New Opportunities

Revolving Loan Fund Programme

UN-HABITAT has reviewed over 50 potential investments to date under the ERSO project. It is clear that relatively small credit enhancement or seed capital loans which the ERSO project can provide, can make an enormous difference in getting social and affordable housing programmes off the ground.

In 2010, we expect to have fully deployed the initial USD 3.6 million in ERSO revolving loan funds. This initial round of lending will support creation and upgrading of over 33,000 affordable and social housing units in six countries (with housing investments to be made which leverage additional investment and project value of over 175:1 on our initial funding).

If additional funding can be raised, UN-HABITAT has the opportunity to pursue investment opportunities in up to five additional public-private housing finance projects over the next 20 months, creating up to USD 750 million in total investment, helping over one million people improve their housing and access to water and sanitation.

Illustration of Al-Reehan, a 2000 unit housing development byt the Palestine Investment Fund. Photo: Palestine Investment Fund.

If extended, the programme can become a self-sustaining fund management operation, directing social investments in microfinance housing lending, affordable and social housing construction and infrastructure improvement.

Local Finance Facilities Programme

There are promising opportunities to expand the Local Finance Facility programme concept. The first is through the establishment of new Local Finance Facilities in other countries, as is now being planned in Kisumu, Kenya, and in Kumasi, Ghana, working in partnership with the Millennium Cities programme and other key partners. We are aiming to attract investment to extend the programme to all the Millennium Cities in Africa.

There is also potential to develop a Local Finance Facility prototype to assist with the reconstruction of Haiti, and these discussions are underway as a part of the UN-HABITAT response to the crisis and the need for housing and security of tenure. There may also be scope for a broader Global Finance Facility Reconstruction Fund that can be established to address future natural disasters or post-conflict rebuilding situations, where the need for immediate funds is great and there is scope for repayment as a part of the regeneration efforts, but where credit enhancement and technical support is also needed.

The startup and capitalisation of each Local Finance Facility typically requires about USD 2 million per facility to achieve a sustainable long term business. In our initial four-country programme, typically a quarter of this funding has come from government sources, and the rest from grant funding. Social investment funding would be quite appropriate as a portion of startup credit enhancement capitalisation, with an appropriate grace period for new operations; or to expand and grow existing facilities, since each programme generates a reasonable social-investment-level return. The Local Finance Facilities would then be financially sustainable in the long term.

Technical Assistance and Capacity Building

In our experience, these types of loan and credit enhancement guarantee approaches need to be offered with a strong element of technical assistance and capacity building, not only to ensure long term success of each programme project, but also to create fundamental fairness for low income communities and borrowers. The success of loan repayment in informal settlements is supported by the social fabric and systems that grow through community organisation and partnership. The positive inputs of our project partners also need support. In our current projects, this is being done in a very participatory way, involving communities, government, financial institutions and the private sector.

To broaden this approach, and lay the groundwork for more initiatives by others in this space, we are also discussing with CHF International the creation of a global partnership to roll out:

1. Borrower financial literacy training for low income borrowers;
2. Bank technical assistance on lending to those with informal incomes, and;
3. Technical assistance to community groups seeking to finance housing projects.

With regard to capacity building and training, UN-HABITAT and CHF estimate that achieving a 4-5 country rollout would require USD 3 million in joint programme funding, and that a partnership could begin immediately in Ghana and Palestine in connection with current CHF activities and our existing LFF and ERSO projects.