All others pay cash?

Sherlock Holmes believed that debt says, I don’t trust you.  As he put it:

 “Consider debt.   I lend you money, which you promise to repay, in regular installments.  Everything about the transaction breathes distrust.  In fact, while I personally am no romantic” — Watson broke out in a fit of coughing — “I rather imagine that the faces on bank notes, as they are being passed over by a loan officer, speak words like these.”

“You have violated your loan agreement.”

“I quite take your point,” said Watson.  “Even the word ‘indenture’ reminds us of our fiscal servitude.  But do not all capital relationships imply a similar dependency and superiority? “

In the developed and formalized world they do, but in the global south, lending is much less administrative and much more personal, as revealed by this interesting exchange between Wall Street Journal interviewer Emily Parker and Muhammad Yunus of Bangladesh’s Grameen Bank:

I mention that Mr. Yunus’s way of doing business seems like an “old-fashioned” notion of credit, which a few centuries back was apparently closer to the Latin credere (to believe or trust). To have “credit” in a community, for example, meant that you could be trusted to pay back your debts.

Credulity, according to Hogarth right alongside superstition and fanaticism

“I use to say this in my speeches, in the early days,” he responds. “I said: look at the world, how funny it is.  They took the word credit which means trust, and built a whole edifice of credit institutions, refined, very sophisticated, entirely based on distrust.”  At Grameen, he says, “we went back to the original meaning of credit.”

It’s incredible what you can do if you believe in yourself

In doing so, Mr. Yunus and Grameen have returned to one of the two great strands from which banking arose, the credit union, where everybody pools their capital, and everybody knows everybody else:

Grameen works a little differently from your average American financial institution. The Grameen banker comes to the borrowers, either in their homes or businesses. Women borrowers take priority. There is no need for collateral, credit-history checks, legalities or complicated paperwork. Just credit, plain and simple.

Instead of hardware and software, Mr. Yunus’s lending relies on wetware — people’s knowledge of each other.

Daily savings/ lending cooperative ledger book, Mumbai

“Because not only are we poorest, [borrowers] don’t have collateral, they don’t have guarantees, they don’t have lawyers, nothing.  How risky can you get?  Still, our money comes back.”  Grameen has claimed that over 98% of their debts are repaid.

Compared with the massive financial edifices that lend to millions of individuals, Grameen’s lenders have several assets:

1.         Tight credit.  Grameen won’t allow its borrowers to become over-levered:

“When borrowers inflate their demands, you don’t know how to screen it,” he says of the U.S. system. “In our bank, a borrower can say, I want $10,000 — I don’t think any Grameen bank anywhere will give her $10,000.  We know what is the limit within in which we operate.”

2.         Small loans, very short duration.  The core principle of microfinance is baby steps, bite-sized pieces.  The resulting interest rates are high — if measured in abstract percentage terms, but small measured in dollars and cents. 

The more cycles, the stronger the network

3.         Tiny geography.  They lend only to a very small community, and their loan officers know where everybody lives.

4.         Group peer pressure.  Loans are made to people who are well established within an ethnic or tribal community, so there is a constellation of people.

Each borrower joins a group of people from similar social and economic conditions, and the group approves the loan request of each member. In this way, the group assumes “moral responsibility” for the loan.

The Board of Directors, Mlolongo savings cooperative, Nairobi, Kenya

In other words, Mr. Yunus turns the community into his own wetware credit bureau.

5.         Strong collection procedures.  They pay close attention to their borrowers, and use the most basic of penalties — denial of future credit.

Why is Grameen’s debt-repayment rate so high? “Self-interest,” is one reason. “For the first time, she has been given this opportunity to make money, make an income. Now she has a choice: she can pay back the loan so that she can continue with this door open and she can move on step by step. Or she says, enough is enough, I’m not going to pay back, I’m going to enjoy the money I got. What happens? The door gets closed.”

No microcredit for you, young lady

Over the last year, I’ve quizzed people around the world who make small loans; universally, they have a principle of denying credit to a delinquent borrower for a period roughly equal to the (short) term of the defaulted loan.

Mr. Yunus freely acknowledges that the free market has done a great deal for the poor. “I didn’t say that what is there is wrong. I said the structure was not complete. One piece was missing. We couldn’t express within the business world all the things we want to do for others.”

Mr. Yunus is right; the talent updraft tends to sweep up the best and brightest, who migrate up the income pyramid away from banking the very poorest.

If not us, who?

At the same time, Mr. Yunus’s lending almost certainly violates all the anti-discrimination and anti-redlining laws applicable to banks.  That’s the wetware credit bureau’s downside — if the community doesn’t like you, you’ll be frozen out.

Still, as I’ve posted before, financial velocity is an intrinsically good thing, because it liberates people’s minds to be entrepreneurial:

As we saw in my five-part series on Turkey, capital liquidity triggers an economic boom, and as a result affordable housing becomes a rising political imperative. Innovation begets wealth which begets capital, which begets more innovation:

The Journal echoes these sentiments:

Increasing options, after all, is what Mr. Yunus is about. He looks at a poor person and sees a potential entrepreneur. By increasing individuals’ economic power, he gives them greater freedom to make their own decisions.

Who’s most often the victim of credit bigotry?  Women:

Savings collaborative, Mahila Milan, Mumbai

Mr. Yunus’s use of the female pronoun is not accidental. He says Grameen Bank’s borrowers are 97% women, the result of a very deliberate policy.  

Something like 75% of Patrimonio Hoy’s borrowers are women.  So are most members of Slum Dwellers International. 

Liberating credit empowers women. 

It all started when Mr. Yunus complained that Bangladesh’s banks weren’t lending to women at all. “I was trying to show in how many different ways conventional banking went wrong. So when I began I wanted to make sure that I do not face the same complaint against me. So I wanted to have 50% of my borrowers as women.”

A few weeks ago in Colombo, Sri Lanka, I facilitated a mock loan meeting with members of the SDI finance committee, where each in turn presented his or her proposed capital advance, and the others quizzed the mock borrower. 

My traveling office: a laptop in a backpack

I was struck by their mutual blunt pragmatism — they beat each other up pretty well.  All I had to do was write down what they said.

Mr. Yunus likes to tell a story of going into a village and meeting one of his borrowers, whose daughter has risen to become a doctor. “You look at the mother, that illiterate woman who borrowed money to raise chickens, to buy a cow to send the daughter to school, and now she’s a doctor.  And I get the question in my mind: the mother could have been a doctor too,” he says.

The wetware credit bureau works because people are smart.  Tell them the rules, demonstrate that the rules apply to everybody, and they can move mountains.

A savings cooperative passbook, Mumbai

“The whole thing is about making those opportunities available, so that they can change their lives.”

Aim high

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For nearly two months I’ve been hoping to be able to write this post as I, like much of the world, watched in anxious passivity as Kenya brought itself to the brink of a tribally based civil war … and then, apparently, brought itself back from the cliff.  As reported in the Boston Globe:

Kenya to build coalition government

NAIROBI – Kenya’s presidential rivals yesterday [That is, 28 Feb – Ed.] agreed to share power in a coalition government aimed at ending postelection chaos that has killed 1,000 people and brought this once-promising East African nation to the brink of collapse.

Under the terms of a deal signed by President Mwai Kibaki and opposition leader Raila Odinga, their parties will:

1.      Divide Cabinet positions 50-50, and

2.       Amend the constitution to create a prime minister position for Odinga, who will share power with the president.

All along, this outcome was, if not the best possible result, the best result actually possible.  International observers are unanimous that the election was massively flawed, and I’ve heard enough from my Kenyan friends to believe that it was flawed on both sides.  With each party having strong entrenched tribal heartlands, the ballot-box stuffing could have occurred in equal measures. 

Public reaction to the deal varied, often depending on ethnicity and political persuasion.

In Odinga strongholds, including the western city of Kisumu and the Nairobi slum of Kibera, crowds danced and sang in the streets.

Sympathizers of Kenya’s opposition leader Raila Odinga celebrated in Kisumu as they heard a radio transmission about the pact. (Yasuyoshi Chiba/AFP/Getty Images)

To any protagonist, compromise is intrinsically less than ideal – and here, it’s clear that the opposition gained more than it lost, a fact of which everyone is aware (the happy people pictured are Odinga supporters). 

The agreement marks a significant step toward resolving Kenya’s political crisis, and most citizens, who had feared that failed peace talks would trigger more violence, gave a collective sigh of relief. Likewise, the news brought praise from the United States and other Western governments, which had come to count on Kenya as an economic partner and source of stability in East Africa.

With hindsight, and even as it was taking place, the explosion into flames of a country many people had seen as a model of multi-ethnic civility shocked not only the outside world, but also the Kenyans themselves. 

Nairobi, January 4, 2008

As I wrote in Always the poor suffer first, I found myself personally affected:

From the BBC site: People walk through the charred remains of a market in Nairobi’s Kibera slum

I’ve been to Kibera; I’ve seen how people live and what they aspire to:

I’ve done work designing financial and programmatic models to finance slum upgrading in Kenya.  The models were predicated on government making commitments, and keeping them.  When the election came up, with its talk of slum improvements, I was among those very hopeful:

Something potentially remarkable is happening in Kenya right now, and it’s happening because of slums, or more precisely Kibera, Africa’s largest slum.  Kibera’s residents, long ignored in economic and policy terms, may just decide Kenya’s next president. 

This increased focus on Kibera is heartening in many ways.  Kibera’s people need a voice, and slums are vote banks.  As I wrote in a post entitled urban cryptobiotica:

Slumdwellers can speak; in the voting booth wealth disappears.  People who live in slums are just as smart as any of us.  Even though individual slumdwellers are as nothing politically, when they join together and take control of their vote bank potential, they become a force that the highest officials respond to.  Many date the fall of apartheid from the Soweto riots.  Here in the US, Watts led directly to the National Housing Act. 

In Mumbai, when Jockin called out the slumdwellers, they stopped the airport from running. 

Mumbai airport today, with slums that lap right up to the runways

It was a demonstration of distributed network intelligence, and it worked.

Just as government is a factory that produces two products (money and laws), politics is a game with two counters, money and votes.  Individually, slumdwellers can be ignored; they are effective only when collective. 

When slums become democratic, slums produce leaders.

Given Kenya’s sordid history, with the kleptocratic Daniel arap Moi in power as recently as 2002, to have a semblance of functioning democracy is real progress.

Real democracy, even if flawed, creates political pressure, and that creates political vaporware, such as Mr. Odinga’s pledges.  From elections come political capital, and political equity.

Then came the power grab, and Kenya’s eruption into looting, shooting, and killing.

Nairobi, January 4, 2008

The scenes reminded me of one of Star Trek’s more didactic and yet powerful allegorical episodes.  Entitled Let that be your last battlefield, it featured two races of aliens sharing a single planet, each half white and half black, but on different sides of their faces.  One of them, Commander Bele (rhymes with real), played with sinister superiority by Frank Gorshin, explains what should have been self-evident to every thinking being:

Obviously of the same race as Lokai, however, the sides of Bele’s black and white skin are reversed. The difference is pointed out by Bele to a perplexed Captain Kirk who asks what is the difference between them, to which he replies, “Isn’t it obvious? Lokai is white on the right side. All his people are white on the right side.”

Commander Bele, obviously superior because he is white on the left side

Bele explains he is a police commissioner from Cheron and on a mission to retrieve political traitors. His current quarry is Lokai who he has been chasing for what Bele claims to be 50,000 Earth years. Bele then instructs Captain Kirk to take him to see his “prisoner”. Bele is taken to Lokai, but Lokai reacts fearfully to Bele’s presence and strongly demands he be taken away. The two aliens begin arguing about slavery and racial segregation which almost come to blows.

Broadcast as it was in early 1969, with the memory of burning Watts, Detroit, Harlem and other cities vivid in viewers’ imaginations, its liberal anti-racist message was overt.  Bele and Lokai agree on only two things: they hate each other, and the bystanders are cowards:

Bele: You’ve combed the galaxy and all you’ve come up with is mono-colored trash, bleeding hearts and do-gooders. You’re dead, you half-white.

Lokai: [to the crew] You useless piles of bland flesh.

Kirk eventually takes them back to their home planet, where they discover:

Once there, the two aliens find the planet’s population completely wiped out by a global war fueled by insane racial hatred.

Both Lokai and Bele stare silently at the destruction on the monitor and realize they are the only ones left of their race (or, as they see it, their races).

Whose fault was it?

Instead of calling a truce, the two beings begin to blame each other for the destruction of the planet and a physical brawl ensues. As the two aliens fight, their innate powers radiate, cloaking them with an energy aura that threatens to damage the ship. With no other choice, Kirk sadly allows the two aliens to chase each other down to their obliterated world to decide their own fates, consumed by their now self-perpetuating mutual hate.

The story closes with Bele and Lokai chasing one another against a backdrop of burning buildings (taken, as I recall, from the Watts riots):

[Lokai and Bele have transported to their decimated world]

Spock: All that matters to them… is their hate.
Uhura: Do you suppose that’s all they ever had, sir?
Kirk: No. But that’s all they have left.

For weeks I could never quite banish this episode from my mind, as the world watched while Kenya’s elite – and make no mistake, though Mr. Odinga is of a different racial tribe, he comes from the same oligarchic elite that has given Kenya all its leaders since independence – risk their nation’s future as they fought for control of it.

The feelings got more painful last week, when I was in Colombo, Sri Lanka, working with Slum Dwellers International’s board on the design of their International Urban Poor Fund.  To help everybody understand what the Fund entails, we did a role-playing exercise where the federation representative from each of six countries presented a funding request.  One of them, by Ezekiel from Kenya, was for the rebuilding of Toi Market, which had been a heartening success story until it was engulfed in the riots and flames.

Friday morning, as we were waiting for the session to start, I displayed via my wi-fi laptop and the LED projector the New York Times front-page story

Standing behind chairs, President Mwai Kibaki of Kenya, left, and Raila Odinga prepared to sign a deal on Thursday in Nairobi.

You can imagine how quiet it was as a roomful of slum dwellers from fifteen countries read.

Key details of the coalition government have yet to be determined, including how exactly the president and prime minister will share powers, how to divide Cabinet posts, how disputes will be resolved, and what happens if the coalition falls apart. Parliament is due to convene on March 6 to begin revising the constitution.

In the final hours of negotiation, Kibaki made significant concessions to the opposition, agreeing to a constitutional amendment that just one day earlier he had ruled out.

Give credit to Kofi Annan for talking them into it, and to the United States for leading the constructive pressure that made them agree:

His change of heart came amid intense pressure from the United States and others in the international community, who voiced warnings about possible sanctions and isolation for those perceived to be blocking a deal.

In addition, neighboring countries, including Uganda, Rwanda, and Tanzania, pushed Kibaki to settle because their economies rely heavily on Kenyan ports and have suffered during the unrest.

Sense prevailed:

After signing the agreement, Kibaki called on Kenyans to forget the ethnic clashes of the last two months and live together in peace. “Kenya has room for all of us,” he said.

Though there is a notional settlement, it may collapse:

But many Kenyans also said they were taking a wait-and-see attitude to determine whether the rivals are genuinely committed and willing to work together. They noted that their nation still faces sizable challenges, including a shattered economy, rising ethnic tensions, and 350,000 people displaced by violence since the Dec. 27 elections.

So far the swords have barely been lowered, much less beaten into plowshares.  Kenya faces enormous challenges, and a need for capital and commitment from its friends:

“They are solving their political problems, but not our problems yet,” said Alfonse Mutuku, 24, who lives in a displacement camp near Limuru, north of Nairobi.

Money cannot buy peace, but sometimes money can give peace a chance.  As I wrote two months ago, when hope was fighting with observation:

Democracy is a process, not an event.  Democracy empowers the poor.  Empowerment occurs by fits and starts.  It involves venality and crass self-interest and scheming.  Like lots of other things, it’s messier in the event than the memory. 

ODM supporter celebrating as a shop burns, Saturday

Given Kenya’s sordid history, with the kleptocratic Daniel arap Moi in power as recently as 2002, to have a semblance of functioning democracy is real progress.

Real democracy, even if flawed, creates political pressure, and that creates political vaporware, such as Mr. Odinga’s pledges.  From elections come political capital, and political equity.

Kenya’s road may seem longer today, two months after riots tore the country apart.  I think not.  As Churchill said, after a bright spot in a multi-year global nightmare:

Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning

Good luck to Kenya, and to Kibera’s and Kisumu’s people.

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When tragedy strikes, the poor suffer first.  When violence breaks out, the poor suffer most. 

Riots are so depressing, I think, because they are the poor expressing rage and the immediate effect of their rage is to make themselves poorer — by destroying what the poor have. 

Such a spectacle appears to be gripping Kenya now, at least to judge by the news reports.  As reported by BBC News:

More than 300 people have been killed and some 70,000 displaced since Sunday.

From the BBC site: People walk through the charred remains of a market in Nairobi’s Kibera slum

The violence was triggered by claims of vote rigging in the 27 December presidential election.

Mr Kibaki on Thursday called for an end to the unrest and said that once that had happened he would be prepared to speak to the opposition.

Sooner or later, slums always erupt.  That’s what I wrote in November, 2005, when Paris’s banlieuex saw rioting:

Riots occur in slums through a combination of gradually intolerable pressure and random visceral spark.  Pressure rises through the unholy quintet of squalor, isolation, unemployment (which breeds boredom and anger), gangs, and crime.   For forty years, ever since De Gaulle’s Algerian escapade, France has been taking in North African Muslims and warehousing them –out of sight, out of mind — in hideous public-housing high-rises.

And: 

Severe income concentration is slowly but ultimately toxic.  If we ignore the slums, for years and even decades our failure has no cost, but once the lid is off the Pandora’s box of horrors, television magnifies the effect.  Anger feeds on anger, violence is briefly intoxicating, rage finds an outlet.

In writing all this, I’m cautious and conflicted.  I have friends in Kenya, some of them in responsible positions.  First reports are always wrong, especially when they are fragmentary and come a great distance. 

Police used tear gas and water cannon to disperse thousands of opposition supporters on Thursday as they tried to hold a banned rally in the Kenyan capital’s Uhuru (Freedom) Park.

Demonstrators poured out of Kibera slum and other shanty towns after dawn but were prevented from reaching the centre of Nairobi by a massive security presence.

Police dispersing a crowd with tear gas and water cannons

Similar reports come from the New York Times:

Protesters ran away from tear gas in the Kibera area of Nairobi, Kenya.

NAIROBI, Kenya — Nairobi degenerated deeper into violence on Thursday as riot police used tear gas, batons and water cannons to turn back thousands of opposition supporters who tried to rally in the Kenyan capital.

Protesters burned tires, smashed store windows and fought with the police across the city.

Some demonstrators showed restraint, yelling to the rowdier members in their ranks, “Weka mawe! Weka mawe!” which means, “Put down the stones.”

Other protesters torched businesses as police officers in padded suits chased them away from the downtown area.

“We will burn this country down!” screamed Abdullah Mohammed, a young protester. He promptly set fire to a mountain of tires.

Kenya is predominantly Christian, heavily Catholic.  Some of the Kenyans I know worry about the Muslim influence.

Kenyan police used teargas and water cannons against several hundred anti-government protesters in Nairobi, Kenya.

Whatever the cause, what is happening now is horrible:

One band of opposition supporters tore through a Nairobi slum, attacking residents and raping several women, residents said. The residents caught one of the thugs and hacked him to death. The man’s body lay on the street for some time because police officers said it was too dangerous to wade into the slum to retrieve it.

Housing and civilization are tied to economics:

The effects of the insecurity here are rippling across all of East Africa. Fuel trucks, food, supplies and industrial materials are unable to cross from Kenya into Uganda, Congo, Rwanda, Sudan and other countries that depend on Kenya for their trade.

Nairobi is astride the main east-west highway through sub-Saharan Africa, starting in Mombasa and ending in Kinshasa.

Kenya’s tea and coffee growers are having problems getting their commodities to the market.

This post isn’t really about housing, but since I posted about Kenya on Monday — posted hopefully, in the face of ominous reports — I feel duty-bound to report what I see, from the safety and antiseptic distance of my computer screen.  My previous post alluded to Kenya’s geographic and tribal divisions, which are stark.

From the BBC Web site

Striking to me when I visited Kenya two years ago was how, despite massive income inequality and complex and deep tribal divisions, the country was cheerful, optimistic, and evidently progressive.  As the BBC put it:
 

Tribal violence spirals in Kenya,” screams the front page banner in the International Herald Tribune. “Kenya plunges into interethnic violence,” says Le Monde. 
 

But headlines can be misleading.  It is certainly true that the post-electoral violence in Kenya has taken on a tribal character.  Members of the incumbent (and controversially re-installed) President Mwai Kibaki’s Kikuyu tribe have been pitted against other smaller tribes.  But that is only part of the story. 
 

A more complete headline might be: “Tribal differences in Kenya, normally accepted peacefully, are exploited by politicians hungry for power who can manipulate poverty-stricken population.” 

The ethnic and political violence in Kenya has renewed debate about whether multi-party democracy can be successful in an African context where ethnic loyalties are strong. 
 

Opposition supporters were blocked by tear gas as they tried to attend a rally in Nairobi, Kenya, on Thursday
 

The BBC goes on to express the hope I feel about democracy in an environment of communications:

Many of those governments are far from perfect. 
 

But the advent of at least some democracy – assisted by relatively cheap technology such as FM radio stations and mobile phones which can spread information easily – has encouraged what seems to be an irreversible cultural sea-change in African attitudes to those in power.  Put bluntly, that change means that people can no longer be comprehensively fooled or dictated to. 
 

It is still possible for politicians to cheat at elections – for example through the vehicle of ethnicity.  But the new freedoms, coupled with the new technology, make it almost impossible for politicians to do this without people knowing what is going on. 
 

That is a good start, African intellectuals say, and it may one day mean the end of negative tribalism. 
 

Is that what’s happening now?  Are cynical leaders (of either or both parties) simply trying to grasp or hold on to power?
 

Supporters of President Kibaki (a member of Kenya’s predominant Kikuyu tribe) and Mr Odinga (from the Luo community) have accused each other of genocide and ethnic cleansing in the post-poll unrest. 
 

Looters in Kibera
 

In spite of the frightening but fragmentary reports, I still have hopes — that the tension will be defused, and that the crisis will lead to a strengthening of democracy, and an awareness that wherever there are vast oceans of the poor, anyone who is not poor needs, out of decency or self-interest, to do something about it.
 

I have hopes.  Right now, that is about all we have.
 

Will the votes mean change?

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Nov. 22, 2007, 1:17AM
Gates millions, slum-dwellers: Thanksgiving miracle?

By NEAL R. PEIRCE

A man who knows how to tell a story in 800 words

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.

Communal toilet, Dharavi, Mumbai, built by NSDF in partnership with local government

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.

Society for the Promotion of Area Resource Centers, National Slum Dwellers Federation, and Mahila Milan

The group, known by the initials SDI and formed in India [and South Africa -- Ed.] in 1996, is a loose network of grass-roots organizations of the urban poor. It’s grown to millions of members in 24 nations, cities spread from Manila to Cape Town, Mumbai to Sao Paulo. Typically, members are women ready to share their meager savings in collective efforts to upgrade their homes, secure titles to the land their houses sit on, build a latrine block, perhaps start a school.

The ladies of one chapter of Mahila Milan, Mumbai

Slum dwellers sit right across the table from local government authorities, designing projects and negotiating how they’ll be financed and carried out. It’s a far cry from aid programs conceived elsewhere and then imposed by the United Nations or World Bank, said Jockin Arputham, the charismatic veteran leader of the National Slum Dwellers Federation of India and resident of Mumbai’s massive Dharavi slum, in a telephone interview.

Jockin Arputham, cell phone always at the ready

In fact, it’s the failure of the big international aid agencies to materially improve the condition of the world’s slum dwellers — estimated at 1 billion and growing — that’s drawn special attention to SDI.

SDI’s neighborhood organizations, notes Gates Foundation program officer Melanie Walker, “have an amazing track record. They have buy-in at the community level — it’s not outsiders imposing some program. This comes from the heart of the community — people who have ’skin in the game.’ They’re vested in the work. They do it all themselves.”

Oshiwira II low-income co-operative, Mumbai, being built by SPARC and NDSF

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.

David Smith’s laptop, in Mumbai traffic, as I try to sketch the elements of an International Urban Poor Fund

To be precise, AHI has been engaged by SDI as its financial advisor, to assist SDI in its design and financial structure of what we are currently calling the International Urban Poor Fund.

Gates’ Walker acknowledges it was “a little bit scary” to contemplate granting $10 million to “people without a bank account.” But Gates watched SDI operations for some time and then decided to go ahead after meeting several members of its leadership team at a Global Urban Summit organized by the Rockefeller Foundation in Bellagio, Italy, last July.

Rose Molokoane of South Africa, at Bellagio, July, 2007

This idea was hatched at Bellagio, where several folks from SDI — Rose Molokoane of South Africa, Jane Weru of Kenya, and Joel Bolnick of Cape Town — met Melanie Walker of Gates, and I met all of them.  We were sitting around in one of the breakout sessions, and they were describing their vision for an urban fund.  Hearing their description, I blurted out, “you need an investment banker!”

One thing led to another — and here we are.

There’s some parallel in the Bill Gates and SDI stories, says Walker — both entrepreneurial, both risk-taking. “We’re basically betting on their track record and integrity,” she notes, adding: “We expect our $10 million to be matched several times over by governments and previously unhelpful municipalities.”

Sheela Patel of Mumbai, SDI’s board chair, says that through the grant, the Gates foundation “is also learning how the poor themselves can be serious actors in the development process” — possibly a big breakthrough for global funders.

Reviewing floor plans at Oshiwira II, Mumbai, 2007

But until I contacted Joel Bolnick, an SDI director and founder from Cape Town, it wasn’t clear how critical the Gates money may be, as Bolnick puts it, “in the hands of people who are homeless and landless directly — turning them from being beneficiaries into partners.”

Joel Bolnick of SDI Cape Town, at Bellagio, July, 2007

Most often, he said, when local groups demand that government give land, housing or infrastructure for free, “they get none of it.” But, he notes, SDI affiliates “have resources, networks, capacity and savings they can put on the table.” And with the Gates money, they’ll be even stronger than that, able to say in negotiations with a government in India or Cambodia, for example — “If you can’t help us here, we’ll take the money and put it on the table for a deal in Zambia instead.”

Scaffolding at Oshiwira II, Mumbai

Money and commitment make it go up

If the idea of slum dwellers playing one country against another surprises you, try this one: slum dwellers as venture capitalists.

As David Smith puts it, SDI five years ago was still getting its sea legs, not yet Internet-savvy, not yet organized with an effective secretariat office in Cape Town. It couldn’t have handled a Gates-sized grant. But it’s now matured, he asserts, with sufficient experience and savvy “to leverage the capital into ongoing partnerships and income streams.”

The very strength of the Gates grant, says Smith, is that it represents unconditional, true risk money. Of course, this means that some deals may fail, some of the money may be lost. But like private investors, SDI can learn from failures, gain from experience and start to build true equity. “It’s venture capital for self-taught, self-chosen, effective entrepreneurs.”

I’m self-taught in this business too, so you can understand my eagerness to work with these folks.

Connect that thought back to the wretched conditions, the perils of sickness, exposure, even early death that so many of the developing world’s slum dwellers face. Did someone say Thanksgiving Day miracle?

Looking toward a better future, Jadibanagar, Ahmedabad, India

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The violence appears to be subsiding:

The first thing everyone mentions is the helicopters: the relentless throbbing of blades cutting through the skies above and the probing searchlights that have kept the residents awake over the last four nights.

Helicopter flying over VIlliers

The gunfire that echoed off the walls of the tower blocks in a violent outburst of rioting earlier this week has subsided. 

But the calm, enforced by a thousand officers deployed at sunset every night, had a precarious feel to it today as locals tried to make do with an undeclared state of emergency that has hobbled their daily lives in multiple ways.

“It feels like we live in a war zone,” said Nadege Tanier, a 40-year-old mother of two, as she walked by the burned-out hulk of a garbage truck still reeking of burned tires.

There is no curfew, but few people go out after dark when rows of shielded officers move in to take position around this town.  Buses, a popular target for firebombs in the past, have stopped running in the early evenings, making it hard for people to come home from work.  Many shops lock up hours before their normal closing time, partly for fear of vandalism, partly because few customers dare shop after dark. The Tunisian owner of a local bakery, Habib Friaa, said his staff was baking only half as many baguettes as usual because business had slumped.

Baghdad?  Fallujah?  No, the bucolically misnamed Villiers-le-Bel, France, as reported in last week’s New York Times:

President Nicolas Sarkozy condemned the recent rioting in harsh terms today, blaming what he called a “thugocracy” of criminals for the violence.  “I reject any form of other-worldly naivete that wants to see a victim of society in anyone who breaks the law, a social problem in any riot,” he said in a speech to police officers west of Paris.  “What happened in Villiers-le-Bel has nothing to do with a social crisis. It has everything to do with a ‘thugocracy.’”

M. Sarkozy is correct.

The rioters are utterly confident the police will not fire upon them

But in interviews with residents today, it became plain that there was little sympathy for rioters claiming to seek revenge for their friends’ deaths.

“I don’t like the way police are treating the kids sometimes and I know they have not got many economic opportunities, but there is no excuse for the violence and the destruction,” said Nora Hemmal, a Moroccan immigrant, who had hoped to enroll her 1-year-old daughter next year in the nursery which was destroyed. “Most of us are just caught in the middle.”

I have no sympathy for the rioters’ actions, and every sympathy for their frustrations.  Not only was this entirely predictable, its recurrence is even more predictable. 

Two years ago, suburban Paris went up into a city of flames.  After an orgy-like week of destruction that I wrote about in L’horloge orange, things finally calmed down.

Then what?  As I posted in French urban policy: fixing jobs and houses:

As car torchings taper off due among other things to a substantially increased police presence, President Chirac’s ninety-day extension of the state of emergency has bought the French government a brief respite — but to do what?  In its Charlemagne essay, the Economist nails France’s problem:

But the riots in France point to one particular area in which Europe has been unusually bad: integrating immigrant families from the second and third generations.

Charlemagne accurately describes why:

The second big motor of integration is home-ownership, especially important in the second and third generations.  This gives people a stake in society, something they can lose.  Thanks to cheap mortgages and an advanced banking system, half of Latinos in America own their own homes.  Britain, after its council-house sales and property booms, also encourages house ownership.  In contrast, most of the blocks in the French banlieues are publicly owned. 

Between them, a job and a house help to create not only more integration but also greater social mobility.  Latinos supported America’s turn towards assimilation because they feared the trap of Spanish-language ghettos.  But the banlieues are full of people who have grown up without jobs, or any hope of getting a better income or a better place to live.  For them, integration is a deceit, not a promise.

A job and a house will not solve everything.  The father of one of the July 7th London bombers owned two shops, two houses and a Mercedes.  But if you want to know why second- and third-generation immigrants integrate more in some countries than others, jobs and houses are a good place to start.

Indeed, even President Chirac gets that message, although his approach sounds like so much vaporware. 

What needed to be done?  As I wrote in Fixing French housing policy: tear down the high-rises:

With the violence waning under the heavy sedation of a state of emergency, the French have bought themselves a winter of quiet desperation.  But time is useless … unless one uses it to act.  What is the prescription for fixing France’s bankrupt urban housing policy?

Tear them all down.

Tear down all the high-rises.

Clichy-sous-Bois, the morning after

Not because of the riots, in spite of the riots.

Yet about the French government, I was cynical and skeptical:

Watch the feet, not the hands, coaches intone when they teach basketball defense, because while the hands are where the opponent wants you to look, the body goes where the feet go.

The French riots are a catastrophe, but does the French government see the catastrophe as mainly political (optical) or policy (substantive)?  Or, said more properly, since all government is comprised of self-interested individuals, do French elected officials see the catastrophe in policy terms — the essential precondition of fundamental reform, which in this case means tearing down the hideous high-rises — or merely political ones?

They’re saying the right things:

[French Prime Minister Dominique de Villepin] said the government was launching a “very intensive” program to help deprived neighborhoods, including tripling the scholarships to boarding schools given to children from these areas.

Is this political commitment, or political vaporware?  Does the French government tackle its massive problem just with laws, or with money also?  The next few weeks will tell us. 

He said the government wanted to create more tax-free zones in deprived areas, but also wanted people in these areas to accept jobs outside these neighborhoods.

“We need a social mix in order to have a real equilibrium now in our society,” he said.

De Villepin said the government intended to do away with high-rise housing estates, replacing them quickly with smaller scale buildings.

“Do or do not.  There is no try.”

This might make me more optimistic if I were amnesiac.  Here is French President Jacques Chirac, three months ago, long before the riots started:

PARIS — President Jacques Chirac said France must build more public housing and renovate crumbling apartment buildings, an urgent response to three fires that recently burned through run-down Paris lodgings and killed scores of African immigrants.

Police, meanwhile, were preparing to evacuate the capital’s most dilapidated apartment buildings and havens for squatters this week.

At a Cabinet meeting, Chirac told Prime Minister Dominique de Villepin to draw up plans to renovate run-down apartment buildings — a response to the blazes that killed a total of 48 people since spring, most of them African immigrants.

Promises, promises, wave the hands, but what are the feet doing?   What action is the French government taking?

Evidently, a fair bit, as reported in the Economist:

Local (mainly Socialist) mayors have been giving warning for a while that, two years on, tensions remain high. Not that these grim neighbourhoods have been neglected. They have had a huge injection of public cash, primarily for the renovation of the housing projects that ring the big cities. Tower blocks have been demolished, streets have been relaid and lighting has been improved.

Even so, the two biggest problems in these neighbourhoods remain. The first is the failure of the French economy to create enough jobs. Unemployment in what officialdom coyly calls “sensitive urban areas” is twice the national average; on the worst estates, it can hit 40%. Mr Sarkozy wants to loosen the labour market to encourage job creation, but negotiations with unions are still in progress.

As the New York Times reported it:

The events of the past three days, set off by the deaths of two teenagers whose minibike collided with a police vehicle on Sunday, make clear that the underlying causes of frustration and anger — particularly among unemployed, undereducated youths, mostly the offspring of Arab and African immigrants — remain the same.

“We have heard promise after promise, but nothing has been done in the suburbs since the last riots, nothing,” said François Pupponi, the Socialist mayor of Sarcelles, which has been struck by the violence, in an interview.  “The suburbs are like tinderboxes. You have people in terrible social circumstances, plus all the rage, plus all the hate, plus all the rumors, and all you need is one spark to set them on fire.”

One random incident strikes the spark

In the wake of the unrest in 2005, the government of then-President Jacques Chirac (with Nicolas Sarkozy, now the president, as the tough, law-and-order interior minister) announced measures to improve life in the suburbs, including extra money for housing, schools and neighborhood associations, as well as counseling and job training for unemployed youths.  None has gone very far.

While M. Sarkozy is not blameless, responsibility rests with the execrable Chirac (who, by the way, is now virtually under indictment for bribery).

A little over a month ago, fire consumed a large swath of greater San Diego.

The cause may have been frivolous arson, but the cause doesn’t matter.  Alter the environment, dry it out of its natural relief, and it becomes dry and brittle, ready to go up at a spark. 

Put human beings in wretched conditions, package them in concrete boxes, toss in subsidy and ignore their aspirations, render them impotent and idle, and as a final provocation, give them cell phones and televisions and internet so they can see just how excluded they are.  Rage grows in the slums inside as surely as California’s sirocco dries leaves into tinder.  Give it a match, and up it goes.

Unless France urgently, urgently makes vast changes, Villiers-le-Bel will be just the prelude.  As Villiers-le-Bel was more vicious, more destructive, more organized, more deadly than Clichy-sous-Bois, whatever banlieue goes up next will be even worse.  The French urban phony war is giving way to ongoing urban insurrection.

In his six months as president, [Sarkozy] has largely focused on injecting new life into France’s flaccid economy through creating jobs and lowering taxes and consumer prices.

Unfortunately, the government factory can manufacture Product 1 (laws) faster than it manufactures Product 2 (money), even though Product 2 is more helpful than Product 1.

His most notable initiative in dealing with youth crime has been punitive: the passage of a law last July that required a minimum sentence for repeat offenders and in many cases allowed minors between 16 and 18 years old to be tried and sentenced as adults.

Still, there appears to be a renovation plan in the works.  As the Economist puts it:

Mr Sarkozy, who was demonised in the banlieues during the election campaign for his harsh anti-immigrant stance, appointed a left-wing Muslim woman, Fadela Amara, as a minister to deal with the inner cities.  By including her, as well as others from ethnic minorities, in government, he sent a message of inclusion to the heavily Muslim suburbs.

And the Times adds:

Since September, Fadela Amara, his outspoken junior minister charged with drawing up a policy for the suburbs, has been holding town hall meetings throughout France in preparation for what is to be a “Marshall Plan” for the suburbs.

Let’s hope that it’s in time and substantive.

General Marshall announced the Plan at Harvard Commencement, 1947, 2½ years after V-E Day

“We’ve been talking about a Marshall Plan for the suburbs since the early 1990s,” said Adil Jazouli, a sociologist who focuses on the suburbs. “We don’t need poetry. We don’t need reflection. We need money.”

What do you think the Marshall Plan was?

Rebuiling Germany one buck at a time

Critics of the Sarkozy government complain that many areas in the suburbs are without a police presence, and that the only time there is a show of security is after violence erupts.

“Sarkozy promised to send more police to the suburbs, but in so many places there are fewer police than there were two years ago,” said Mohamed Hamidi, the French founder of Bondy Blog, a popular political blog created in the Paris suburb of Bondy after the outbreak of violence in 2005. “He didn’t keep his word. Who suffers from all the violence and the burning cars? The people who live in these neighborhoods.”

In 1963, American author James Baldwin wrote his manifesto of outrage, The Fire Next Time. 

James Baldwin

It was his eloquent plea for change, both from American blacks and from American society:

Baldwin advises his nephew on how to deal with the racist world in which he was born. In spite the horrors of America, Baldwin believed the Negro must take the high road and show whites, in their ignorance and innocence, how to live the good life, how to love. 

It will be hard, James, but you come from sturdy, peasant stock, men who picked cotton and dammed rivers and built railroads, and, in the teeth of the most terrifying odds, achieved an unassailable and monumental dignity. You come from a long line of great poets, some of the greatest since Homer.

One of them said, The very time I thought I was lost, My dungeon shook and my chains fell off.

“My dungeon shook, and my chains fell off.”

Watts, 1965: when rioting made the cover

Baldwin’s plea was timely, but action did not arrive until after America’s cities went up three years running, in 1965, 1966, and 1967.  I still remember the horror of watching burning cities on black-and-white television from one’s living room.  Only then was there change in American urban housing policy.

Mr. Sarkozy has less than two years.  I hope he uses the time well.

The clock is ticking

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