Local Finance Facilities have been established by UN-HABITAT in Ghana, Indonesia, Sri Lanka and Tanzania as sustainable, financially viable non-bank financial institutions that are well positioned to reach over 10,000 households by 2014.

These facilities offer credit enhancement, most commonly in the form of guarantees, to support housing and infrastructure improvement for low income end users. They aim to attract domestic banks into the social and affordable housing area, often for the first time, in lending to projects which reach the informally employed. They support social and affordable housing and slum upgrading, with benefits that range from toilet and water hook-ups to progressive selfbuild, to construction of high-rise buildings.

Each of the Local Finance Facilities uses one-time grant funding to set up operations and capitalize a revolving credit enhancement programme to support slum upgrading projects. After the initial capitalisation, each Local Finance Facility operates as a sustainable business under the direction of a board of directors drawn from community groups, domestic banks, local municipalities and relevant national ministries.

Typically, each will seek to finance projects with a combination of community savings, subsidy from the municipality or a national ministry, and local domestic commercial bank lending. In some economies, the Local Finance Facility will itself act as project sponsor and developer of a project for the community. Bridging the finance gap requires technical support as well as blended funds. Working with low income communities on social housing, Local Finance Facilities on average have been able to leverage total investment to credit enhancement funds at a ratio of 3.5 to 1.