Credit for Housing
In
reality, urban poor groups have long been investing in housing, whether
legally or illegally, whether temporary or permanent, whether in cash or
on informal credit. The urban
poor and the informal sector have achieved the largest housing-production
of any single entity within the Asiatic region, through sheer creativity,
efficiency, a close match between houses and affordability, and the
integration of employment opportunities together with the other complex
needs of the poor. But
because most of these houses are illegal, their occupants are insecure,
threatened, victimized by the corrupt underside of the formal system.
This is the poor’s two-sided habitat reality, immense problems
and immense potential existing side by side.
Unfortunately,
most conventional centralized housing or welfare organizations tend to
disregard this potential in low-income communities. Professional solutions encourage people to become dependent
and isolated. They encourage
people to take on much bigger financial burdens that those required in
their conventional housing provision for the poor; as a consequence, often
they cannot afford to stay. The
major role of credit for habitat is to support the people’s own housing
process, to further strengthen that already-existing potential in an
organized way.
With
respect to external support for savings and loans activities for housing,
various experiences around Asia have led to the following conclusions:
a.
It is necessary that it be a group process
Simple
community savings groups bring people together in a process in which they
are all involved and which
they have to organise themselves. Over
time, the group extends loans to its members.
Lending for housing is a particularly important inclusive process.
When a community needs loans for habitat - to repair or reconstruct
a house, to buy existing or new land and build new houses - it is possible
to develop group capacities. The group is a communal vehicle and a combined process
through which each urban poor member can obtain access to financial
resources; it helps to absorb or adjust the formal financial system with
informal arrangements among community members.
b.
A need for subsidy in housing loans for the poor
Housing
for the poor needs some kind of subsidy in order to make it affordable to
the poor. In the case of
housing loans, the general practice is to subsidise the interest rates. Most sources of credit to the poor for habitat available in
the Asia region offer below-market interest rates.
Grameen Bank gives housing loans at 8%, as compared to about 18%
for other loans. CMP loans at
6%, UCDO loans at 3% and others between 8 and 10%.
Some government programs may not lower the interest rates but may
subsidize housing in other ways - by providing land or infrastructure, or
by cross-subsidizing investment or administrative costs. In some cases, different price zones or different plot sizes
are introduced within the project or programme for internal cross subsidy,
so that all different income groups can also be affordable. There are various elements and possibilities to be applied in
subsidy through financial process for housing the poor in close relation
to credit system for housing to be adopted.
The group and networks themselves become important actors in
resolving this issue in the most favourable way.
c.
It is difficult and unaffordable for the poor to pay for both land
and housing credit
In
the experience of Thailand’s UCDO, when subsidized loans are available
easily (with the interest rate for housing project loans at 3% per annum
to the group) a number of evicted communities applied for loans to both
buy new land and build new houses. This
is similar to most commercial housing development.
It was found that, in the Thai experience, if the poor have to pay
for both land and housing, less than half of the urban poor families in
the existing communities can afford this cost.
If they want to buy much cheaper land, then it has to be so far
away from present location and the city that employment becomes a very
serious problem and they are not able to stay on the land.
Therefore a crucial point is that housing loans much be related to
the affordability of those borrowing the funds.
A positive step forward would be for government to provide land to
community groups who then develop housing with collective loans.
d.
Simple small housing loans for basic construction
The
women in Mahila Milan in India went through a long process to develop a
very simple and inexpensive house model that is now the core house for all
members in the organization. During
the community planning processes that led to the development of these
house types, costing, calculations for all housing construction as well as
discussion on the functions of the housing plans were done thoroughly. This is how a community housing process can yield housing
designs that come closest to being affordable and appropriate.
Being a loan system, there are obvious possibilities for flexible
forms of housing with different members seeking different solutions at
different costs. However, it
is more desirable and reasonable for the urban poor community members to
work together to provide a simple basic housing unit in order to ensure
that loan finance is used only for the essential investment enabling the
capacity to be spread as widely as possible and in close relation to the
affordability of the poorest members.
e.
Integrating with other necessary development
When
communities first start savings and loan groups, it is an advantage to
mobilize a range of lending activities.
Communities then learn to link up planning for new houses with
other related needs such as income generation, infrastructure development
and environmental improvement. The
group may be able to obtain assistance or a partial subsidy from outside
agencies that can be linked with credit opportunities to address their
development needs more complete, albeit on a gradual basis.
It is the process of working through these housing-related issues
that integrate all related development with housing that assists the poor
themselves to understand the issues involved and their options.
IT is working through this process that enables urban poor
organized settlements to be secured by community people themselves.
f.
Some margins for group expenses
It
is necessary to find a mechanisms through which community groups can have
some margin to cover necessary group expenses involved in managing and
developing the process. Housing
development requires many difficult steps and much coordination – there
are many trips to the local authority with associated transport costs,
there may be plans that need to be made, copies of official documents that
need to be obtained. At
the same time, some urban poor people face acute family or employment
problems if their earnings are interrupted; these and others have little
spare cash to subsidise such costs. Therefore
a margin to cover such managerial needs and expenses is very necessary for
the group. This is a simple point that if neglected always leads to
problems that are difficult to overcome.
In the case of UCDO, housing
loans are made to groups at 3%, and the groups can then add on an extra
3-5% for these kinds of expenses, charging about 6-8% to its members.
