Urban Economics: Building Assets for the Poor.

UN-Habitat’s “Experimental Reimbursable Seeding Operations” (ERSO) and “Slum Upgrading Facility” (SUF) initiatives have been underway for some time, in multiple projects around the world.  This paper provides an analysis of a sample of 66 of these urban upgrading and funding projects and programmes in eleven emerging and frontier economies, including Kenya, Ghana, Uganda and Tanzania.  By Barbara Hewson, the Director of UN-Habitat’s Urban Finance Branch, the paper was prepared for the Bill & Melinda Gates Foundation.  From the executive summary of the report: “Successful projects combine government subsidy, private sector investment and community investment through savings, borrowing or user fees.  Government subsidy delivered through stable, predictable transfer programmes enhances both private sector finance and community involvement.  Delivery mechanisms for funding are most effective when credit enhancement is delivered through local financial institutions.  Private sector investment in urban upgrading and micro housing lending can be effectively and efficiently stimulated through use of guarantees and co-lending as credit enhancement tools supporting increased investment by local banks, MFI’s and apex NGO’s.  Use of local financial institutions as the distribution network for guaranteed project finance and housing microfinance can also help build local financial markets.  Underwriting norms and pricing for low-income borrowing must be both prudent and fair.  Offering credit enhancement to financial institutions to induce participation in these types of projects at a reduced risk profile is a better means of lowering interest rate cost than interest rate caps or direct interest rate subsidy.”

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