and sewer’; either way it’s W&S) – in a word, infrastructure.

In the developed and formalized world, these are the province of municipalities – indeed, the whole term ‘municipal finance’ refers to all these variations of infrastructure.  As with many public goods, the ultimate source of repayment is very seldom user fees (which include things like bridge or road tolls); rather, it’s a pledge of municipal revenues (that is, taxes).  The credit markets have concluded that they are willing to finance big immovable infrastructure only if the government stands behind it.

This is telling, for it says that public-good infrastructure cannot pay for itself out of user fees. 

Infrastructure is critical to family health and well-being:

All along the street, water is gushing into blue plastic tanks and aluminium tubs, washing sticky breakfast dishes clean. It flows down the street in a rippling sheet. Bisecting it is an open drain, which gushes torrentially, flushing away the detritus of the previous day.

Business is piling up for the recyclers

From the stink of this, it includes a lot of human excrement—which tiny naked children, squatting with their backsides jutting over the torrent, are busy adding to. In fact, it is not supposed to be used for this purpose. The locals are instead supposed to take their turn at a block of 16 public latrines, serving 300 hutments (or 3,000 people). It costs a rupee a visit—or 30 rupees (75 cents) for a monthly family ticket.

I’ve previously posted about Dharavi’s for-profit co-operative communal toilets.

Hallway of a Dharavi communal toilet (one rupee per use)

Outside the men’s side of the block, a line of bleary-eyed dalits are silently waiting. Most are still dressed for bed, in cotton shawls and sarongs—for custom dictates that they purge before washing. Wordlessly, they usher this foreigner to the front of the queue. And he remembers words of welcome uttered by another Dharavi Marxist, Raju Korde: “A guest is from God, but I’m worried that you won’t like our toilets.” Happily, the Asian-style loos are as clean as they could possibly be.

At 7am the early shift begins in Dharavi’s 15,000 hutment factories. Typically, they consist of one or two jerry-built storeys, stuffed with boys and men sewing cotton, melting plastic, hammering iron and moulding clay. Indeed, it is for its industry, not its size, that Dharavi is most distinctive.

As I said in Cryptobiotica:

Please understand, I am not praising slums as places for people to live.  They can be and often are wretched.  Nevertheless, slums are economically rational, they serve a natural market purpose within cities.  To see them as the byproducts of evil landlords or shiftless residents is to miss the point.  Slums will disappear only when the conditions that make them sensible disappear, and that is a function of government plus time.

And they serve a purpose, most particularly the purpose of forming urban society.

This is the central discovery of microfinance.  A conventional bank originates a loan to a person who has a formal job, a birth certificate, a bank account, a known address, a credit history … all the accoutrements of our formal world.  Ask a banker to make a loan to someone with none of those things, and he cannot do it. 

Yet a microfinancier can, and can make a profit doing it. 

How?  By harnessing the wetware credit bureau, the slum community’s distributed intelligence and knowledge.

Slums create urban jobs:

DVD player repair shop, the railway slums of Mumbai

The clothes, pots, toys and recycled materials its residents produce earn them millions of dollars in annual exports alone. As the sun climbs over Dharavi, a rising timpani of metal on metal, a whirring of small machinery, indicate that the working-day has begun.

Ramesh Kadam is at his desk in the Peela Bangla (Yellow Bungalow) tannery company. One of the oldest in Dharavi, it occupies the same factory, beside a stinking black creek, that Mr Kadam’s grandfather founded in 1918. The site was chosen for its proximity to the main slaughterhouse of Bombay, as Mumbai was called.  

Slums are usually founded on poor land. 

Handling meat and tanning leather are considered unclean in Hinduism, so the factory was built out of sight, on an island, with villagers of the lowly Koli fishing caste mending their nets on its shore.

‘Those people’ are always encouraged to live out of sight.

Ever since I started in affordable housing thirty-plus years ago, knowing nothing about it but what I observed and deduced, I’ve been confronted with prejudice against ‘those’ people:

Those people aren’t like us.

Those people are lazy and just don’t want to work.

Those people are just out to beat the system.

Those people have too many children.

Pots for sale, Kibera, Nairobi, Kenya

This makes them vulnerable to climate than better neighborhoods.

Indeed, much of Dharavi was underwater at that time. And so it is today when the monsoon comes, flooding the slum with black creek water and sewage.

Dharavi is where these migrants claimed—or reclaimed—a plot. Shashi’s parents were propelled from Karnataka by a drought, arriving in the city with five small children in 1976. “In the village we were starving,” says his mother, Shantabai, creator of the tasty bean curry. “Here, we were poor, but we could eat.”

Slums are exceedingly complex.  Cities are interdependent, and slums are their most interdependent part:

Recently I was in Mumbai for a few days, meeting Jockin Arputham, head of India’s National Slum Dwellers Federation (about which more in future blog posts).  Mumbai traffic being what it is, Jockin’s principal office is his car. 

Life in the fast lane – if it looks like we’re not moving, it’s because we aren’t

We were bouncing around from here to there, and Jockin was either regaling, persuading, cajoling, chiding, negotiating, wheedling, praising, and brainstorming (he does more or less all of these more or less all the time), via his bucket brigade of cell phones. 

Jockin Arputham, hard at work

Idly I picked up that day’s issue [October 8, 2007 – Ed.] of the Times of India, and read a series of pieces, placed adjacent to one another, that together represent an extraordinary demonstration of how, in cities, everything is connected to everything else, and in rapidly urbanizing or growing cities, everything comes back to land and property.  Mumbai is about as big a city as there is – 18,000,000 people and rising – and when you are there, the contradictions and aspirations and squalor are well-nigh overwhelming.  And they’re all in one issue of the local newspaper.

Slums and cities are where strangers live peacably side by side.

With this history, Dharavi’s population is diverse. Tamils, Andhras, Assamese, Biharis, Bengalis and local Maharatis; all India’s peoples are here. Perhaps a little over half belong to India’s poorest groups: dalits and Muslims. They tend to live semi-ghettoised, as in Shiva Shakti Nagar, within the same language group. Indeed, the poorer Dharavi’s residents are, the more caste-sensitive they are likely to be. Mr Kadam is a dhor, of the dalit tanning caste. Yet as his business thrived, his family became middle class, a powerful identity. Last year Mr Kadam exported 25,000 leather belts to Wal-Mart in America. He has moved his family from Dharavi to a smart suburb of Mumbai. Laughing proudly, he says his teenage son refuses to visit the ancestral factory, which he considers dirty.

The four children of Venkatesh Dhobi, all aged ten years and under, cannot shun their ancestral pool of filth. They work every day in this well of brown water, beside a litter-strewn railway line.

Crossing the railway tracks, east Mumbai

They pass unwashed clothes into the pool, where 20 adult dhobis—of the dalit washer caste—soak and scrub them. With an explosive grunt to keep rhythmic time—a sound not unlike that emitted by Japanese Noh theatre actors—together they thwack the heavy sopping clothes onto smooth stones. The children then strew them between the railway tracks to dry.

Venkatesh Dhobi, swamped with work

They are the fifth generation of Dhobis to work at this pool. The first, says Mr Dhobi, was his great-grandmother, who arrived from Mehaboob Nagar, in Andhra Pradesh, a century ago. “For 100 years, we have served this city,” says Mr Dhobi, a short 35-year-old with the torso of an underpants model. And yet their rural roots have survived. All the dhobis in the pool—which is called Dhobi Ghat—are from Mehaboob Nagar. Aged 14, Mr Dhobi was married there to a local girl. The big changes of the past century, in his view, seem to be that Dhobi Ghat has got much dirtier and people send fewer clothes to be washed in it. India’s swelling middle class—people like Mr Kadam—prefer washing-machines. Together, Mr Dhobi, his wife and four children earn less than 200 rupees a day.

Dharavi’s diversity can be a problem. In 1992 communal rioting swept Bombay, sparking battles in the slum between Hindus and Muslims. Around 200 people were killed. But multi-culturalism is also a blessing. Unlike the city’s more homogeneous shanties—including a rusty sprawl of 300,000 mostly Maharatis along the runways of the city’s airport—Dharavi is too fractured, and massive, to be claimed as a vote-bank by any gangster-politician.

The slums abutting Mumbai airport

Slums are the redoubts of crime

I’ve previously posted about the societal cost of clandestine occupancy — people who use homes as a shield for illegal activities.  

When a whole neighborhood becomes a haven of clandestine occupancy, not only does it threaten its own denizens, it endangers all around it.  Unless the downward spiral of insular lawless tyranny is reversed, the consequences are appeasement, accommodation, or violence, as described in a horrifying New York Times story on the raids into Haiti’s Cite Soleil.

Slums are a place for clandestine occupancy:

But the slum has known gangsters. In the 1970s a godfather of the Bombay mafia, Vardarajan Mudaliyar, more or less ruled it. Using the slum’s large Tamil community—his own—as a base, he ran moonshine and prostitution rackets. He also claimed ownership over thousands of illegal hutments, and extracted rents from their occupants. So did his gangster rivals. In those days, Dharavi was dangerous.

Slums are a wealth extraction machine:

For a slum, what we see is squalor, as shown by the definitions in the Free Dictionary (”A heavily populated urban area characterized by substandard housing and squalor”) or Wikipedia (”A slum is a district of a city or town which is usually inhabited by the very poor or socially disadvantaged”) — but these are only the manifested symptoms.  Slums reconstitute themselves, seemingly without effort, restoring themselves to their previous squalid state.  They do so because they are economically rational, and their economic reason is wealth extraction.  Slums are a giant wealth-extraction machine, distilling human beings to their financial essence and pumping that value off-site. 

Slums disappear only slowly, as government makes change to put slumlords out of business:

To improve a neighborhood, raise the rent-paying power of its inhabitants.  To do that, raise their ability to earn money, and with it their choices about where to live and what to invest.

How do you eradicate slums?  You drive them bankrupt.

The way to win

And how can one bankrupt a slumlord?

[Concluded tomorrow in Part 3.]

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