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Bridging the finance gap in housing and infrastructure

The Community-Led Infrastructure Finance Facility is pioneering a new approach to providing long-term loan finance for community-driven infrastructure initiatives. This financial mechanism gives urban poor people’s organisations direct access to money to develop sustainable solutions for slums. Launched in India, this approach could be replicated globally.

A report from Homeless International, UK, describes the Community-Led Infrastructure Finance Facility (CLIFF) approach and assesses the feasibility of applying it in sub-Saharan Africa. CLIFF is based on two basic convictions: that urban poor people bear an unfair share of the risks in slum upgrading and the commercial banking sector would lend to urban poor people’s organisations if they knew how to.

Urban poor people have developed innovative approaches to slum upgrading, resettlement and infrastructure provision. However, they have often had to be developed in defiance of local planning and building regulations that rarely work for them. Across India, community mobilisation has led to the emergence of organisations proactively developing relationships with city authorities. However, most of the investments they make go unrecognised by the formal institutions with which they deal.

This lack of recognition matters. Banks feel unable to lend money to projects that do not fit with common expectations, run by groups without conventional collateral. Banks’ risk assessment systems and mechanisms for extending credit are not designed to reflect the complexities of community-led processes. Lending for slum upgrading does not fit into their core business models. When there is unmet demand for their products from wealthier clients, why should they lend to poor people?

The CLIFF approach to getting banks and communities to do business is built around several forms of financial assistance to organisations with the basic capacity to upgrade slums. These include:

technical assistance grants so that professional help can be brought in to support communities to present projects in ways that are attractive to bankers and the authorities
capital loans to ‘kickstart’ initiatives while negotiations with formal finance institutions and public officials begin
guarantees to underwrite some of the risk that banks take by lending to community organisations
knowledge grants so that as many people as possible are able to learn as the projects are developed and implemented
grants for core operational and administration costs of the agencies managing CLIFF.

Replicating CLIFF in Africa will be complicated by the lack of adequate data on urban poverty, uncoordinated slum upgrading strategies and a tendency to impose technical solutions from other places. Building a federation of organisations committed to partnerships and shared learning will require community-managed savings and loan systems with links to other communities. It also requires:

capable local non-governmental organisations with proven ability of working with communities and supporting their negotiations with authorities
a local authority committed to city-level strategies for secure tenure and allocating land in favour of poor people
national policymakers working to develop secure tenure and good governance
a local financial sector offering reasonable interest rates and willing to explore new forms of risk assessment
flexibility from donors able to commit both grant and capital funds to civil society organisations.

Source(s):
‘Feasibility studies for the application of Community-Led Infrastructure Finance Facility operations in Sub-Saharan African countries: Summary Report’, Homeless International, by Ruth McLeod, September 2004 (PDF) Full document.
Country studies can be downloaded from Full document.

Funded by: Urban Management Programme; UN Habitat

id21 Research Highlight: 19 September 2006

Further Information:
Ruth McLeod
Homeless International
Queens House
16 Queens Road
Coventry, CV1 3DF
UK

Tel: +44 (0)24 76632802
Fax: +44 (0)24 76632911
Contact the contributor: ruth@homeless-international.org

Homeless International, UK

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