Loans

UN-HABITAT is providing loans to affordable, social housing and infrastructure projects through a Revolving Housing Finance Loan Fund Programme called ERSO (Experimental Reimbursable Seeding Operation). Working with local banks and microfinance institutions and non-governmental organizations in Palestine, Tanzania, Uganda, Nicaragua, Belize, Nepal and Lao PDR, ERSO finances land development planning, affordable and social housing construction and takeout micro mortgage and microfinance housing loans. We leverage our funds by working with international financial institutions and public-private partnerships. We can assist domestic banks and micro-finance institutions to access lower cost, longer term funds. And we bring local banks and community groups together to create bankable social lending and community development programmes.

This experimental programme is designed to become a self-sustaining revolving loan fund which will balance three types of lending to expand housing finance markets globally:

1. Construction of new affordable housing units (reaching low-income salaried workers such as teachers, nurses, police and government workers, industrial sector workers), particularly in regions where there is a severe shortage of affordable housing stock;
2. Lead investments in microfinance/infrastructure/microfinance housing loan institution initiatives to create secondary finance programmes and access capital markets, and;
3. Very low-cost loans to allow early stage microfinance housing programs to grow to sustainable size.

Target Population of UN-HABITAT Programmes by Income Level

The revolving loan fund is a highly effective tool to reach underserved populations from the 30^th down to the 85^th income percentiles. It combines well with and is highly complementary to our Local Finance Facility approach, reaching populations from the 70^th income percentile to the bottom of the pyramid.

Local Finance Facilities

In addition to our lending activities, UN-HABITAT approaches under-served populations through Local Finance Facilities , a concept that has been established in pilot projects in four countries ( Ghana, Indonesia, Sri Lanka and Tanzania) through the Slum Upgrading Facility Programme. Each Local Finance Facility uses one-time grant funding to set up operations and capitalise a revolving credit enhancement fund to support slum upgrading projects desired by the community (refurbishment of homes, water and sanitation hook-ups, community toilet facilities and new housing stock).

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 Local Finance Facility will seek to finance projects with a combination of community savings, subsidies from the municipality or a national ministry (donated land, home buyer subsidy, or other, depending on national programmes available) and local domestic commercial bank lending.

Local Finance Facilities offer credit enhancement, most commonly in the form of guarantees, to attract domestic banks into the social and affordable housing space, often for the first time, and lead to projects which reach the informally employed. This benefits specific projects, but also helps to deepen the housing finance sector in each country.

Women in Solo Indonesia preparing roofing materials for upgrading their housing ©Ruth McLeod

The combination of grant funding, domestic bank credit, and national and municipal support brings intended projects within the financial reach of lowest income communities, while at the same time encouraging community sponsorship of the projects and pride in local ownership.

Market-driven finance

All UN-HABITAT approaches aim to improve access to market-driven finance through long-term investment in affordable and social housing programmes as well as investments in and from domestic banks and micro-finance institutions. Encouraging efficient, well-targeted subsidies helps make projects “bankable”, and filling key roles needed to support senior investment by international financial institutions and through credit enhancement support, attracts funding at the scale required.

The result will be increased supply of lower cost housing through investment in social and affordable housing construction and investment in microfinance and microfinance housing programmes that support progressive self-help building.