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GHK International
Roy Brockman
Slum Upgrading Facility
Mid-term Review
MARCH 2009
Slum Upgrading Facility Mid-term Review
Table of Contents
Page
EXECUTIVE SUMMARY v
1. INTRODUCTION AND BACKGROUND 1
The Mid-term Review 1
New approaches to slum upgrading are required 1
SUF is beginning to show good progress, despite some earlier teething 2
problems
Ambitious goals─but short timeline: goal, objectives, timeline and 2
accomplishments
Observation team findings 3
2. FINDINGS OF THE REVIEW 6
Little development on the ground, but a large pipeline of projects 6
Delays are inevitable, but some avoidable 9
Money seem like a lot of money─but all new products require upfront 11
investment
Improvement in accounting are needed 13
From the Design Team to a Project Management Unit assisted by 13
international and local consultants
From project SPVs to programme SPVs─intervention through the 18
financial system
Housing as an entry point 19
Community-based slum upgrading takes time 20
Limited range of options tested 21
Money and housing are not cheap─affordability is the key 22
Demand led─myths and reality 23
Subsidy yes─targeted yes 24
Intervention must be within the national and local policy and enabling 25
environments
Do’s and don’ts of slum upgrading 26
SUF is know on the international market─but only just 27
The need for effective monitoring 28
Relationship with ERSO 30
Innovations of SUF 31
Has SUF provided value for money? 32
3. THE FUTURE OF SUF 33
Should we continue with SUF beyond the pilot phase? 33
Proposals for SUF post April 2009 34
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Slum Upgrading Facility Mid-term Review
How to improve, continue and upscale 35
List of Appendices
Appendix 1: List of Persons Consulted, UN-HABITAT 37
Appendix 2: Summary of Past Observation Team Findings 38
Appendix 3: SUF Project Documentation Targets and Accomplishment 42
Appendix 4: Slum Upgrading Facility Timeline 44
Appendix 5: Status of Pilot Projects (November 2008) 46
Appendix 6: SUF PMU within the Organizational Structure of UN-HABITAT 49
Appendix 7: Do’s and Don’ts of Slum Upgrading 50
List of Tables
Table 1: Actual and Planned Accomplishments of SUF’s Key Outcomes 6
Table 2: SUF Projects Under Construction, as at end February 2009 7
Table 3: SUF─Summary of Funding 11
Table 4: Summary of Expenditures and Budgets, 2005 to 2009 12
List of Figures
Figure 1: Overall Organizational Structure for SUF, March 2009 13
Figure 2: Slum Upgrading─Organizational Structure 17
Figure 3: Interaction of Basic Elements of Slum Upgrading 26
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Slum Upgrading Facility Mid-term Review
List of Abbreviations
AIP Annual Implementation Plan
BLUD Badan Layanan Umum Daerah
CA Cities Alliance
CCI Centre for Community Initiatives
CE Credit Enhancement
CHF Cooperative Housing Foundation
CIUP Community Infrastructure Upgrading Programme
CPIPs Country Project Implementation Plans
D&A development and administration
DFID Department for International Development
ED Executive Director
EMG Emerging Markets Group
ERSO Experimental Reimbursable Seeding Operations
FSDT Tanzania Financial Sector Deeping Trust
GC General Council
HNB Hatton National Bank
HSBC Hong Kong Shanghai Banking Corporation
HPM UN-HABITAT Programme Managers
LFSUS Lanka Financial Services for Underserved Settlements
LFF local finance facility
MFI microfinance institutions
M&E monitoring and evaluation
NGOs non-governmental organizations
OIOS Office of Internal Oversight Services
OLA-NY Office of Legal Affairs New York
PM Programme Manager
PMU Project Management Unit
PT Pilot Team
PSD Programme Support Division
PRC project review committee
RFP Request for Proposal
SDI Slum Dwellers International
SIDA Swedish International Development Cooperation Agency
SPVs special purpose vehicles
STMA-CSUF Sekondi-Takoradi Metropolitan Assembly City-wide
SUF Slum Upgrading Facility
TA Technical Assistance
TAFSUS Tanzania Financial Services for the Underserved Settlements
TAMSUF Tema/Ashairman Metropolitan Upgrading Fund
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Slum Upgrading Facility Mid-term Review
TAWLAT Tanzanian Women Land Access Trust
UN-HABITAT United Nationals Human Settlements Programme
UNON United Nations Office at Nairobi
WB World Bank
WSTF Water and Sanitation Trust Fund
YLP3 Yasasan Lembaga Pembiayaan Permukiman Perkotaan
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Slum Upgrading Facility Mid-term Review
EXECUTIVE SUMMARY
This report is a summary of the output of the contract between UN- Summary of the SUF
HABITAT and Royston A. C. Brockman, dated Febraury12, 2009. It is mid-term review…
based on the results of a review of available reports and documents on
the Slum Upgrading Facility (SUF), and from discussions with key
personnel involved in the programme. It is a synthesis of the four
Observation Team reports supplemented with the findings of the
research undertaken and interviews held with the SUF Project
Management Unit (PMU) in Nairobi from February 15 to 23, 2009.
Experience to date shows that SUF is in the process of achieving its goal SUF is beginning to
and objective, and should have an exciting future. SUF has started to show good
attract private finance into slum upgrading and is becoming a model for progress, despite
establishing a sustainable approach towards solving the housing some earlier
problems of the urban poor. It has appropriately targeted its outputs, and
teething problems…
its benefits are soon to reach the poor. Nevertheless, actual
development on the ground is small, and only one project has so far
been completed—Kratonan, Indonesia, while construction has started in
further locations—Ketalan, in Solo, Indonesia, and Kirulapona and
Kirunivawatta, both in Colombo, Sri Lanka. With the establishment of
local finance facilities (LFFs) and an emerging pipeline of projects, SUF
should have a future—lessons that are being learnt can be put into
practice, and a two-year extension of the pilot project is recommended
to design the approach for a greatly expanded programme in the
medium-term.
THE FINDINGS
Upon the request of two donors—SIDA and the Government of Norway, Observation team
an observation review of SUF was agreed—to observe the work on the findings…
ground, and provide support to the team. Overall conclusions on the
programme are contained in the report on the mission to Tanzania. This
concludes that SUF is meeting its targets in the four countries, but (i)
there has perhaps been an inappropriately narrow focus of the
interventions to date; (ii) the same approach was adopted in all four pilot
countries, essentially through housing guarantees; (iii) there are issues
of sustainability of SUF and the LFFs set up in each pilot country, though
there are longer term commitments of support—and in some cases
actual budget lines from governments; (iv) a number of projects have
distinct affordability problems; and (v) there is a need for the better
integration of SUF within the national and local policy frameworks, and
the institutional environment in each country.
Programme implementation has taken time, but the key accomplishment Little development
of the pilot phase has been the design and establishment of LFFs in on the ground, but a
each of the four participating countries. LFFs are significant large pipeline of
achievements and each is now building up a pipeline of projects. But, the projects…
real judgement on SUF must await the completion of projects on the
ground—there are insufficient projects at an appropriate scale to be able
to make a realistic assessment of impact now. Project formulation and
approval took more time than originally conceived, by the PT and the
PMU. This is because of (i) the focus of the Pilot Team (PT) on bottom
up planning; (ii) focus on a project rather than a programme approach;
and (iii) too little attention paid to link SUF with ongoing cities without
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Slum Upgrading Facility Mid-term Review
slums programmes or similar endeavours, and to build upon previous
efforts.
Other factors too contributed to the slower than expected progress. First Delays are
was the 18-month delay in appointing the consultants contracted for the inevitable, but some
outsourced field management operation—the PT. Second, the delay in avoidable…
fielding the PT meant that the momentum started by the design team
was lost early on and it meant a restart of the programme. Third,
concerned the Credit Enhancement Applications to the SUF PMU—also
for ratification by the World Bank Trust Fund managers—that required,
on approval, the formalization of the Legal Agreements between the
LFFs and UN-HABITAT for capitalising the LFFs. The changes in the
approach of SUF, from project specific investments, to the creation of
financial rather than project development special purpose vehicles
(SPVs) should have been documented in an amended SUF Operations
Manual. Project agreements would have been simpler. Furthermore,
neither the PMU, nor the PT, fully understood the intricacies and
traditions of the UN rules and regulations for approving, disbursing and
transferring money to newly established facilities. These proved to be
more complicated than anticipated. But, now that the requirements are
clear to all participants, future releases should be easier.
Total funds committed for the pilot phase amount to some US$18.76 May seem like a lot
million, including the direct payments of US$0.26 million by DFID to the of money—but all
Cities Alliance for administration. UN-HABITAT has some US$18.5 new products
million for SUF although US$3.9 million still has to be released by DFID. require upfront
Under the subsequent grant agreement for the SUF pilot phase,
investment…
US$9.25 million was made available by the Cities Alliance World Bank
Trust Fund to be administered by UN-HABITAT. The Swedish
Government, through SIDA, and the Government of Norway’s combined
contributions eventually matched the World Bank-Cities Alliance funding
provided by DFID at the beginning of the pilot programme. But this was
not available until December 2007 and involved separate administrative
arrangement. This has proven to be a complex arrangement involving
triple financial reporting structures. In future only a single trust fund
arrangement should be adopted for SUF contributions.
Overheads, including those of the Cities Alliance are small and estimated
to be almost 5%—less than US$0.9 million. Investments, including those
of the design and pilot teams, are estimated to be US$7.1 million or
about 38% of total expenditures. However, much of this—US$3.7 million
is projected for 2009—more than half of the total. Project development
costs account for the balance of US$10.8 million or 57%. These are high,
but are not excessive for establishing new and pioneering facilities, and
preparing projects dealing with the poorest communities in society.
At the head of SUF is the Consultative Board formed in 2004 to establish From the design
and develop the broad objectives and guidelines for the direction of the team to a project
programme, and to ensure its relevance to the participating partners and management unit
to slum dwellers. Its principal role is consultative but sometimes it has assisted by
acted in a “quasi executive” capacity. General views are that the Board
international and
has not functioned as well as it might have done given a more precise
mandate. There is little contact of members between meetings, and little
local consultants…
direction and support is given to SUF. There are probably too many
Board members and it might be possible to reduce its size and make it
more of an executive board. Prior to some Board meetings, there are ad
hoc expert group meetings—to date there have been three, and one
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Slum Upgrading Facility Mid-term Review
more is planned for October 2009. A more streamlined Board would
increase the necessity for more frequent expert group meetings, which
could function as a technical working group, and relieve the Board from
reviewing detailed technical matters.
A SUF technical team runs the programme. It is headed by the SUF
Programme Manager (PM)—currently the Director for Human
Settlements Financing. He is assisted by a SUF Project Management
Unit (PMU), headed by the SUF Senior Adviser who is assisted by a
small team of five people—four staff and one consultant—whose
employment with UN-HABITAT is co-terminus with the SUF. Two of the
staff also split their time between SUF and other projects, while the
communications and knowledge management consultant was hired only
on a part time basis. Day-to-day field operations, and country project
activities, are undertaken by the SUF PT─an outsourced field
management operation, and their country project local experts, hired in
each of the four pilots.
Overall the PT was good technically, but the time spent by the global
team in the pilot countries was not enough. Observations are that they
tended to work alone and knowledge transfer was insufficient, especially
during the early months of the assignment. The change of the team
leader, mid way in the project period, did not help and the assignment of
the replacement on a full time basis to Nairobi was of doubtful value to
the project—especially since the team leader was required to hold office
outside the UN-HABITAT complex. This meant that the opportunity to
work closely, on the job, with the staff of the PMU was underutilised.
Comments from the field indicate there were problems at the local
country level, where there was too little coordination between the Habitat
Programme Managers (HPMs), and the country coordinators. A second
change of the team leader—reverting to the same person who started off
the project—improved coordination and strengthened the team, and
redirected its focus on the key outcomes. Also, the PT chose to reinvent
approach and methodology rather than adopt the initial design team
guidelines, manual and handbook. Furthermore, the PT underestimated
the time needed to prepare “demand led” slum upgrading projects, and in
some cases failed to tap into the extensive local knowledge available.
The pilot phase of SUF is to continue until December 31, 2009, but the Beyond the
PT contract is to close at the end of April. The SUF Senior Adviser, too, contracted pilot
is due to retire this year. These two events could mean the loss of much team…
of the institutional knowledge of SUF unless transfer is enacted
appropriately. Day to day operations of SUF, after the departure of the
PT, will become the responsibility of the PMU in Nairobi—which is
capable of handling the current workload—although some hand holding
is still needed that in the past has been provided by the PT. A larger
PMU is necessary in future requiring additional technical expertise—a
physical urban development specialist with experience in municipal
engineering, architecture and planning, and a slum upgrading expert who
has extensive practical and working knowledge of upgrading through
direct field experience. Additional accounting staff may also be required,
on a part time basis, once improvements in financial management are
enacted, and increases in transactions occur. At the country level, the
PMU is to directly hire all of the four former EMG local country
coordinators until end 2009. But additional experts will certainly be
required in the field during this time. A strengthened PMU is essential,
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Slum Upgrading Facility Mid-term Review
with the country coordinators becoming regular and full time members of
the PMU, beyond 2009.
There were delays in the implementation of the SUF pilot phase and From project SPVs
these have resulted from the change in direction it was agreed by the to programme
Consultative Board that SUF should take. During the design phase, the SPVs—intervention
original idea was to develop project-specific SPVs set up to develop through the financial
actual projects—area specific development or regeneration companies,
system…
for instance. With the arrival of the PT, there was the adoption of the
concept of a national facility—with a multi-stakeholder ‘problem solving’
Board and government buy-in, but without overall control—put forward
by the design phase consultant in Sri Lanka. This meant a shift in
approach towards LFFs, which would provide credit enhancement to a
programme of projects.
A principle outcome of SUF has been the establishment of LFFs—multi-
stakeholder owned, not-for-profit companies for localising credit
enhancements to lower the risks perceived by commercial banks for
loans to upgrading project participants in each country. A process called
“finance plus,” whereby the technical assistance is provided by the LFFs,
enables the project packaging to be undertaken with commitments made
by all parties. The upgrading projects range in size from 11 to 500
households, and with varying requirements for credit enhancements to
support project business plans. With this revised focus, the SUF
Operations Manual needs updating. Originally the document was drafted
according to a project-by-project development concept, rather than
reflecting the shift to a programme/facility approach, which governments
found it easier to buy into.
But most project business plans were only fully developed after the
capitalisation of the LFFs. To simply funding approvals in future, where
similar new financing facilities are proposed, it would be better to
undertake feasibility studies for typical, demonstration slum upgrading
projects and submit at least one, along with the request for finance under
SUF. This would follow the approach adopted by the multi-lateral
development banks when preparing for sector or programme loans and
would replace the current approach where projects are only finalized
after funds are released.
An important lesson learned is that successful slum upgrading takes Housing as an entry
place within a comprehensive policy framework involving three main point…
components—land tenure security, basic service provision, and housing
improvement. The PT made a strategic choice, through credit
enhancement for cumulative land, infrastructure and home improvement
as its point of entry in three countries, while in Ghana it includes two
cases for the improvement of social infrastructure—market stalls and
hence livelihood improvements. However, sound agreements for basic
services upgrading must precede home improvement. But the focus on
housing was because local government involvement was assured to
cover secure tenure and infrastructure provision—full housing provision
with land and infrastructure components was thus seen as most
appropriate.
The LFFs also play a role in mediating between relevant stakeholders
and using their network, where necessary, to resolve issues related to
infrastructure and land tenure in the subprojects put forward to the
facilities. But a stronger linkage between specific area development pilot
subprojects and city-wide strategies for slum upgrading needs to be
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Slum Upgrading Facility Mid-term Review
encouraged. This would place the credit enhancement facilities on firmer
ground for future replication and should involve linking, more closely, the
initial design team sponsored proposal for city development strategies
and associated city without slums programmes with the selection and
design of pilot subprojects.
New approaches need time to design and implement—community Community-based
involvement is time consuming. Some of the pilot projects did build upon slum upgrading
existing work, and partnerships—especially that of Slum Dwellers takes time…
International (SDI)—and focused on areas where communities had
savings programs and had already “bought” in to the approach. In others
this early work was abandoned. Top-down design solutions and
definition of standards, without a thorough build-up of community
understanding of cost implications and without free and explicit choices
based on people’s own assessment of their ability to pay, are not
advisable and most likely would result in a low willingness to pay.
Community involvement in settlement design ensured that there was
“people buy-in” for what concerns basic choices regarding use and
adaptation of space to their social circumstances and to the productive
requirements of a predominantly informal economy, which, often, makes
use of the house and of any vacant space around it for income
generating activities.
Although the PMU has developed a range of interventions based on its Limited range of
earlier design phase work, the focus of the PT has been on providing options tested…
loan guaranties, bridging finance and capacity development through the
LFFs—no other options were developed fully. The use of guarantees has
been encouraged by UN-HABITAT and the donors, and although all the
facilities have a remit that also includes the provision of bridging loans,
grants and technical assistance, the evaluation and assessment of
facilities with similar functions has limited application. This raises the
question about the relevance of the wholesale guaranty approach
elsewhere in the world, and suggests that an opportunity may have been
missed to test alternative interventions.
In general, the size of the pilot projects has neither reflected the scale of
a city-wide programme of slum upgrading nor was it set within the
context of wider city initiatives—Community Infrastructure Upgrading
Programme (CIUP) in Dar es Salaam, and World Bank funded
infrastructure improvements in informal settlements in Ghana.
Furthermore, the sizes of the pilot projects are probably too small relative
to demand and may not be of a sufficient scale to adequately assess the
relevance of the intervention. But the resources available for actual
project implementation were far too small—an imposed limit of 30% or
US$6 million was set by the donors for four pilot countries meaning only
$1.5M each. The failure to attract the initial full US$30 million and
additional resources meant that no further seed money would be
available for pilot project implementation. However, the small sizes of the
pilots are not necessarily inapplicable since they are able to identify
major issues and problems, which may have been overlooked on a
larger programme. But LFSUS in Sri Lanka has shown that a range of
“institutional” options has existed. .
Experience shows that for slum dwellers, it is not the cost of money that Money and housing
is the real deterrent to obtaining credit, more often it is its availability. The are not cheap—
adoption, by the PT of the microfinance, community-based development affordability is the
model is always going to be expensive to develop, but this is countered
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Slum Upgrading Facility Mid-term Review
by the flexibility in approach and the ownership it produces. Using MFIs key…
as intermediaries is always going to add between 2% and 3% to the
interest rate that borrowers will have to pay. Likewise slum upgrading is
not cheap—regularizing land tenure and installing basic services is
costly, but not as much as developing new relocation sites complete with
housing, since investments, particularly in housing, have already been
made by the community.
When designing schemes, standards need to be adopted that match the
affordable limits of the target group, and are determined on the basis of
current loan terms, appropriate amounts of money that the informal
settlers are able to make available to service loans, and actual or
realistic estimates of the likely construction costs. Inevitably this means
that amounts available for house construction and improvement initially
will be low, since those associated with land tenure and services
provision are given priority. The approach adopted by SUF, however,
has tended to focus on the community’s housing demands and be
assured that servicing or infrastructure provision will be provided
relatively free of cost by local or national government. Often this is not
fulfilled. Even the cost of housing—especially the multi-storey option
imposed by density requirements and often political considerations in a
number of schemes may have been underestimated, and the realization
of extensive cross subsidies to make such development affordable may
not materialize on account of the marketability of some of the products—
units or plots. This over use of cross subsidy mechanisms can place the
viability of projects in jeopardy and has, in a number of cases, led to the
adoption of higher standards than are afforded. But experience shows
that communities, when given the reality of costs, do choose appropriate
and affordable standards.
The next big challenge for SUF and the pilot countries is the Sustainable
replenishment of funds used by the LFFs for credit enhancement. Then facilities…
would come measures to ensure sustainability of the LFFs. They must be
able to recycle funds, will need to place the paid-up capital into secure
investments that yield positive returns, and be in the position to build up
reserves to cover potential losses. It is encouraging that in many cases
there is agreement for continuous funding of the LFFs beyond the UN-
HABITAT Agreements.
One of SUF’s key premises is that slum upgrading will only be successful Demand led—myths
when communities are empowered and can make true decisions about and reality…
design and affordability. In an effort to promote ownership and achieve
community driven pilot subproject proposals, the PT has prioritized
projects where there are existing community savings schemes and is
working closely with local NGOs in all countries. The PT expects that the
LFFs will succeed in attracting and financing locally identified pilot
subprojects that reflect community development needs. Underlying this
approach are two inter-connected assumptions—the facilities will attract
bankable slum upgrading proposals, and the proposals will reflect
“community” demand for slum upgrading.
Experience suggests that it may be unrealistic to expect a pipeline of
subproject proposals to emerge just because a fund is available. While
there may be plenty of latent “demand” for upgrading, communities on
their own will find it difficult to formulate and package this into bankable
projects without the technical assistance of intermediary organizations,
and the PT. Bankable slum upgrading proposals are unlikely to emerge
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Slum Upgrading Facility Mid-term Review
spontaneously from communities themselves, without the active
intermediation of NGOs and SUF.
The target group for slum upgrading is not exclusively the poorest, but
those residing in informal settlements, many of whom have informal or
formal employment. Slum populations are rarely homogenous, and it is
difficult to speak of a monolithic “community demand.” Instead, there is
always a risk that subproject proposals will be steered by more vocal
groups at the expense of those that are weaker or less well-represented.
The possibility that subproject services will be usurped by higher income
groups is a risk that is acknowledged in SUF project documents
Much has been said about the need for subsidies in slum upgrading, and Subsidy yes—
the jury is still out regarding the extent that they are required. In some targeted yes…
cases they are needed—very poor in such countries as Bangladesh, but
in others they can be minimized—for example the Zonal Improvement
Program of Metro Manila, Philippines during the 1980’s worked on the
principle of full cost recovery of all allocable costs. But SUF has taken
off from the view that there is a minimum standard of housing required,
that the loan element cannot cover all, and that subsidies are needed to
bridge the gap between what families can afford and the cost of such
provision. This stems from the decision to intervene largely through
housing, rather than services. Clearly there is a need now to focus SUF
towards supporting what is genuinely affordable. And this probably
means less housing and more services. However, credit enhancement
under SUF is not designed to replace government subsidies where they
are available—instead it complements those programmes in operation.
This is a positive step.
National policy on slum upgrading should be the basis of all Intervention must be
interventions, and such policy needs to be developed with government if within the national
not already existing. Local interventions need to be undertaken within the and local policy and
context of “cities without slums” programmes. Where national policy is enabling
the basis and local programmes with their pipeline of projects, SUF is
environments…
tailor made to support implementation and enhance other interventions.
Interestingly, SUF has been able to facilitate a change in policy when
needed. In Sri Lanka, the establishment of LFSUS, has led to a
reawakening of policy on slums, which had faded since the major
interventions of the 1980’s. Government policy in Sri Lanka needed to
catch up with developments, and LFSUS has provided the catalyst for
this.
A valuable output of SUF has been the “do’s and don’ts” checklist key— Do’s and don’ts of
statements on what works and what does not in slum upgrading. The slum upgrading…
checklist was agreed at various consultative workshops. Most of the do’s
and don’ts are supported, although the emphasis placed on the use of
cross subsidies is possibly overstated—the consultant believes that such
revenues should be applied to a city-wide programme rather than to
those projects fortunate enough to have the potential for revenue
generating land uses. Furthermore, it is felt that there is a need to
emphasize the appropriate entry point for slum upgrading, to promote the
maximum cost recovery from slum dwellers, and to focus on in-situ
upgrading wherever possible.
SUF is becoming known globally, especially through its publications, SUF is known on the
newsletters, website, and promotion at various international conferences. international
However, it is mainly known by “urban experts” or the “urban academe”, market—but only
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Slum Upgrading Facility Mid-term Review
and very few stakeholders—NGOs, communities or even governments— just…
are aware of its existence. But the programme has not yet gone global
since SUF is still in its pilot phase. Nevertheless, if the programme is to
expand, this has to change, and more promotion and publicity is
necessary.
A well-designed monitoring and evaluation system is essential to The need for
establish at project completion and throughout its implementation, effective
whether it has achieved its objectives. The UN-HABITAT Project monitoring…
Document logframe, and indeed the individual donors’ logframes do not
necessarily concur with each other and so a new framework for the pilot
phase was designed after a long and arduous process, which has
involved several versions—the latest was accepted by the Consultative
Board in Accra. But this logframe should have been developed at the
start of the pilot phase and not mid way through it. After one year of
implementation of the draft monitoring framework, the Consultative
Board, in April 2008, suggested that it be reviewed. This provides an
opportunity for its improvement. The PMU still feels there is a need to
revisit the log frame, and so far very little baseline data has been
collected. Likewise the three donor agencies have noted deficiencies in
the framework and have indicated that further work is required, with
specialist assistance if necessary. Revisiting the logframe can now be
undertaken within the context of the proposed extension of the pilot
phase for two more years. A new logframe, identifying outputs and
activities for completion by April 2011 should now be developed in time
for the start of the “extended” pilot.
The principal aim of ERSO or the experimental reimbursable seeding Relationship with
operations and other innovative financial mechanisms to catalyse ERSO…
investments in pro-poor housing, related infrastructure and upgrading is
to mobilize local capital for low-income housing, related infrastructure
and upgrading. ERSO seeks to mobilize savings, encourage the
participation of local financial institutions and other investors. It has
similar objectives to those of SUF, except ERSO expects
reimbursements, while SUF finances investments through grants.
Although similar in scope, both pilots—ERSO and SUF—should continue
as separate funds and programmes, although the timelines could be
streamlined to match an extended SUF pilot. Experience of both
programmes should be sufficient by 2011 to assess their possible
integration or not. It may prove that even during the extended pilot
phase, ERSO could be used as a vehicle for providing loan finance to
SUF or its local partners—the LFFs or others. Perhaps capital
investment funds could be through ERSO say with a 60% loan and the
balance of 40% as a grant from SUF.
The key innovation of the programme is SUF itself—international funding Innovations of
for slum upgrading projects is a major step forward. Overall its real SUF…
value-added has been to encourage the institutionalization of slum
upgrading within the participating countries. SUF has created awareness
among government agencies at national and local levels, the private
sector and among slum communities. The major innovation at the
operational level has been the creation of LFFs—multi stakeholder
owned, not for profit companies—to localize the approach of SUF within
the pilot countries. These LFFs are developing the real innovation of the
pilot phase, the wholesale loan guaranty mechanism—wholesale loan
guarantees for commercial bank lending to financial intermediaries. The
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Slum Upgrading Facility Mid-term Review
wholesale guarantee is to be used to attract private bulk lending to
financial intermediaries, and this is beginning to happen in Sri Lanka.
Bringing in private capital to slum upgrading—the ultimate goal—is now
a reality, and this should increase further as the facilities in Ghana,
Indonesia and Tanzania start business during 2009. This approach has
encouraged mainstreaming micro-financial institutions (MFIs)
involvement in slum upgrading—encouraged and institutionalized by
SUF. Whilst this is not new, it does reflect the wider acceptance of the
MFI approach—small loans, short repayment periods and alternative
security arrangements—to slum upgrading, especially for housing
improvements.
The real judgment on whether SUF has provided value for money has to Has SUF provided
be deferred until after more projects have actually been implemented on value for money?
the ground, the LFFs are providing credit enhancement in a sustainable
way, and the target slum dwellers are not defaulting on their loans. On
the surface to have spent some US$12 million from 2005 to 2008 to
produce about 180 improved houses in three countries seems
expensive. But the delays in implementation have cost money, although
now there is a growing pipeline of projects being processed for credit
enhancement. The next nine months—to end of the pilot phase in
December—are crucial to assess the value of SUF. If all LFFs in the pilot
countries are established, credit enhancements arrangements are
entered into, priority projects prepared and construction starts on them
before the end of 2009, value for money is likely to be demonstrated.
Failure to accomplish this is certain to lead to a negative view of SUF.
Critical times are ahead for the PMU and the LFFs, who will have to take
SUF forward, lever investments and help communities and NGOs
prepare bankable projects.
THE FUTURE
Although this assignment and report is seen as an interim solution to a Should we continue
formal longer term review, a more exhaustive assessment should be with SUF beyond the
undertaken before the completion of the pilot phase at the end of 2009. If pilot phase?
all goes well considerable progress is expected from now until the end of
the year. The process for hiring consultants for the mid-term review
should start in mid-2009, with a view to mobilizing them in January 2010.
In the meantime there is not enough development on the ground at this
stage to realistically assess performance. The objectives of SUF are
good but there is a need to show that it works—and this can only be
ascertained once actual projects have been constructed and families are
repaying their loans on a consistent basis. Nevertheless, experience to
date and the potential, given active project preparation assisted by PMU
and LFFs over the next nine months, suggest there is a need to continue
the pilot phase. It is too soon to be definitive one way or another, and
accordingly it is recommended that SUF be further tested in the field over
the next two years—from May 2009 to April 2011—the latter to coincide
with the ending of the ERSO pilot. Only after the extended pilot phase
can any decision be made on a real scale up.
The two-year extension should focus on encouraging further project
preparation in the four pilot countries, preferably developing several
types, including providing for infrastructure improvements; and a return
to the other six pilot countries assisted before the arrival of the PT. This
would involve the development of alternative approaches and new
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Slum Upgrading Facility Mid-term Review
projects. In view of the problems with the contracting of the PT, and the
mutual agreement not to extend their contract for the optional 24 months,
it is probably better and faster for the PMU to undertake the extended
pilot in-house, and contracting international and domestic specialists
individually as required.
An internal discussion paper has been prepared by the PMU on the Proposals for SUF
future of SUF. Correctly the paper notes decisions are needed first on post April 2009…
the period up to December 2009 which would see the operationalisation
of the LFFs, their sub-projects established and the monitoring framework
showing results—this has been facilitated with the four country
coordinators hired by the PMU. Beyond this, the paper outlines three
scenarios: (i) A major donor-led capitalisation of a “SUF Trust Fund” as
an open-access, demand-led fund based in Nairobi for establishing
facilities in other locations on a grant basis over the period 2010-2017,
able to take on later ERSO-type capitalisation—the main proposal. Total
costs have been estimated to be US$14.0 million for the first two years,
and US$36.5 million beyond. (ii) Merge SUF with other Habitat trust
funds—ERSO and WSTF. SUF would essentially be a technical
assistance fund, where the groundwork at the local level would still be
undertaken to form new multi-stakeholder bodies to undertake projects
and financial packaging. Total costs are estimated to be $4m for the first
two years and $14.5m for the further 5 years if progress is demonstrated.
(iii) Centre of excellence’ and a slum upgrading finance network that
would map global and local facilities and their inter-relationships. Costs
of $2.5m for two years and $9.5m for the further five years given
satisfactory performance. The discussion paper concludes with a
recommendation that UN-HABITAT seeks funding of up to $50.5m for
facility operations over a 7-year period, in two tranches—2010/11, and
2012/17─scenario one.
It is the view of the consultant that SUF should continue and be scaled
up massively, once evidence is gathered from the successful
implementation of projects on the ground. But funds of the pilot needs
stretching for 2 more years. Afterwards, serious consideration should be
given to setting up SUF as a proper trust fund. The plan for a major
upscaling of SUF would be for an initial five-year period, from 2011 to
2016, advancing the end of phase 1 by nine months from the PMU draft
proposal.
Two “phases” are now suggested for SUF—an extended pilot to the end How to improve,
of May 2011 including the completion of the pilot phase to end 2009, and continue and
a coming of age phase with substantial investments from 2011 to 2016. upscale…
This would provide SUF with the opportunity to change in three ways.
First, to pilot other approaches besides LFFs—four under the guidance
of the PT are sufficient to test the concept and evaluate it over the next
two years. Particular attention needs to given to financing required for
land tenure regularization and basic infrastructure improvements. This
would focus on working with communities, private entities and local
governments, encouraging them to raise funds for slum upgrading—land
acquisition/tenure security, and infrastructure and basic services. It
should consider possible credit enhancement for local governments,
perhaps through SPVs, NGOs and private companies raising money for
such investment. Families should be encouraged pay in part for basic
infrastructure—through infrastructure/land acquisition loans and/or cash
or in kind contributions.
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Second, to extend the coverage of the pilot phase to the six countries not
included under the pilot project—Bangladesh, Cambodia, Kenya,
Senegal, Uganda and Zambia—and possibly others where ERSO is
active. Partnerships with local commercial banks need to be developed,
which should be a prime thrust of the activities of the LFFs in the
countries where established. Furthermore, the LFFs should obtain
maximize leverage of their resources by encouraging the reduction of the
guaranty cover to minimum.
Third, for longer-term upscaling, it might be possible during the extended
pilot phase, to formalize SUF by involving the regional banks—Asian
Development Bank and African Development Bank—to upscale the
programme. Formal trust funds could be set for Asia—SUF Asia, and
Africa—SUF Africa, each financed jointly by the concerned regional
development bank, and UN-HABITAT, using donor funds.
Finally, a word of caution. Without designing slum upgrading projects
around the client-led repayment schemes—slum dwellers taking out
loans and their willingness to pay the required amortisations—they will
not work. Clearly the financing aspect is not an add-on but a key design
feature
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1. INTRODUCTION AND BACKGROUND
The Mid-term Review
This report is the output of the contract entered into between UN-HABITAT and Royston A.
C. Brockman of GHK International, dated Febraury12, 2009. It represents the results of a
review of available reports and documents on the Slum Upgrading facility (SUF), and from
discussions with key personnel involved in the programme. It is a synthesis of the four
Observation Team reports supplemented with the findings of the research undertaken and
interviews held with the SUF Project Management Unit (PMU) in Nairobi from February 15
to 23, 2009. The report is a draft for discussion and will be finalized after presentation to the
SUF Consultative Board meeting planned for Nairobi on April 5 and 6. Appendix 1 lists the
key persons met.
The report starts with this introduction and background which includes a summary of the
findings of the Observation Team’s four reports on the overall SUF programme. Part 2 then
presents the main findings of this review focusing on key aspects—outcomes, financing and
expenditures, approach, the entry point mainly though housing, community-based
development, options tested, cost of provision, the nature of demand-led development,
subsidies, policy frameworks, do’s and don’t’s, knowledge management, monitoring,
relationship with Experimental Reimbursable Seeding Operations (ERSO), innovations, and
value for money. Part 3 of the report discusses the future of SUF, including the current
proposals of the PMU for continuity beyond the pilot phase, along with the consultant’s
recommendations to extend and expand the SUF pilot and plan for a continuing fund.
New approaches to slum upgrading are required…
A key supporting target of the Millennium Declaration is to significantly improve the lives of
at least 100 million slum dwellers by 2020. Rapid urbanization, on the scale never before
seen throughout history, is straining traditional approaches to urban management and
development and is increasing demands on local governments—the agencies at the
forefront of meeting the urban challenge. Affordable housing is in short supply in almost
every developing country—especially that for the poor, and slum and informal settlements
are a growing feature of many of the cities and towns of developing nations. While there
have been notable success stories in improving informal settlements, much of this has been
though one off demonstration projects and small programs, which in many cases were not
sustainable because of poor cost recovery and limited political support.
Almost everywhere there is little commitment by governments to tackle the housing problem
in a systemic way and piece meal, traditional interventions, often involving off-site and out-
of-city relocation, are the norm. But communities and individual families are showing the
way forward, through the use of individual or collective savings and self help actions to
improve their houses and local habitat. Private companies, albeit in a small way, do provide
funds under their own programmes of corporate social responsibility. Similarly local and
international NGOs have also been involved. But most interventions follow formal channels
and require significant levels of public investment, which is in short supply. The problems of
informal settlements cannot be solved without new thinking, greatly expanded programs,
and alternative sources of funds. New approaches are needed to supplement current
efforts. The Slum Upgrading Facility (SUF) offers such an opportunity.
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Slum Upgrading Facility Mid-term Review
SUF is beginning to show good progress, despite some earlier teething
problems…
Experience to date shows that SUF is in the process of achieving its goal and objective, and
should have an exciting future. SUF has begun to attract private finance into slum upgrading
and is becoming a model for establishing a sustainable approach towards solving the
housing problems of the urban poor. It has appropriately targeted its outputs, and its
benefits are soon to reach the poor. But in common with all new ventures, SUF has had its
teething problems—some anticipated and some not. By its nature as a “process project”, it
has had to adapt as it progresses, learning from the actual experience of working with
communities in slum areas.
Nevertheless, actual development on the ground is small, and only one project has so far
been completed—Kratonan, Indonesia—with commercial bank loans to be repaid over 5
years, while construction started in three further locations. And only after projects have been
implemented on the ground can the real output of SUF be assessed. With the length of time
taken to release funds to the local finance facilities (LFFs), and the delays in project
implementation, it is premature for this mid-term review to be able to adequately assess the
impact of SUF. Nevertheless, experience to date, especially with the establishment of LFFs
and an emerging pipeline of projects, indicates that SUF should have a future—lessons that
are being learnt can be put into practice, and a two-year extension of the pilot project is
recommended to design the approach for a greatly expanded programme in the medium-
term.
Ambitious goals—but short timeline: goal, objectives, timeline and
accomplishments
The basis to the Slum Upgrading Facility (SUF) Pilot Programme is the Project Document1,
which established the institutional background, governance and management
arrangements, the long-term development goal and objective, outputs, activities, inputs, and
internal and external risks and assumptions. It also set out the implementation plan, the
legal framework, monitoring and evaluation, and the original budget.
Early in 2004, UN-HABITAT established SUF as a programme under its Human Settlements
Division within the approval given by the Governing Council, 19th Session. In June of the
same year the Swedish International Development Cooperation Agency (SIDA) approved a
grant of US$0.9 million, which the United Kingdom Department for International
Development (DFID) matched, to support its design. This marked the beginning of the SUF
design phase, which saw the establishment a five person Design Team in October 2004,
and the setting up of the SUF Consultative Board, the first meeting of which was held in
December 2004. The design phase involved the development of the SUF Operations
Manual, and the preparation of Country Scoping Papers for Kenya—October 2004,
Senegal—June 2005, Sri Lanka and Tanzania—August 2005, Cambodia, Ghana and
Uganda—October 2005, Bangladesh, Indonesia and Zambia—November 2005). Country
Strategy Papers for Ghana and Indonesia—November 2005, and Sri Lanka and Tanzania—
1
UN-HABITAT, United Nations Human Settlements Programme, Project Document, Slum Upgrading Facility—
3-year Pilot, February 2005.
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March 2006 followed. These documents set the context for the potential SUF intervention in
ten countries and identified initial projects for development and implementation. Four
countries were identified as most suitable for the SUF Pilot Programme, and agreed by the
Consultative Board in March 2005. They are Ghana, Indonesia, Sri Lanka and Tanzania.
Hence, the design phase prepared the groundwork for phase 2—a three year pilot phase
with a total budget originally planned at US$30 million that commenced on 15 February
2005 and was scheduled for completion on 14 February 2008. The original implementation
plan saw four stages:
• Strategy for identifying, prioritizing and preparing the ground work for implementation of
field projects—March 2005 to June 2005.
• Approach for packaging financial, technical and political element of slum upgrading in 4
pilots—June 2005 to May 2008.
• Preparation of projects in 6 additional countries—June 2005 to May 2008.
• Operationalizing SUF—March 2005 to May 2008.
• A mid-term evaluation was planned for June 2006.
For the pilot phase the operations of a SUF Pilot Team (PT) were contracted out to an
international firm of proposed consultants.
The original completion date of the pilot project was later extended to the end of December
2009, largely as a result of the delays in contracting the consultant pilot team and raising
additional funds for the programme. The mid-term evaluation has still to be contracted. The
preparation of projects in 6 additional countries was deferred since the donors requested
that focus should be on the four pilot countries—Ghana, Indonesia, Sri Lanka and Tanzania.
The long-term development goal of SUF is to improve the lives of slum dwellers—
supporting Target 11 of the Millennium Declaration—to significantly improve the lives of at
least 100 million slum dwellers by 2020. Its objective is to assist with the mobilization of
local, domestic capital for slum upgrading initiatives undertaken by member states and
Habitat partners, including shelter and related urban infrastructure in cities in the developing
countries. Key outputs were seen as follows:
• Four pilot projects prioritized and ready for implementation, including pretesting of
design instruments.
• Four pilot projects mobilizing domestic capital for slum upgrading successfully
implemented.
• Six additional projects prioritized, receiving financial advisory services of which at least
two are readied for implementation.
• SUF capitalized, operational and effectively assisting in the mobilization of domestic
capital for slum upgrading.
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Slum Upgrading Facility Mid-term Review
Observation team findings…
Upon the request of two donors—SIDA and the Government of Norway2, an observation
review of SUF was agreed—to observe the work on the ground, and provide support to the
team. The Observation Team would be impartial and the intention was not to control or
evaluate. The review would observe and review one country every six months, and the
Observation Team would report their findings in each Consultative Board meeting. The
contract with the Observation Team was signed on September 21, 2007 and the first of the
missions took place in Sri Lanka in October 2007. Subsequent observation missions were
conducted in Ghana—mission in March 2009 and Board presentation in April 2008;
Indonesia mission in August 2008 and Board Presentation in October 2008; and the last
one in Tanzania—mission in February 2009 and Board presentation scheduled for April
2009.
Some overall conclusions on the programme have been included in the report on the
mission to Tanzania3. These are that overall SUF is meeting its targets in the four
countries, but:
• There has perhaps been an inappropriately narrow focus of the interventions to date
• The same approach was adopted in all four pilot countries, essentially through housing
guarantees
• There are issues of sustainability of SUF and the local finance facilities (LFFs) set up in
each pilot country, though there are longer term commitments of support—and in some
cases actual budget lines from governments.
• A number of projects have distinct affordability problems
• There is a need for the better integration of SUF within the national and local policy
frameworks, and the institutional environment in each country.
Key findings from the other three missions4 on the overall programme and action taken are
set out below.
• For SUF to succeed, three elements of design for successful slum upgrading must be in
place—financial mechanisms, project design based on affordability, and ownership and
political support. This is now becoming a reality, especially in Sri Lanka
• Successful slum upgrading takes place within a comprehensive policy framework—land
tenure security, basic service provision, and housing improvement. In most pilot
countries home improvement/housing is the main point of entry for SUF. Nevertheless,
in each case ‘land’ was the first driver, and then taken forward; infrastructure
requirements were then a second driver, but it was always taken to the third stage of
housing.
2 SUF Consultative Board Meeting Minutes 13 April 2007.
3 Report of the Observation Team in Tanzania. March 2009.
4 Innovations To House, Findings of the Observation Team for the Pilot Phase of UN-HABITAT’s Slum Upgrading Facility (SUF) in Sri
Lanka, October 2007; Homeless But Not Hopeless, Findings of the Observation Team for the Pilot Phase of UN-HABITAT’s Slum
Upgrading Facility (SUF) in Ghana, April 2008; and SUF Observation Team Report, Indonesia Mission, October 2008.
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• Intervention must be within national government policy framework. The need is for a
policy framework to work within, and for example in Sri Lanka the government now
wants SUF to assist in developing a national policy framework based around SUF
• SUF should be used as the spearhead for a broader strategic discourse on slum
upgrading. This has in fact been an outcome of SUF.
• Affordability should drive project design. This has been the basis of most SUF projects,
but external pressures, including limited incomes, government redevelopment needs,
and the cost of finance need to be taken into account.
• Development subsidies should be minimized in an effort to match incomes and
expenditures on housing with affordable provision. Slowly this is being accepted.
• Promoting sustainability requires an appropriate assessment of subprojects under the
Pilot Project and effective fund management in the medium-term. This is a target of
SUF.
• Sustainability leads to scaling up.
• Community origin, savings, and progressive buy-in is the cornerstone of “bankability”.
Existing savings schemes are the key to establish the common interest and group
loyalty needed for financial commitment. This is the basis of SUF projects.
• Viability involves matching incomes with technically sound and affordable upgrading
schemes, minimizing development subsidies in the process. But there still is an
overemphasis on cross subsidization.
• Cross-subsidization and land sharing should be revisited. This will be undertaken by the
PMU in future project preparation.
• There is a need to ensure that the credit enhancement facilities operate effectively.
Capacity development is a priority of the PT and will be continued by the PMU.
• There is a need to define more carefully what is meant by “demand driven” subproject
proposals. Future projects will continue to be prepared with the communities and
capacity development will be a key feature.
• There has been little or no variety in subproject financing arrangements, and there is a
need to test at least one other approach during the pilot. This is proposed under the
extended pilot phase.
• There should be appropriate documentation of the step by step experience of setting up
the facilities. It is understood that this will be undertaken later by the PMU.
Further details of these observations are contained in Appendix 2, and also they are
elaborated in some sections of Part 2 of this report.
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Slum Upgrading Facility Mid-term Review
2. FINDINGS OF THE REVIEW
This section summarizes the findings of the review, bringing together the conclusions of the
Observation Team reports and the results of the desk analysis of the SUF programme, and
discussions held by the consultant in Nairobi. It focuses on key themes that have been
identified.
Little development on the ground, but a large pipeline of projects
The accomplishment of the key outcomes of the SUF Pilot Phase are summarized as Table
1. More detailed targets and accomplishments and the SUF timeline are attached as
Appendices 3 and 4 respectively.
Table 1: Actual and Planned Accomplishments of SUF’s Key Outcomes
Key Outcomes Activities Status as at end November, 2008 Projected Status as at end of April 2009
1 - Four pilot 1 - Four pilot Completed in 2007 Activity 1 - Four pilot projects refined
projects refined projects refined. Completed in previous quarters
2 - Four prioritised 2 - Country Project Completed in 2007/08 Completed in previous quarters
pilot projects Implementation
readied for Plans (CPIPS)
implementation and 3 - Social / Completed in 2008 Completed in previous quarters
finance in place Institutional Aspects
of Pilot Projects
4 - Physical Plans of Kojokrom, Ghana; Amui Djor, Ghana; Kurasini, Tanzania
Pilot Projects Kratonan, in Solo Indonesia Mwisho Quarters, Tanzania; Kirulapura
Ketalan, in Solo Indonesia; and Majid Place, Sri Lanka
Setabelan, in Solo Indonesia;
Kuruniyawatta, Sri Lanka.
5 - Financing Plan Ketalan, in Solo Indonesia Kojokrom, Ghana;
Ketalan, in Solo Indonesia;
Setabelan, in Solo Indonesia;
Kuruniyawatta, Sri Lanka
Kirulapura, Sri Lanka.
6 - Procurement Ketalan, in Solo Indonesia Kojokrom, Ghana;
Plan Ketalan, in Solo Indonesia;
Setabelan, in Solo Indonesia;
Kuruniyawatta, Sri Lanka;
Kirulapura, Sri Lanka.
3 - Four pilot 7 - Construction Ketalan, in Solo Indonesia Ketalan, in Solo Indonesia;
projects mobilising Setabelan, in Solo Indonesia;
domestic capital for Kuruniyawatta, Sri Lanka;
slum upgrading Kirulapura, Sri Lanka.
successfully 8 - Financial Ketalan, in Solo Indonesia
Ketalan, in Solo Indonesia;
implemented
Setabelan, in Solo Indonesia;
Kuruniyawatta, Sri Lanka;
Kirulapura, Sri Lanka.
9 - Other Ketalan, in Solo Indonesia CCI project implementation contract,
Contractual Tanzania. A Strategic Review of Tanzania
Obligations will be undertaken during the first quarter
2009
Source: SUF-PT Quarterly Report, September to November 2008.
March 2009
Slum Upgrading Facility Mid-term Review
In addition the work of the design team has, in some cases, been carried on by the UN-
HABITAT Programme Managers (HPM), and has led to investments being made. Two
design team projects are under construction—Sri Lanka and Tanzania, (Table 2) and
capacity development continues to be provided. The expenditures of the design team
include:
• A US$25,000 grant to the Ghana Urban Poor Fund
• US$142,000 to the Marutuwa Urban Poor Fund—US$60,000 to capitalize the fund,
$40,000 seed capital to development the multi-storey housing building—currently under
construction, and US$42,000 for capacity development.
• US$500,000 grant to fund the development of the Savlan condominium project in
Tanzania—currently under construction.
• Assistance towards the preparation of upgrading of slum pockets and existing degraded
very low income multi-storey blocks for Jakarta Housing Authority, and the
establishment of the Housing Resource Centre in Solo, Indonesia—technical assistance
was provided.
Also as shown in Table 2 are the four projects of the Pilot Team (PT) that are completed or
under construction; the first at Kratonan, in Solo, Indonesia—the first phase of this project
was funded as a capacity development exercise in preparation for the SUF Consultative
Board Meeting, Ketalan, also in Solo, Indonesia, and Kirulapona and Kirunivawatta, both in
Colombo, Sri Lanka. However, there are other projects in the pipeline.
Table 2: SUF Projects Under Construction, as at end February 2009
Project Location Country Number of Households Assisted Team
Usaui Walta Moratuwa Sri Lanka First phase of a medium-rise apartment Design/PMU
complex for occupants of the informal
settlement who original houses were
demolished in advance of rehousing.
Supported by SDI, and involves the
construction of about 30 units
Savlan Dar es Salaam Tanzania Construction of 32 apartments within a Design/PMU
Condominium medium-rise condominium complex
involving a federation of women’s groups
Ketalan Solo Indonesia 26 households─improving the quality of Pilot
existing houses through a construction loan
from the local financing facility (LFF) to a
community cooperative
Kratonan Solo Indonesia Upgrading and reconstruction of 11 houses Pilot
financed by a construction loan from the
LFF to a community cooperative
Kirulapona Colombo Sri Lanka Upgrading and reconstruction of 40 houses Pilot
financed by a 5 year loan from HSBC to
SAPSRI microfinance organisation and
project developer
Kiruniyawatta Colombo Sri Lanka Upgrading and reconstruction of 40 houses Pilot
financed through Hatton National Bank and
Women’s’ Bank
Source: PT Progress Reports and Senior Adviser visit reports
A summary of the status of all current projects and activities of the SUF PT in the four
countries is shown as Appendix 5.
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Slum Upgrading Facility Mid-term Review
While project implementation has taken time, the key accomplishment of the pilot phase to
date has been the design and establishment of local finance facilities (LFFs) in each of the
four participating countries:
• Ghana—Tema/Ashaiman Metropolitan Slum Upgrading Fund (TAMSUF), and Sekondi-
Takoradi Metropolitan Assembly City-wide Settlement Upgrading Fund (STMA-CSUF).
Consideration is now being given to the joint operation of the two funds through the
creation of one secretariat for both.
• Indonesia—Yasasan Lembaga Pembiayaan Permukiman Perkotaan (YLP3), which has
been assisted by the PT. Currently, the municipality is preparing its transition from a
foundation—the existing legal form of the LFF—to a Badan Layanan Umum Daerah
(BLUD)—local public service authority. The proposed LFF for Yogyakarta–Kotakita–has
still to be operationalised.
• Sri Lanka—Lanka Financial Services for Underserved Settlements (LFSUS), where the
finalization of the credit enhancement agreement between LFSUS and UN-Habitat has
been signed and funds are being released in two separate tranches—development and
administration, and credit enhancement. Negotiations have been completed with two
commercial banks for LFSUS to guarantee wholesale credit lines─Kuruniyawatta loan
by Hatton National Bank (HNB) and Kirulapona loan by HSBC.
• Tanzania—Tanzania Financial Services for the Underserved Settlements (TAFSUS),
which became the focus of the work of the PT only late in 2008. TAFSUS is proposed as
a local financing facility that will raise domestic capital, provide credit enhancement and
technical assistance towards the local financing of slum upgrading and affordable low
income housing. This limited liability company—limited by guarantee—was registered on
27th January 2009
While these accomplishments under the PT contract are indeed sufficient to satisfy their
terms of reference—small development projects will be under construction before closure,
the creation of LFFs are significant achievements and each facility is now building up a
pipeline of projects for possible financing. Nevertheless, the real judgement on SUF must
await the completion of these first projects on the ground—there are insufficient projects at
an appropriate scale to be able to make a realistic assessment of impact now. This is
because:
• The focus of the PT has been on bottom up planning, responding to demand from the
communities. Extensive community consultations have taken place to secure ownership
and commitment to the programme. Inevitably, with limited resources available in the
field, the whole process has taken time, and this indirectly led to small initial phases of
larger projects being pushed—they were the practical starting point for the
implementation of loans to construction activity.
• Focus was on a project rather than a programme approach, despite the creation of the
LFFs—detailed focus on micro projects rather than developing feasibility studies for
model, but larger and more embracing, area upgrading projects.
• Too little attention was paid to link SUF with ongoing cities without slums programmes or
similar endeavours, and to build upon previous efforts, especially those of the design
teams.
March 2009
Slum Upgrading Facility Mid-term Review
The result was that project formulation and approval took more time than originally
conceived, by the PT and the PMU.
Delays are inevitable, but some avoidable…
Other factors too contributed to the slower than expected progress of the Pilot Project.
First was the 18-month delay in appointing the consultants contracted for the outsourced
field management operation. The request for expressions of interest for firms to enter into
an international service contract for the PT, was released by United Nations Office at
Nairobi (UNON) in December 2004. The subsequent Request for Proposals (RFP) issued
by UNON on 15 February 2005 saw 26 firms, organized into 7 consortia, responding and by
the end of March 2005 firm proposals were received from 5 bidders. Bids were opened on
29 March 2005. The Second meeting of the Consultative Board in March 2005, included
presentations by the five team leaders of consortia bidding to serve as the PT and a
decision was made on the best bid. UN-HABITAT in April started background checks of the
five consortia, who were all cleared, but only in November 2005. This meant that the
validity of bids had to be extended to 31 October 2006,5 but by then two consortia withdrew.
On January 30, 2006, the Local Committee on Contracts awarded the contract to Emerging
Markets Group (EMG) consortium for an initial period of 30 months, but with an option of an
additional 24 months. But it took until November 2006 before the contract was finalized and
EMG mobilized─the delay has been partially attributed to the problems in raising funds to
match the initial contribution of DFID. Almost 20 months had passed since the proponents
had presented in Nairobi, and one year since all consortia were cleared.
Second, the delay in fielding the PT meant that the momentum started by the design team
was lost very early on and in reality it meant that a restart of the programme was necessary.
Naturally local circumstances had changed, projects had come and gone and many in the
sector had moved on. Furthermore when EMG mobilized in the four countries, apart from
refining four of the design team projects for implementation, there was an apparent
reluctance to consider some of the earlier efforts of the design team such as the draft
guidelines, together with the realisation that many of the design team projects had run into
the normal complications of delayed projects, led to the abandonment of some of the earlier
work. For example, the early initiatives Indonesia were focused on Jakarta and included a
number of proposed upgrading projects, based on collective tenure arrangements, as well
as proposed initiatives featuring high-rise apartment blocks in slum areas. These early
schemes were never fully worked out, however, because of a combination of a lengthy
leadership election for Jakarta resulting in a lack of political will in the Jakarta Housing
Agency, limited budgetary resources in the Agency and prevailing questions of land and
structure ownership. The lack of progress led to the focus of the PT’s activities being
shifted to the cities of Solo and Yogyakarta where groundwork had also been prepared by
the design team. And in Sri Lanka the national government discovered to its own surprise
that land that had been allocated for local government ownership on Independence in 1948
had never been followed up by formal paperwork meaning that local governments in fact did
not own the land legally. This meant that a special panel was set up at a national level to
resolve all local government land throughout Sri Lanka. In turn this meant, for example, that
the basis of the design team’s Moratuwa land sharing and cross-subsidy concept had to be
5 Proposals were based on bid validity to 31 July 2006.
March 2009
Slum Upgrading Facility Mid-term Review
abandoned, radically altering the Usavi Watta project which lost its cross subsidy from the
adjacent land. It negated the basis of the imposed multi-storey design which was already
being implemented. It was therefore agreed that the PMU would retain this project under its
own portfolio to be implemented by the project partners Janarukala with the guidance of the
local HPM office and retained local consultants.
Furthermore, the earlier projects under the design phase were not all embracing and never
really set up local arrangements for problem solving. For example, the development of the
Tanzanian Women Land Access Trust (TAWLAT), Savlan condominium scheme was
delayed since it took time to secure the necessary permits, but even then there was a failure
to access a trunk sewer line some distance from the site, and instead a communal septic
tank was constructed—thus incurring additional costs which with a little more effort could
have been avoided. Also, there was the abortive work on helping develop microfinance in
Ghana with HFC bank, and Cooperative Housing Foundation (CHF). But the problem was
overcome in Sri Lanka, where the LFSUS Board has been able to act as a problem solver to
the program.
The third major difficulty concerned the Credit Enhancement Applications to the SUF
PMU—also for ratification by the World Bank Trust Fund managers—that required, on
approval, the formalization of the legal Agreements between the LFFs and UN-HABITAT for
capitalising the LFFs. Delays occurred in satisfactorily establishing the operational nature of
the LFFs, and further delays were later encountered in releasing funds because of the need
to establish a secretariat in each before funds could be released. The main problem was the
change in approach—from financing specific projects to that of a special purpose vehicle
that apart from the PT support perceivably had no regular personnel, no bankable projects,
no track record and no staff.
UN-HABITAT’s senior management overseeing the administrative work of the SUF PMU-
and thus guardians of the proposed Credit Enhancement Agreements-were following the
original notion that individual projects would be financed directly-in true UN-HABITAT
traditional fashion, and had not understood the nature of the LFFs as explained to them in
detail by the SUF Programme Manager and Senior Adviser. In fact the LFFs were seen by
the PT more as an output, rather than the LFF’s sub-projects themselves. UN-HABITAT’s
Programme Support Division (PSD) wanted to ensure that appropriate controls on the use
of funds were in place before any releases could be made. They were uncertain of the
status of the new agencies—possible “briefcase” companies—that had very respectable
Boards but appeared to have neither a manager, nor a balance sheet with functioning bank
accounts, and furthermore they felt that the PT was unable to articulate sufficiently how the
LFFs would deliver bankable projects. The feasibility studies of the projects were incomplete
in their final bank negotiations pending the LFF capitalisation—and thus actual bankable
projects with finance committed by commercial banks (loan agreements) were deemed not
ready—and there were some changes of projects during the processing of the application. A
heavily revised version of the drafted Agreement—as had been earlier agreed at the SUF
Consultative Board in Accra in April—responding to PSD’s own concerns and more in line
with traditional UN-HABITAT approach requiring approvals for each sub-project’s business
plans, complete with signed loan agreements, was sent to LFSUS for their comments. This
was rejected by LFSUS citing the truism that commercial banks would not sign loan
agreements if another body was still to give its funding approval.
March 2009
Slum Upgrading Facility Mid-term Review
After high level meetings with the Executive Director, this anomaly was overturned and new
Agreements were drafted. In fact as soon as the capitalization was eventually put in place
the financial commitments were finalized and the projects went ahead in a matter of days,
reflecting the fact that the heavy lifting work done by the PT in advance was sound.
However, there were also worries within PSD over the possible conflict of interest between
EMG—acting as the initial Secretariat to the LFF, and the approval of disbursements. PSD
was nervous of its auditors. Box 1 documents the approval process for LFSUS, from the
original application for credit enhancement submitted to UN-HABITAT in October 2007, to
the release of the first tranche of funds for administration and development in January 2009.
In summary, the financing of LFFs was a new approach that had never been tried before.
Neither UN-HABITAT, nor the donors fully understood its implications in terms of the
controlling United Nations rules. It was also, in fact, a case where none of the parties really
understood each others’ culture—a new learning curve for UN-HABITAT. The problem was
eventually solved by agreeing to release funds in stages—first those for administration and
development with the appointment of a secretariat by the LFF, and stage two, funds for
credit enhancement. Compounding these conceptual differences there were earlier delays
in processing applications for funds from LFFs—the original LFSUS application was
declined by the Cities Alliance in October 2007, pending further information; the
“application” for funding by Tanzania Financial Sector Deeping Trust (FSDT) was not acted
on and necessitated the establishment of a new fund from scratch—this was only
accomplished on January 29, 2009. To trigger the release of funds for the Ghana LFFs,
one secretariat is now being considered for both of the local city-based funds, while in
Indonesia delays are still being incurred over the problems of changing structures to
conform to national governments requirements to establish a BLUD at each local
government level, and a BLU nationally. All this has delayed implementation.
Perhaps the lessons learnt are that changes in the approach of SUF, from project specific
investments as originally conceived, to the creation of financial rather than project
development special purpose vehicles should have been more explicitly agreed and
documented in an amended SUF Operations Manual. Although the original expected the
formation of special purpose vehicles, it did not anticipate larger scale facilities requiring a
more flexible funding arrangement. Project agreements would have then been simpler, but it
was the shift in the approach that caused the problems. Furthermore, neither the PMU, nor
the PT, fully understood the intricacies and traditions of the UN rules and regulations for
approving, disbursing and transferring money to newly established facilities. These proved
to be more complicated than anticipated. But, now that the requirements are clear to all
participants, future releases should be easier, providing all parties respect the spirit of the
agreements reached.
By contrast the Agreement between UN-HABITAT and TAWLAT in Tanzania was relatively
straightforward. This was because it envisaged only a bridging loan for construction. This
related to an earlier agreement with Azania Bank for commercial loans to be made to the
incoming slum dweller buyers with repayments eventually being made to a TAWLAT
revolving fund for which details have yet to be agreed. Similarly the UN-HABITAT
Agreements with Janarukala in Moratuwa, Sri Lanka, and with Peoples Dialogue Ghana on
Old Fadama, Accra, and Tema in Ghana, and with CHF on microfinance in Ghana, all for
the direct design team and PMU projects were more easily understood by the UN-HABITAT
system, being direct arrangements with NGOs where outputs could be more easily specified
and directly monitored. The complex, but more long term and sustainable arrangements
March 2009
Slum Upgrading Facility Mid-term Review
being pioneered with the LFFs has been one of the major innovations of SUF, but has
required a lot more administrative footwork in setting up the arrangements with UN-
HABITAT within the UN rules.
March 2009
Slum Upgrading Facility Mid-term Review
Box 1: Timeline to the LFSUS Agreement
May 2005: SUF Operations Manual approved by SUF 23. PSD requested ad hoc PRC to sign memo
Consultative Board, establishing the credit enhancement confirming that their recommendations are
(CE) methodology incorporated
January 2006: Meetings held in UN-HABITAT—PMU and June 2008
PSD—to establish the methodology for CE approvals and 24. 9/6 PMU prepares memo for ad hoc PRC
agreements in line with May 2005 SUF Operations 25. 16/6 PMU meeting with PSD with Deputy Executive
Manual Director in response to Executive Director (ED)’s
Mid 2006: Meetings held PSD and Office of Legal Affairs memo of 14/6 —MM and BD away—to discuss
New York (OLA-NY) to see if ‘the new UN rules’ would requirements of the format of the Credit
apply—they could not be used until Operational enhancement Agreement
procedures approved by General Council (GC) 26. 20/6 EMG made presentation to ad hoc committee.
April 2007: GC21 approves ‘New Rules’ operations for 27. 24/6 ad hoc PRC send confirmation to PSD
ERSO—not necessarily for SUF 28. 27/6 Funds from Cities Alliance to cover first tranche
June 2007: Locally recruited UN-HABITAT consultant for LFSUS expected
Paper used to establish LFSUS as a pioneer LFF 29. 26/06 Internal PMU meeting with to discuss
October 2007: LFSUS credit enhancement application disbursements, implementation plan and pipeline of
received and reviewed by PMU; PMU send application to projects
Cities Alliance (CA) for fiduciary check July 2008
1. Sri Lanka Consultative Board meeting Oct 2007: 30. Amendments to the Agreement30/6/08 re: new
LFSUS CE was presented; CA ‘deferred approval’— financial disbursement arrangement that UNH will
application required additional information; first release development and administration funds,
2. 19/10 CA requested information on why a new public then release the CE funds on presentation and
sector entity is being set up, instead of housing this approval of projects
type of a fund with the NHB or Bank of Ceylon, for 31. UNH will need to approve all projects for financing
example. Also mentioned that micro credit (this was against HSFD Director and PMU advice)
organisations could be possible partners. 32. 14/07 Several revisions and final format agreed and
November 2007 sent to PSD (not agreed by SUF PMU)
3. 18/11 CA suggested use of the CLIFF format for the 33. 14/07 cleared by PSD Legal to PSD Director for
CE agreement; and would need to see operations signature
manual and fund management agreement 34. 16/07 PSD signed agreement
December 2007 35. 21/07 agreement dispatched to LFSUS, copied as
4. CA request fiduciary assessment documentation— template to other LFF’s
audited financial statements for past 3 years, for the August 2008
proposed recipients of the CE funds, National 36. 18/08 Letter of rejection from LFSUS with reasons
Development Bank of Sri Lanka, and Bukopin Bank. 37. 28/08 Meeting with ED, BD and PMU senior
When drafted, CA would review the agreement management to discuss and resolve issue
between UN-Habitat and the recipients September 2008
January 2008 38. 1/9 PMU makes changes to the Agreement based on
5. PMU to Sri Lanka to attend Board Meeting with discussion
outline of draft Agreement Jan 2008 39. 4/9 Agreement sent to Office of Internal Oversight
6. Various versions of the agreement and numerous Services (OIOS)—recommended dividing the
revisions were made between Dec 2007 and April agreements to two parts: A for development and
2008 with inputs from UN-HABITAT Legal Officer administration (D&A) expenses, and B for credit
April 2008 enhancement (CE) funds
7. Model Agreement reviewed and agreed by SUF 40. 9/9 first draft of agreement incorporating two parts A
Consultative Board at Accra meeting & B prepared and sent to Legal/Auditor
8. 29/4 CA responded to the draft of the agreement October 2008
sent to them. 41. 9-17/10 finalised LFSUS agreement— to include the
9. 4/4/08 requirement for the establishment of a Secretariat
a/
10. PSD asked ad hoc project review committee (PRC) 42. 23/10 LFSUS Agreement signed by PSD
to review the agreement 43. 28-30/10 Board meetings. Signed agreement given
11. 8/4 PRC met to LFSUS
12. 9/4 Amendments made November 2008
13. 10/4 PRC emailed their confirmation 44. 23/11 LFSUS signed the agreement and dispatched
14. 10/4 Agreement sent to CA for their perusal to Nairobi
15. 11/4 CA replies requesting internal review by its own December 2008
specialist 45. 9/12 received payment request for D&A first
16. 29/4 PMU send reminder to CA instalment
17. 29/4 CA send email with queries 46. Received CV of part time manager and secretariat
May 2008 details
18. 14/5 PMU responded 47. Received payment request for CE funds—sent
19. 28/5 Auditor ToR sent memo to PSD
20. 27/5 PSD-Legal signed off on the Agreement January 2009
21. 29/5 Presented to PSD 48. 15/1 Contract for LFSUS Secretariat signed
22. 30/5 PSD called meeting with PMU 49. 28/1 Funds disbursed to LFSUS.
a/
Note: Ad hoc committee established within UN-HABITAT to resolve the issue over releasing funds to local finance facilities
(LFFs)
March 2009
SUF Mid-term Review 11
May seem like a lot of money—but all new products require upfront
investment
Total funds committed for the pilot phase amount to some US$18.76 million, including the
direct payments of US$0.26 million by DIFD to the Cities Alliance for administration.6 UN-
HABITAT has some US$18.5 million for SUF although US$3.9 million still has to be
released by DFID.7 Table 3 summarizes the sources, which show that 50% of the amount
for UN-HABITAT is programmed from DFID, and the balance split between the Government
of Norway—26% and Sweden—24%8.
Table 3: SUF - Summary of Funding
Funding Agency US$ 000s Percent Percent
Cities Alliance--from DFID 9,250.00 49.3% 50.0%
Government of Norway 4,841.30 25.8% 26.2%
Sweden-Sida 4,403.73 23.5% 23.8%
Total to UN-HABITAT 18,495.03 98.6% 100.0%
DFID direct to Cities Alliance for administration 258.46 1.4%
Grand Total 18,753.49 100.0%
Under the subsequent grant agreement9 for the SUF pilot phase, some US$9.25 million was
made available by the Cities Alliance World Bank Trust Fund to be administered by UN-
HABITAT. The agreement originally was made for a period to March 31, 2008, but now has
been extended to until March 2010.10 The Swedish Government, through SIDA, and the
Government of Norway’s combined contributions eventually matched the World Bank-Cities
Alliance funding provided by DFID at the beginning of the pilot programme, but the
newcomers’ money was not available until December 2007 and involved separate
administrative arrangement, not utilizing the common Cities Alliance route originally
envisaged. This has proven to be a complex administrative arrangement involving triple
financial reporting structures. In future only a single trust fund arrangement should be
adopted for SUF contributions, and thus only a single common reporting structure
responding to a single set of demands—Sweden in particular had separate requirements for
the SUF pilot programme not envisaged by the other two donors.
The original financing plan for the SUF pilot phase11 submitted to the Cities Alliance totaled
US$30.5 million, with some US$20.0 million proposed from the Cities Alliance and another
US$10.5 million as co-financing. The proposed US$20 million from the Cities Alliance never
materialized, since initially only DFID funds were put in. Originally, SIDA proposed to match
the DFID contribution, but because of an internal reorganization, a reduction in their global
funds, and an insistence on an independent evaluation of the Design Phase—completed
only in March 2006, led to their reduced contribution. The planned co-financing from
elsewhere did not materialize. The proposed uses of funds were broken down as follows:
6 This was a requirement of DIFD for their participation.
7 Records of the SUF-PMU as at end January, 2009.
8 Both Norway and Sweden committed the same amount in their local currencies—the differences in percentages reflect the exchange
rate fluctuations.
9 Grant Agreement between International Bank for Reconstruction and Development and the International Development Association as
a Trustee for the Cities Alliance Trust fund and the United Nationals Human Settlements Programme (UN-HABITAT), dated May 6,
2005.
10 Minutes of the Consultative Board meeting, Accra, April 2008, where all donors also agreed to extend until the end of 2009.
11 Cities Alliance – Submission of Proposals: Application for Slum Upgrading Facility – Pilot Programme. 2005.
March 2009
SUF Mid-term Review 12
• Task team supervision, US$0.9 million─US$ 0.6 million from the Cities Alliance.
• Consulting services, US$4.5 million─US$ 3.0 million from the Cities Alliance.
• Dissemination—workshops, networking, US$2.1 million─US$1.0 million from the Cities
Alliance.
• Country project implementation—financial packaging, capacity building, US$14.0
million─US$ 9.4 million from the Cities Alliance.
• Seed grants and bridging loans, US$9.0 million─US$ 6.0 million from the Cities Alliance.
Actual and projected expenditures of SUF until the end of the pilot phase—December 2009,
are shown as Table 5. Overheads, including those of the Cities Alliance are small and
estimated to be almost 5%—less than US$0.9 million. Investments, including those of the
design and pilot teams, should amount to US$7.1 million or about 38% of total expenditures.
However, much of this, US$3.7 million is projected for 2009—more than half of the total.
Project development costs account for the balance of US$10.8 million or 57%. These are
high, but are not excessive for establishing new and pioneering facilities, and preparing
projects dealing with the poorest communities in society.
Table 4: Summary of Expenditures and Budgets, 2005 to 2009
Amounts [US Dollars, thousands]
ITEM Actual Budgets Total
2005 2006 2007 20081/ 20092/ Project
Staff and Consultants
SUF PMU (85% project activity) 323.08 1,275.63 1,069.01 1,435.56 1,367.34 5,470.62
PMU Consultants and HPMs 80.00 172.85 131.12 125.10 103.34 612.41
Direct Project Costs for Global - 940.82 1,168.61 1,921.23 669.38 4,700.04
Activities Pilot Team
Sub-total (Staff and Consultants) 403.08 2,389.30 2,368.74 3,481.88 2,140.06 10,783.07
Investments
Through Design Team/PMU - 779.66 142.50 173.05 475.00 1,570.21
Through Pilot Team/LFFs - - - 2,340.00 3,194.20 5,534.20
Sub-total (Investments) - 779.66 142.50 2,513.05 3,669.20 7,104.41
Overheads - administration 65.43 211.10 154.42 198.74 236.32 866.01
Total 3/ 468.51 3,380.07 2,665.66 6,193.67 6,045.58 18,753.49
Percentages
ITEM Actual Budgets Total
2005 2006 2007 2008 1/ 2009 2/ Project
Staff and Consultants
SUF PMU 69.0% 37.7% 40.1% 23.2% 22.6% 29.2%
Design Team - Consultants and HPM 17.1% 5.1% 4.9% 2.0% 1.7% 3.3%
Direct Project Costs for Global 0.0% 27.8% 43.8% 31.0% 11.1% 25.1%
Activities Pilot Team
Sub-total (Staff and Consultants) 86.0% 70.7% 88.9% 56.2% 35.4% 57.5%
Investments
Through Design Team/PMU 0.0% 23.1% 5.3% 2.8% 7.9% 8.4%
Through Pilot Team/LFFs 0.0% 0.0% 0.0% 37.8% 52.8% 29.5%
Sub-total (Investments) 0.0% 23.1% 5.3% 40.6% 60.7% 37.9%
March 2009
SUF Mid-term Review 13
Percentages
ITEM Actual Budgets Total
2005 2006 2007 2008 1/ 2009 2/ Project
Overheads - administration 14.0% 6.2% 5.8% 3.2% 3.9% 4.6%
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Notes:
1/ Interim accounts the 2008 expenditure is not final it is subject to change
2/ 2009 figures are a working budget, since the budget has not been approved.
3/ Includes administration costs paid direct by DFID amounting to US$ 0.258 million
Source: Computations based on figures from SUF Interim Financial Report as at December 31, 2008
Improvements in accounting are needed
While all the financial data requested from the PMU was available, some preparation was
necessary to compile the data in the form requested by the consultant. Because of the
relatively few transactions of SUF and the required reports, at this stage, the current staffing
level is adequate for producing such documents. But as the operations expand, and the pilot
is extended, changes in financial reporting will inevitably be required and additional staffing
is likely to be needed. Financial reporting of SUF needs some strengthening and the PMU
should, with external assistance if necessary, set up an appropriate double entry accounting
system for SUF—establish a chart of accounts, design the financial statements, and
document its accounting policies. It is understood that today only a simple cash expenditure
statement as prepared. The transition to more rigorous financial statements should take
place during the remaining months of the pilot phase, and be completed by the end of 2009.
From the Design Team to a Project Management Unit assisted by
international and local consultants
The overall organizational structure for SUF pilot phase is shown as Figure 1. Its
positioning within the structure of UN-HABITAT is shown in Appendix 6.
Figure 1: Overall Organizational Structure for SUF, March 2009.
DFID/Cities SLUM UPGRADING FACILITY SIDA
Alliance CONSULTATIVE BOARD GOVERNMENT OF NORWAY
UN‐HABITAT SUF PROJECT MANAGEMENT EMG PILOT TEAM
PROGRAMME UNIT
INDONESIA
MANAGER
GHANA
SRI LANKA
TANZANIA
March 2009
SUF Mid-term Review 14
Consultative Board
The SUF Consultative Board was formed in 2004 to establish and develop the broad
objectives and guidelines for the direction of the programme, to ensure its relevance to the
participating partners and to slum dwellers. To date, it has held nine meetings. The
composition and current membership of the Board is as follows:
• Executive Director (ED) of UN-HABITAT as Chair.
• 2 members nominated by the Cities Alliance Consultative Group—originally Norway –
Per Nygaard and the World Bank-currently Ms. Abha Joshi-Ghani, with the Cities
Alliance Secretariat -Mr. Kevin Milroy in attendance.
• 2 members nominated by the ED UN-HABITAT representative of developing country
recipients—Orbit Securities-Mr. Lauren Malauri and Stephanie Baeta Ansah; and Sum
Dwellers International-Mr. Jockin Arputham.
• 1 representative of an international local government organization—United Cities and
Local Governments-Ms. Emelia Saiz.
• 1 representative of the international NGO community—Slum Dwellers International
(SDI)–Mr. Jockin Arputham, who always attends with at least one other SDI
representative
• 1 representative of potential private sector investors─independent banker–Rebecca
Gaskin Gain, based in South Africa.
• 1 representative each of individual donors who provide a minimum of US$ 1 million
contribution to SUF—Norway-Mr. Erik Berg and Mr. Per Nygaard, Sweden-Mr. Thomas
Melin and Mr. Mikael Atterhog, and DFID-Mr. Gavin McGillivray, Ms Jane Jamieson and
Mr. Peter Roberts succeeding Ms Zoe Hensby.
Each Board member can bring along additional support personnel, if required. The SUF
Senior Adviser acts as Secretary to the Board. Overall functions of the Consultative Board
are:
• Review the SUF Annual Implementation Plan (AIP)—central management document
outlining the work plan and budget. This becomes the control mechanism for the release
of funds to the projects and administrative back up.
• Review the methodology and timetable for the recruitment of the SUF Project
Management Unit (PMU), SUF PT and the recruitment of individual SUF-PT country
project teams.
• Review the progress, monitoring and evaluation reports and make recommendations, to
the SUF Programme Manager for the overall direction of the Pilot Projects.
• Assist in the strategies for SUF knowledge dissemination, publications and
representation at international events.
• Make recommendations, through the Chair, to the involved multi-lateral agencies, and
bi-lateral funders, for SUF’s eventual conclusion or extension, and, if is successful, the
ways in which the approach can be mainstreamed.
March 2009
SUF Mid-term Review 15
The principal role of the Board is consultative12 but sometimes it has acted in a “quasi
executive” capacity. However, the general feeling is that the Board has not functioned as
well as it might have done given a more precise mandate. There is little contact between
members between meetings, and little direction and support is given to SUF. There are
probably too many Board members and it might be possible to reduce its size and make it
more of an executive board, where the members fully support SUF, as well as the interests
of their sponsoring agencies.
Prior to some Board meetings, there are ad hoc expert group meetings—to date there have
been three, and one more is planned for October 2009. The participants and agenda are
developed specifically for each meeting, but often the composition is similar to that of the
Board. The meetings generally discuss the more technical aspects of SUF implementation,
and have proved useful in the past. A more streamlined Board would increase the necessity
for more frequent expert group meetings, which could function as a technical working group,
and relieve the Board reviewing on detailed technical matters.
Staffing and organisation
The staffing and organizational structure for SUF is shown as Figure 2. The SUF technical
team is headed by the SUF Programme Manager (PM)—currently the Director for Human
Settlements Financing. He is assisted by a SUF Project Management Unit (PMU), headed
by the SUF Senior Adviser—who is scheduled for retirement at the end of October 2009.
The position of Chief, Urban Finance Section remains vacant, although it is understood that
an appointment will be made shortly. Once the assignment is taken up, the staff member is
expected to be actively involved in SUF. The Senior Adviser is assisted by a small team of
five people—four staff and one consultant—whose employment with UN-HABITAT13 is co-
terminus with the SUF. Two of the staff also split their time between SUF and other projects,
while the communications and knowledge management consultant was hired only on a part
time basis.
The SUF-PM is responsible for:
• Annual activities agreed for the year ahead with the partners and expressed in the SUF-
AIP.
• Financial and administrative management—central accounts for all SUF activities.
• Raising resources for the SUF pilot project above the initial contributions of funding from
DFID, SIDA and the Government of Norway.
• Preparation of progress reports at six monthly intervals. The SUF-PT has assisted the
SUF-PM, where the SUF Progress Reports are designed to provide data for the
monitoring and evaluation process.
• Manage the communications of SUF to the outside world in accordance with the SUF
communications strategy
12 However, as it name implies, the Consultative Board is only advisory and has no real decision making power. Assessment of the UN-
HABITAT Slum Upgrading facility, Final Report to Swedish International Development Cooperation Agency (SIDA), May 24, 2006. PM
Global Infrastructure Inc.
13 SUF Project Finance Officer, UN-HABITAT Programme Management Officer—accounting requirement, an Administrative Assistance,
and a part of Monitoring and Evaluation Officer. A Communications and Knowledge Management Consultant has been hired on a
part-time basis and is attached to the PMU.
March 2009
SUF Mid-term Review 16
Day-to-day field operations, and country project activities, are undertaken by the SUF
PT─an outsourced field management operation, and their country project local experts hired
in each of the four pilots. The structure is shown in Figure 2. More specifically the SUF-PT
supports the design of the pilot by the local partners, including the development of bankable
projects. The PT is responsible for country level communications and learning/knowledge
sharing operations with the HPM, and by agreement, with the SUF-PMU. Also it is
responsible for financial management, administration and contract management at the
country level, and assists the PMU in the preparation of quarterly and annual reports. The
SUF-PT reports to the SUF PM. Operations in each country are guided by a Country
Project Implementation Plan (CPIP), prepared by the SUF-PT and approved by the SUF-
PM.
The 30-month EMG contract for the PT, which ends on April 30, 2009, should have been
sufficient to start construction of four projects as required under the terms of reference, and
to a large extent this has been achieved. But more could have been done. The PT chose to
reinvent approach and methodology rather than adopt the initial design team guidelines,
manual and handbook. Furthermore, the PT underestimated the time needed to prepare
“demand led” slum upgrading projects, and in some cases failed to tap into the extensive
local knowledge available—for instance in Sri Lanka, although the main design team
consultant laid the groundwork for LFSUS, for the sub-projects, other experienced local
experts available through the HPM were not fully used.
Overall the PT was good technically, but the time spent by the global team in the pilot
countries was not enough. Observations are that they tended to work alone and knowledge
transfer was insufficient, especially during the early months of the assignment. The change
of the team leader, mid way in the project period, did not help and the assignment of the
replacement on a full time basis to Nairobi was of doubtful value to the project—especially
since the team leader was required to hold office outside the UN-HABITAT complex. This
meant that the opportunity to work closely, on the job, with the staff of the PMU was
underutilised. Comments from the field indicate there were problems at the local country
level, where there was too little coordination between the HPMs, and the country
coordinators. A second change of the team leader—reverting to the same person who
started off the project—improved coordination and strengthened the team, and redirected its
focus on the key outcomes.
March 2009
SUF Mid-term Review 17
Figure 2: Slum Upgrading Facility – Organizational Structure
EXECUTIVE DIRECTOR
UN‐HABITAT
DIRECTOR DIRECTOR
HUMAN SETTLEMENTS REGIONAL AND TECHNICAL
FINANCING EMERGING MARKETS GROUP PILOT TEAM (CONSULTANTS) COOPERATION
(SUF Programme Manager)
TEAM LEADER DIRECTORS
CHIEF REGIONAL AND TECHNICAL
COOPERATION
URBAN FINANCE SECTION ASIA and AFRICA
GLOBAL TEAM COUNTRY LOCAL PROJECT
SUF PROJECT MANAGEMENT UNIT EXPERTS
SUF SENIOR ADVISOR Slum Upgrading Country Coordinator
(SUF Coordinator) Specialist Ghana Habitat
Programme
Long & Short Manager
Term Local
Specialists Ghana
Monitoring Project Finance Communication and
Evaluation and Advisor Knowledge Management
Consultant
Municipal Finance & Country Coordinator
Policy Advisor Management Indonesia Habitat
Programme
Long & Short Manager
Programme Administrative Term Local
Specialists Indonesia
Management Assistant
Procurement & Country Coordinator
Officer Accounting Habitat
Administrator Sri Lanka Programme
Long & Short Manager
Term Local Sri Lanka
Specialists
Short Term Specialists Country Coordinator Habitat
Short Term Specialists
Tanzania Programme
Manager
Long & Short
Term Local Tanzania
Specialists
March 2009
SUF Mid-term Review 18
Beyond the contracted pilot team
The pilot phase of SUF is agreed with the donors to continue until December 31, 2009, but
the PT contract is to end eight months before this—at the end of April. The SUF Senior
Adviser, too, is due to retire this year. These two events could mean the loss of much of the
institutional knowledge of SUF unless transfer is enacted appropriately. Day to day
operations of SUF, after the departure of the PT, will become the responsibility of the small
staff complement of the PMU in Nairobi—which is capable of handling the current
workload—although some hand holding is still needed that in the past has been provided by
the PT. Clearly a larger PMU will be needed in future requiring additional expertise,
especially now that construction is starting on projects and the LFFs are becoming
operational. It requires technical personnel—a physical urban development specialist with
experience in municipal engineering, architecture and planning, and a slum upgrading
expert who has extensive practical and working knowledge of upgrading through direct field
experience. Additional accounting staff may also be required, on a part time basis, once
improvements in financial management are enacted. At the country level, the PMU is to
directly hire all of the four former EMG local country coordinators until end 2009. But
additional experts will certainly be required in the field during this time. A strengthened PMU
is essential, with the country coordinators becoming regular and full time members of the
PMU, beyond 2009. In this period it will also be important, where possible, to retain access
to the knowledge built up by all the former staff members of the PMU.
The hiring of specialists is crucial, and this must be flexible so that expertise—both local and
international can be called upon at short notice and placed in the pilot countries or in Nairobi
speedily. The best way to achieve this would be to identify possible internal UN-HABITAT
slum upgrading technical experts and second them to the PMU according to need, and for
these to be supplemented by international and domestic consultants. A roster of potential
UN-HABITAT personnel and consultants should be set up immediately. Any consultants
required, should be hired directly by SUF-PMU, under an individual arrangement as was the
case for this mid-term review, but this would require UNON to act swiftly on each
appointment.
From project SPVs to programme SPVs—intervention through the
financial system
Delays in the implementation of the SUF pilot phase have been shown to have resulted
from the change in direction it was agreed by the Consultative Board that SUF should take.
EMERGING MARKETS GROU
During the design phase, the original idea was to develop project-specific special purpose
PILOT TEAM (CONSULTANTS
vehicles (SPVs) set up to develop actual projects—area specific development or
regeneration companies, for instance. With the arrival of the PT, there was recognition that
the concept of a national facility put forward by the design phase consultant in Sri Lanka
deserved greater attention as a longer term solution-with a multi-stakeholder ‘problem
solving’ Board and government buy-in, but without overall control-resulted in a shift in
approach towards local finance facilities, which would provide credit enhancement to a
programme of projects—this represented a major change in approach. In the Operations
Manual a national or local financial SPV for multiple sub-projects was not envisaged—single
project development SPVs were assumed to be appropriate. But this change started in Sri
Lanka as a result of the Working Paper on a national facility and the response of the PMU
March 2009
SUF Mid-term Review 19
and PT to government’s willingness to participate in SUF through the creation of the Lanka
Financial Services for Underserviced Settlements (LFSUS). Intervention now is strongly
focused on this financial system.
A principle outcome of SUF has been the establishment of Local Finance Facilities (LFFs)—
multi-stakeholder owned, not-for-profit companies operating as special purpose vehicles for
localising credit enhancements to lower the risks perceived by commercial banks for loans
to upgrading project participants in each country. A process called “finance plus,” whereby
the technical assistance is provided by the LFFs themselves, enables the project packaging
to be undertaken with commitments made by all parties—the communities and NGOs, local
and national government, professional groups and the commercial banks as partners. The
upgrading projects themselves range in size from 11 to 500 households, and with varying
requirements for credit enhancements to support the project business plans.
With this revised focus, the SUF Operations Manual needs updating to reflect the changes
that have taken place. Originally the document was drafted according to a project-by-project
development concept, rather than reflecting the shift to a programme/facility approach,
which governments found it easier to buy into. It is understood that the PMU is to amend the
Operations Manual taking into account the LFFs. This is likely to include a description of a
working model, document experience to date, and the steps required to establish LFFs. The
manual should reference local operations manuals that are being prepared by each LFF,
and include relevant sections of SUF Working Paper Number 8—SUF Local Financing
Facilities, what they are, why they are important and how they work, and Working Paper 2—
Leveraging Commercial Investment Funds: A Special Purpose Vehicle Discussion Paper.
To simply funding approvals in future, where similar new financing facilities are proposed, it
would be better to undertake feasibility studies for typical, demonstration slum upgrading
projects and submit at least one, along with the request for finance under SUF. This would
follow the approach adopted by the multi-lateral development banks when preparing for
sector or programme loans and would replace the current approach where projects are only
finalized after funds are released.
Housing as an entry point
Slum upgrading normally requires three levels of intervention:
• Resolving issues related to the land occupied by the poor and ensuring secure, land
tenure-granting arrangements. These normally imply the need for a supportive policy
framework and often the enactment of specific legal instruments.
• Raising the level of basic services provision, the main indicator of improved quality of
life; this would normally require the intervention of “public works”, especially the
provision of municipal infrastructure and services.
• Supporting home improvement, either through incremental upgrading or full
reconstruction in case of relocation. Home improvement, is one element which can often
attract commercial financing, provided suitable conditions and guarantees are made
available. It is also the one that would allow for a system of individual commercial loans
targeting the homes, rather than collective loans. SUF whose aim is to bring commercial
financing into slum upgrading has primarily targeted this cumulative level of intervention.
March 2009
SUF Mid-term Review 20
It is obvious, however, that for this to succeed and have the expected social impact, the
existence of demonstrated action in the first two levels must be ensured.
An important lesson learned from slum upgrading programmes during the past few decades
is that successful slum upgrading takes place within a comprehensive policy framework
involving the three main components—land tenure security, basic service provision, and
housing improvement. This should be more explicitly contained in the LFF constitution.
The PT has made a strategic choice through credit enhancement for cumulative land,
infrastructure and home improvement as its point of entry in three countries, while in Ghana
it includes two cases for the improvement of social infrastructure—market stalls and hence
livelihood improvement and that of the community slum upgrading/housing savings
schemes. These pilot schemes currently under design, including retail market
developments, may not be typical of those needed to promote sustainable slum upgrading.
In other Ghana projects-Amui Djor in Ashaiman-are full slum upgrading and home
improvement projects where there is a need for a phased approach. For this first generation
of pilot subprojects it is essential to ensure that the facilities continue and expand, and
introduce clear parameters for subproject selection. Furthermore, a stronger buy-in from
public authorities is needed during pilot subproject design to ensure that the prerequisites
for slum upgrading, tenure resolution and service provision, are undertaken. Raising
communities’ expectations too soon through the design of detailed housing schemes, before
the viability of the overall subproject is proven, may not be advisable. Sound agreements for
basic services upgrading must also precede home improvement since, in underserved
neighbourhoods, better access to water supply and improved sanitation would be the
overriding priority of residents, and items for which there may be higher willingness to pay.
Cumulatively housing was selected since local government involvement was assured to
cover secure tenure and infrastructure provision—full housing provision with land and
infrastructure components was thus seen as most appropriate, involving the improvement of
existing houses and building new homes, where relocation was required
The local finance facilities also play a role in mediating between relevant stakeholders and
using their network, where necessary, to resolve issues related to infrastructure and land
tenure in the subprojects put forward to the facilities.14 But a stronger linkage between
specific area development pilot subprojects and city-wide strategies for slum upgrading
needs to be encouraged. This would place the credit enhancement facilities on firmer
ground for future replication and should involve linking, more closely, the initial design team
sponsored proposal for city development strategies and associated city without slums
programmes with the selection and design of pilot subprojects.
Community-based slum upgrading takes time
New approaches need time to design and implement—community involvement is time
consuming. Some of the pilot projects did build upon existing work, and partnerships—
especially that of Slum Dwellers International (SDI)—and focused on areas where
communities had savings programs and had already “bought” in to the approach. In others
this early work was abandoned.
14 For example, the PT notes that in New Takoradi, Ghana, the facility took up the timely provision of adequate infrastructure with the
municipality to strengthen the market development project. In Sri Lanka, LFSUS is assisting in resolving land tenure issues in several
projects, and is also ensuring that any housing projects put forward to them integrates the relevant community infrastructure.
March 2009
SUF Mid-term Review 21
Community buy-in means the full involvement of slum dwellers in planning, design and
implementation of proposed improvements. Successful projects require a consensus of all
within the neighbourhood. The prerequisites of community buy-in are emphasized in project
design and involve:
• Adopting a participatory, community-focused planning process.
• Preparing integrated community-driven settlement plans.
• Involving the communities in actual design and implementation.
• Matching physical standards to borrowing or paying capacity that takes into account
savings and earnings, their amounts and regularity.
These basic principles have long been recognized by UN-Habitat as underpinning
successful slum upgrading projects. But it is a time consuming process that involves
extensive discussion at the local level and a great deal of patience.
Top-down design solutions and definition of standards, without a thorough build-up of
community understanding of cost implications and without free and explicit choices based
on people’s own assessment of their ability to pay, are not advisable and most likely would
result in a low willingness to pay. Community involvement in settlement design is also
meant to ensure that there is ‘people buy-in’ for what concerns basic choices regarding use
and adaptation of space to their social circumstances and to the productive requirements of
a predominantly informal economy, which, often, makes use of the house and of any vacant
space around it for income generating activities. Specific criteria for community buy-in can
include─are all residents aware of the proposed upgrading project? Have they had an
opportunity to provide their inputs into the process? Does a solid majority of the residents of
a community support the proposed upgrading project?
Limited range of options tested
Although the PMU has developed a range of interventions based on its earlier design phase
work, the focus of the PT has been on providing loan guaranties, bridging finance and
capacity development through the LFFs—no other options were developed fully, not even
possible infrastructure-only financing. The PT has proposed interventions through the
provision of wholesale credit guarantees in the two pilot cities within Indonesia following the
approaches to credit enhancement in Sri Lanka and Ghana, and likely in Tanzania.
Although in Sri Lanka the facility that was set up was nationwide in scope, and those for
Ghana and Indonesia were originally city based facilities, the approach is the same.
Providing guarantees for banking institutions to make wholesale loans to financial
intermediaries, usually micro-finance institutions or cooperatives, enables the testing of only
one intervention or mechanism to attract domestic resources into slum upgrading.
Furthermore, most of these facilities involve providing guarantees for credit lines for house
improvements, although the one exception is in Ghana, where the line is essentially for
livelihood activities. Again, though, the approach is the same.
The use of guarantees has been encouraged by UN-HABITAT and the donors, and
although all the facilities have a remit that also includes the provision of bridging loans,
grants and technical assistance, the evaluation and assessment of facilities with similar
functions has limited application. This further raises the question about the relevance of the
March 2009
SUF Mid-term Review 22
wholesale guaranty approach elsewhere in the world, and suggests that an opportunity may
have been missed to test alternative interventions that could be better applied in other
countries with different housing finance systems and approaches to slum upgrading?15
In general, the sizes of the pilot projects to date has neither been related to the scale of a
city-wide programme of slum upgrading nor set within the context of wider city initiatives—
Community Infrastructure Upgrading Programme (CIUP) in Dar es Salaam, and World Bank
funded infrastructure improvements in informal settlements in Ghana. For example, the local
government of Solo has estimated that there total demand for finance to improve more than
10,000 houses. The pilot subproject was planned to include some 118 households,16 but it
is likely to be lower, small in proportion to total demand.
Whilst it is accepted that SUF is a pilot project, the size of the pilot projects are probably too
small relative to demand and may not be of a sufficient scale to adequately assess the
relevance of the intervention proposed. But the resources available for actual project
implementation were far too small—an imposed limit of 30% or US$6 million was set by the
donors, which was planned to be evenly divided amongst the four pilot countries meaning
only $1.5M in funding per country. The failure to attract the initial full US$30 million and
additional resources meant that no further seed money would be available for pilot project
implementation. This was largely because of the uncertainty created by the early delays in
appointing the PT.
Compounding the problem, the PT considered it imprudent to enter into larger scale projects
without having real capital in place with the LFFs. In the view of the PT, the local financing
facilities have a long term focus and are set up to start resolving larger scale and more
complex projects once experience and resources available grow. In each of the four pilot
countries, linkages have been made with organisations that deal with larger scale
interventions at national or city level. The focus of the PT on small pilot subprojects resulted
from the terms of the contract with EMG, which establishes specific milestones and whose
accomplishment was hindered by delays in releasing funds for the capitalization of the
facilities. The Consultative Board specified that there should be no expansion of projects,
and no new larger ones after the October 2007 Colombo meeting.
However, the small sizes of the pilots are not necessarily inapplicable since they are able to
identify major issues and problems, which may have been overlooked on a larger
programme. But LFSUS in Sri Lanka has shown that a range of “institutional” options has
existed, such as the lending by the HNB to the Women’s Bank, HSBC to SAPSRI, and the
involvement of Sanasa, especially involving cooperatives.
Money and housing are not cheap—affordability is the key
Experience throughout the world shows that for slum dwellers, it is not the cost of money
that is the real deterrent to obtaining credit, more often it is its availability. The adoption, by
the pilot team of the microfinance, community-based development model (MFI) model is
always going to be expensive to develop, but this is countered by the flexibility in approach
and the ownership it produces. Using MFIs as intermediaries is always going to add
15 Although bridging loans are to be another function of the local facilities, such finance is not uncommon in many countries, and as such
cannot really be considered an innovation under SUF.
16 Comprising 48 households in Stabelan, 44 in Ketelan (1), and 26 in Ketelan (2).
March 2009
SUF Mid-term Review 23
between 2% and 3% to the interest rate that borrowers will have to pay. Likewise slum
upgrading is not cheap—regularizing land tenure and installing basic services is costly, but
not as much as developing new relocation sites complete with housing, since investments,
particularly in housing, have already been made by the community.
Nevertheless, when designing schemes, standards need to be adopted that match the
affordable limits of the target group, and are determined on the basis of current loan
terms—interest rates and tenure, appropriate amounts of money that the informal settlers
are able to make available to service loans, and actual or realistic estimates of the likely
construction costs. Inevitably this means that amounts available for house construction and
improvement initially will be low, since those associated with land tenure and services
provision are given priority. The approach adopted by SUF, however, has tended to start
with the community’s housing demands and be assured that servicing or infrastructure
provision will be provided relatively free of cost by local or national government. Often this is
not fulfilled. Even the cost of housing—especially the multi-storey option imposed by
density requirements and often political considerations in a number of schemes may have
been underestimated, and the realization of extensive cross subsidies to make such
development affordable may not materialize on account of the marketability of some of the
products—units or plots. This over use of cross subsidy mechanisms can place the viability
of projects in jeopardy and has, in a number of cases, led to the adoption of higher
standards than are afforded. But experience shows that communities, when given the reality
of costs, do choose appropriate and affordable standards.
The next big challenge for SUF and the pilot countries is the replenishment of funds used by
the LFFs for credit enhancement. Initial releases have been made and projects are under
implementation, but the releases are only partial and the first tranche release will need to be
followed up by the release of the second and subsequent tranches. Simple criteria need to
be developed and made as flexible as possible subject to UN auditing rules. For example,
the second tranche could be released, once 50% of the first has been committed and there
is a firm pipeline of future projects, including some in advanced stages of preparation.
Next should come measures to ensure sustainability of the LFFs, so that their resources
can increase to provide credit enhancements for other feasible projects. To succeed LFFs
need to be accepted by the banking sector as guarantors of first repute. They must be seen
as being relatively independent from government. The institution must be able to recycle its
funds, will need to place its paid-up capital into secure investments that yield positive
returns, and be in the position to build up reserves to cover potential losses. It is
encouraging that in many cases there is agreement for continuous funding of the LFFs
beyond the UN-HABITAT Agreements—for example LFSUS is assured of a national budget
line support and in SAEMA and Takoradi each of the local governments has pledged
income to their respective LFFs of a proportion of the increase in property tax revenues.
Demand led—myths and reality
One of SUF’s key premises is that “slum upgrading will only be successful when
communities are empowered and can make true decisions about design and affordability”.
Community “ownership” of upgrading projects, through their own savings schemes-
establishing their ‘common purpose’ and group loyalty, and their participation in the design
process, provides the necessary support for slum upgrading. Moreover, the involvement of
March 2009
SUF Mid-term Review 24
community groups in the design process is seen as a key mechanism to ensure subprojects
are affordable. In addition the community savings schemes are viewed by the commercial
banks as of significant value—they initiate communities in banking practice, and although
the sums are small they are regular, thus indicating a level of affordability and willingness to
pay.
In an effort to promote ownership and achieve community driven pilot subproject proposals,
the PT has prioritized projects where there are existing community savings schemes and is
working closely with local NGOs in all countries—People’s Dialogue (PD) for example in
Ghana. The PT expects that the LFFs will succeed in attracting and financing locally
identified pilot subprojects that reflect community development needs. Underlying this
approach are two inter-connected assumptions—the facilities will attract bankable slum
upgrading proposals, and the proposals will reflect “community” demand for slum upgrading.
Experience with local development funds worldwide suggests that it may be unrealistic to
expect a pipeline of subproject proposals to emerge just because a fund is available. While
there may be plenty of latent “demand” for upgrading, communities on their own will find it
difficult to formulate and package this demand into bankable projects without the technical
assistance of intermediary organizations, such as NGOs, as well as the PT itself. There will
always be a tension between the goals of “demand-driven development” and the reality of
the imposition, however subtle, of the needs and agenda of the sponsors of the fund and
the intermediary organizations. Bankable slum upgrading proposals are unlikely to emerge
spontaneously from communities themselves, without the active intermediation of NGOs
and/or SUF itself.
The target group for slum upgrading is not exclusively the poorest of the poor, but those
residing in informal settlements, many of whom have informal or formal employment. Slum
populations are rarely homogenous─more frequently, they contain different groups,
including tenants, caretakers, landlords, for example. In such a context, it is difficult to
speak of a monolithic “community demand.” Instead, there is always a risk that subproject
proposals will be steered by more vocal groups at the expense of those that are weaker or
less well-represented. The possibility that subproject services will be usurped by higher
income groups is a risk that is acknowledged in SUF project documents. This counteracted
by the common interest of the federations of savings schemes, which can be seen to have a
peer level mechanism that limits membership to the poor, and in many cases these include
the poorest in society. In these cases it is important to recognise that other financial support
mechanisms may be needed to retain such people in the upgrading schemes.
Subsidy yes—targeted yes
Much has been said about the need for subsidies in slum upgrading, and the jury is still out
regarding the extent that they are required. In some cases they are needed—very poor in
such countries as Bangladesh, but in others they can be minimized—for example the Zonal
Improvement Program of Metro Manila, Philippines during the 1980’s worked on the
principle of full cost recovery of all allocable costs, which included, land and land
development, and on-site infrastructure. But SUF has taken off from the view that there is a
minimum standard of housing required, that the loan element cannot cover all, and that
subsidies are needed to bridge the gap between what families can afford and the cost of
such provision. This stems from the decision to intervene largely through housing, rather
March 2009
SUF Mid-term Review 25
than services. Clearly what is needed now is to focus SUF towards supporting what is
genuinely affordable. And this probably means less housing and more services.
But, credit enhancement under SUF is not designed to replace government subsidies where
they are available—instead it complements those programmes in operation. This is a
positive step. For example, one approach supported by SUF in Indonesia, is to encourage
the financing of beneficiary matching contributions to enable them to access the national
subsidy system—here it should be able to play a vital role in unlocking such subsidies.
Intervention must be within the national and local policy and enabling
environments
Common understanding is that there are three basic elements of designing and
implementing programs of slum upgrading:
• A sound financial mechanism that facilitates and guarantees the flow of private and
public investment towards slum upgrading.
• A sound project design process that ensures that slum upgrading initiatives fully meet
affordability criteria, genuinely respond to the community’s needs, and can benefit from
the poor’s willingness to save and incrementally invest in improving their own living
conditions.
• Ownership or political support at all levels is necessary for both the financial
mechanisms and the project design process. There is no substitute for political will.
Figure 3 shows how these three basic elements interact. For SUF to succeed, it is
necessary to ensure that all three of the above elements are in place. Getting only one or
two of these rights will not be sufficient.
March 2009
SUF Mid-term Review 26
Figure 3: Interaction of Basic Elements of Slum Upgrading
FINANCIAL MECHANISMS
BANKABLE SLUM UPGRADING PROJECTS
CREDIT DEMAND
• House construction or improvement DEMAND
• Pilot purchase DEMAND
• Household incomes
• Infrastructure • Household incomes
• Savings
•
• Savings
• Amounts available for housing
•
BUDGETARY APPROPRIATIONS • Amounts available for housing
•
• House construction or improvement
• On-site infrastructure
• Off-site Infrastructure SUPPLY
SUPPLY
• Project design and costs
• Project design and costs
SUBSIDY • Cost•allocation
• Cost allocation
• Land •
• Pricing
• Pricing
• Price less affordable limits •
OWNERSHIP
• Communities and Civil Society
• Local Government/Utility Agencies
• National Government
• Banking and finance sector, private developers
National policy on slum upgrading/eradication has to be the basis for all interventions. This
must be the starting point and such policy needs to be developed with government if not
already existing. Local interventions need to be undertaken within the context of “cities
without slums” programmes. With national policy as the basis and local programmes with
their pipeline of projects, SUF is tailor made to support implementation and enhance other
interventions.
Interestingly, SUF has been able to facilitate a change in policy when needed. In Sri Lanka,
the establishment of LFSUS, has led to a reawakening of policy on slums, which had faded
since the major interventions of the 1980’s. Government policy in Sri Lanka needed to catch
up with developments, and LFSUS has provided the catalyst for this.
Do’s and don’ts of slum upgrading
A valuable output of SUF has been the “do’s and don’ts” checklist key—brief statements on
what works and what does not work in slum upgrading. This has been drafted from the
experience of the PT and the PMU on SUF and from that of other projects. The checklist
was agreed at various consultative workshops. Most of the do’s and don’ts are supported,
although the emphasis placed on the use of cross subsidies is possibly overstated—the
consultant believes that such revenues should be applied to a city-wide programme rather
than to those projects fortunate enough to have the potential for revenue generating land
uses. Furthermore, it is felt that there is a need to emphasize the appropriate entry point for
slum upgrading, to promote the maximum cost recovery from slum dwellers, and to focus on
in-situ upgrading wherever possible. On this basis it is suggested that the following sections
are amended and another added.
March 2009
SUF Mid-term Review 27
Do’s Don’ts
Amended:
Provide mechanisms to blend municipal finance, subsidies Don’t rely exclusively on government subsidies.
and beneficiary contributions to ensure financial viability of
upgrading projects and programmes. Full cost recovery
should be starting point.
Plan programmes, including projects on a mixed-use basis Don’t assume that lending for slum upgrading will
with revenue generating elements such as saleable necessarily be asset-based. Where banks do lend for this
residential land and rentable commercial property to purpose lending is more than likely to be revenue based.
improve financial viability.
Additions:
Utilize the proceeds of sales or rents of market housing and Don’t apply cross subsidies from one scheme exclusively
commercial/industrial property to support a city-wide slum for that project site, and do not overestimate the level of
upgrading programme. proceeds from the adoption of differential pricing.
Recognize that slum upgrading requires all of the following Don’t intervene in housing until land tenure problems and
three to succeed—secure land tenure, provision of basic basic infrastructure problems have been resolved.
services and infrastructure, and housing improvement
Minimize off-site and out-of–city involuntary relocation, and Don’t relocate slum dwellers involuntarily to off-site, out-of-
maximize in-situ upgrading city locations.
SUF is known on the international market—but only just
SUF is becoming known globally, especially through its publications, newsletters, website,
and promotion at various international conferences. However, it is mainly known by “urban
experts” or the “urban academe”,
Box 2: SUF Working Papers and very few stakeholders—NGOs,
communities or even governments—
Published
Working Paper 1—Domestic Financial Sector Analysis for Housing and are aware of its existence. But it is
Related Infrastructure in Ten Selected Developing Countries, SUF Team, fair to say that the programme has
UN-HABITAT, December 2005, not yet gone global and SUF is still in
Working Paper 2—Leveraging Commercial Investment Funds: A Special
Purpose Vehicle Discussion Paper and Expert Group Meeting, Peter its pilot phase. Nevertheless, if the
Lever, September 2005 programme is to expand, this has to
Working Paper 3— Field Testing Design Instruments for Financing Slum change.
Upgrading and Low-Income Housing in Developing Countries: A Sri
Lanka Case Study December 2005
Working Paper 4— Field Testing Design Instruments for Financing Slum The SUF communication and
Upgrading and Low-Income Housing in Developing Countries: Slum knowledge management programme
Upgrading Vehicles, Products and Instruments. November 2005
Working Paper 5—Development of a Sustainable Low-Income Housing consists of the website, newsletters,
Finance Programme in Sri Lanka January 2006 reports, working papers and toolkits.
Working Paper 6—Pre-Investment Development Finance Concept Note
The original concept was
September 2006
Working Paper 7—Flyer on Microfinance for Housing and Small- communicating about SUF through
Enterprise Development to Low-Income Households in Urban Ghana the website, newsletters and reports,
2006
Working Paper 8—SUF Local Finance Facilities, what they are, why they
but SUF should be more than
are important, and how they work, 2008 providing just information—collecting
data, its analysis and
Forthcoming in 2009
Working Paper 9—Guarantees for Slum Upgrading, Lessons on how to
dissemination—it needs to become a
use guarantees for commercial loans for slum upgrading knowledge “fund” and link into
Working Paper 10—Land and Slum Upgrading capacity development using UN-
HABITAT’s extensive experience of
March 2009
SUF Mid-term Review 28
slum upgrading worldwide. This can be facilitated through linkages with the LFFs set up in
the four pilot countries—especially working through boards and secretariats. This is an ideal
entry point where focus would be on financing slum upgrading and project preparation and
implementation. Toolkits on slum upgrading have been prepared by the pilot team, and will
be placed on the SUF website. These include kits on the financial modeling exercise carried
out by the PT. The PMU proposes to develop the toolkits further and turn them into useable
modules for interested parties. Training should then follow their publication. And, this is just
the start. The website must be regularly updated by the PMU, using consultancy assistance
where required—especially to improve its design.
SUF design and pilot teams have completed a number of extremely useful documents on
slum upgrading, and others are under preparation. During the design phase, the Operations
Manual was drafted, and two other guides—SUF Action Planning Methodology and
Development Guidelines, and SUF Handbook Design Phase—were produced and printed.
Both provided step-by-step guidelines and templates for project development. In addition, a
series of working papers have been produced—some by the design team and others later
by the pilot team. Two more are in progress. (Box 2). All published working papers are on
the website.
SUF reporting is based around the requirements of the Consultative Board, the donors and
those specified in the contract of the pilot team. The following are regularly produced.
Name of Report Frequency Client Prepared by
Pilot Team Quarterly Quarterly—end February, end May, PMU Pilot Team
Progress Report end August and end of November for
the overall program and individual
reports for each pilot country..
PMU Quarterly Report The pilot team reports are Consultative Board and PMU
consolidated by the PMU into regular Donor Agencies
quarterly reports—January-March,
April-June, July-September, and
October-December.
Progress Report Every six months—April and October Consultative Board PMU
Annual Report Year end. 2006 annual report has Donor agencies and PMU PMU and Pilot Team
been published, but there is only a
draft for 2007—draft was prepared in
early 2009, while the 2008 report is
still being prepared and is due in the
first quarter of 2009
Milestones Table Included in the six monthly Progress DFID and Consultative PMU and Pilot Team
Report Board
The need for effective monitoring
A well-designed monitoring and evaluation (M&E) system is essential to establish at project
completion and throughout its implementation, whether it has achieved its objectives. Where
there is divergence, the evaluation may result in changing of the direction of the program.
The UN-HABITAT Project Document logframe, and indeed the individual donors’ logframes
do not necessarily concur with each other and so a new framework for the pilot phase has
been designed after a long and arduous process, which has involved several versions—the
March 2009
SUF Mid-term Review 29
latest was accepted by the Consultative Board in Accra. But this logframe should have been
developed at the start of the pilot phase and not mid way through it—a firm draft was only
prepared and circulated in the latter half of 2007, and it was only finalized after the April
2008 Consultative Board Meeting. In this way the logframe could have assisted in the
development of SUF, rather than simply becoming a monitoring device.
Indicators set out in the logframe were proposed to be monitored by the PT and the country
coordinators—but now this will have to be undertaken by the PMU. Project level indicators
were proposed to be tracked by the secretariats of the LFFs, while baseline data was
expected to be collected also by the LFFs, local organizations and the communities
themselves. Reporting is propose on a quarterly basis. Staffing implications for such
monitoring need to be assessed in view of the transfer of functions of the PT and country
coordinators to the PMU, and the limited capacity of the LFFs secretariats.
After one year of implementation of the draft monitoring framework, the Consultative Board,
in April 2008, suggested that it be reviewed. This provides an opportunity for its
improvement. The PMU still feels there is a need to revisit the log frame, and so far very
little baseline data has been collected since that will come from the demand-led projects
themselves as part of their application process to the LFF. Likewise the three donor
agencies17 have noted deficiencies in the framework and have indicated that further work is
required, with specialist assistance if necessary. Revisiting the logframe can now be
undertaken within the context of the proposed extension of the pilot phase for two more
years. A new logframe, identifying outputs and activities for completion by April 2011 should
now be developed in time for the start of the “extended” pilot. The logframe should also
touch on the longer-term outputs for SUF, through the goal and objectives. Baseline data
requirements have been set out—SUF Draft Project Data Sheet, based on standard UN-
HABITAT indicators18 supplemented by others for SUF19 and additional data for each site20.
For each of the pilot project sites, baseline data collection should proceed immediately after
the draft data sheet has been finalized.
The new logframe should improve on the current version, particularly:
• Be more precise on the nature of the overall outputs expected—the current version has
no overall outputs, instead it describes “sub-outputs”, which are grouped into three, non
defined overall outputs. Clear, concise statements are required.
• The logframe needs to be simplified with reduced “sub-outputs” and activities.
• Actual targets need to be set for the indicators—these should relate to current
circumstances as defined by the baseline data.
• The indicators should be more specific, better capable of measurement, and have a
target date for accomplishment.
The monitoring of the outputs, and accomplishment of the goal and objective need to
defined in such a way that the results attributable to SUF itself can be assessed—both
17 Feedback on Draft Pilot Programme Monitoring & Evaluation Framework. DFID, SIDA and Government of Norway, February 11, 2008
18 Access to improved water, access to improved sanitation, durability of housing, sufficient living area and secure tenure.
19 Improved access of land, improved access to physical infrastructure, improved access to economic infrastructure and improved
livelihoods facilitation housing and settlement upgrading, improved access to financial services for housing and settlement upgrading,
and recognition of slum and settlement upgrading in national and city development strategies.
20 Project description, and intended beneficiaries.
March 2009
SUF Mid-term Review 30
directly in terms of projects, finance, beneficiaries and improved living conditions, and
indirectly where outputs have been accomplished because of SUF, and not because of the
regular or other programmes of government, the private sector and civil society.
Relationship with ERSO
ERSO or the experimental reimbursable seeding operations and other innovative financial
mechanisms to catalyse investments in pro-poor housing, related infrastructure and
upgrading, is a trust fund set up to encourage the mobilization of domestic capital. It will
support projects designed to attract domestic investment capital and savings and will
provide seed capital, other innovative financial mechanism including credit enhancements,
and technical assistance. Seed capital will be provided as loans or credit enhancements to
domestic financial institutions to support loans for low-income housing and infrastructure
and technical assistance to stimulate investments in pro-poor housing, related infrastructure
and upgrading. ERSO is working with national and local governments and financial and
other intermediaries. Financing and technical assistance will be from ERSO’s own
resources, and funds leveraged through bilateral and multilateral agencies and the private
sector. The main target group are the urban poor, and at the operational level—domestic
financial institutions, including formal banks or microfinance institutions. ERSO capacity
development activities target financial intermediaries, national and local governments,
NGOs, low-income housing cooperatives, community groups and other related partners.
ERSO project period is from January 1, 2008 to April 30, 2011 and has a target budget of
US$15 million. ERSO is to field-test experimental and reimbursable operations for financing
pro-poor housing and related infrastructure and slum upgrading through community groups;
and strengthen the capacity of local financial and development bodies to carry out those
operations. Its expected outputs are:
• 8-12 projects under construction—2 to 3 each in Africa, Asia, Latin America and the
Caribbean, and Eastern Europe.
• A minimum domestic capital mobilization ratio of 1:1—the ratio of domestic capital and
saving to ERSO seed capital—achieved by April 2011, with evidence that a minimum
mobilization of 4:1 can be achieved by 2015.
• By 2011, a minimum of 6,000 low-income households—500 per project—obtain or are in
the process of obtaining improved shelter from enhanced access to finance for low-
income housing, related infrastructure and/or upgrading.
• Strengthened capacity of local financial and development partners to implement
projects.
• Financially sound projects—bankable business plans for each project and low default
rates.
Internal documents show that building on existing UN-Habitat partnerships has proved to be
the most important source of project ideas. In general, the ERSO approach has been well
received in the countries consulted. Key challenges relate to operational issues such as
receiving sufficient information for finalization of business plans and inputs for loan
agreements. Projects also have to reconcile the standards of financial institutions with the
needs and capabilities of low-income communities in partner countries. The ERSO
approach of loans and grants is receiving strong interest among private and public sector
March 2009
SUF Mid-term Review 31
partners and achieving political support was less problematic rather than thought since
partners realized that projects tend to be more commercially viable when a loan is involved
and affordability. Another challenge is to encourage demand driven operations where local
partners should be willing to enter low-income housing finance or development and seek
ERSO for support.
The loan amounts that ERSO can provide are often lower than the amounts requested—
US$ 0.5 million under the first phase might be sufficient for a pilot, but is small for
operations at scale. Potential partners consider the funds available to be too small, but
several project proposals present opportunities for up-scaling in a second phase—possibly
applying partnership models as the one established by UN-Habitat Water for Asian Cities
with the Asian Development Bank.
In summary principal aim of ERSO is to mobilize local capital for low-income housing,
related infrastructure and upgrading. ERSO seeks to mobilize savings, encourage the
participation of local financial institutions and other investors. It has similar objectives to
those of SUF, except ERSO expects reimbursements, while SUF finances investments
through grants. Although similar in scope, both pilots—ERSO and SUF—should continue
as separate funds and programmes, although the timelines could be streamlined to match
with an extended SUF pilot. Experience of both programmes should be sufficient in 2011 to
be able to assess their possible integration or not. It may prove that even during the
extended pilot phase ERSO could be used as a vehicle for providing loan finance to SUF or
its local partners—the LFFs or others. Perhaps capital investment funds could be through
ERSO say with a 60% loan and the balance of 40% as a grant from SUF. But it is still early
days for both programmes.
Innovations of SUF
The key innovation of the programme is SUF itself—international funding for slum upgrading
projects albeit on a pilot basis is a major step forward. Overall its real value-added has been
to encourage the institutionalization of slum upgrading within the participating countries.
SUF has created awareness among government agencies both at national and local levels,
the private sector and among slum communities. That its future should be in doubt is
surprising considering the innovative nature of the concept and its short life span to date.
Apart from the fund itself, the major innovation at the operational level has been the creation
of LFFs—multi stakeholder owned, not for profit companies—to localize the approach of
SUF within the pilot countries. These LFFs are developing the real innovation of the pilot
phase, the wholesale loan guaranty mechanism—wholesale loan guarantees for
commercial bank lending to financial intermediaries. This is almost certainly a pioneering
scheme in low income housing, where single guarantees can be used to replace individual
and expensive retail loan guarantees that have been tried with varying degrees of success
in a number of countries. Also it is the first time that such an approach has been applied to
lending for slum upgrading activities.
The wholesale guarantee is to be used to attract private bulk lending to financial
intermediaries, and this is beginning to happen in Sri Lanka where HSBC and the Hatton
National Bank—both private banks, are now involved. Bringing in private capital to slum
March 2009
SUF Mid-term Review 32
upgrading—the ultimate goal—is now a reality, and this should increase further as the
facilities in Ghana, Indonesia and Tanzania start business during 2009.
This approach has encouraged mainstreaming micro-financial institutions (MFIs)
involvement in slum upgrading—encouraged and institutionalized by SUF. Whilst this is not
new, and many slum upgrading programmes are linking with such institutions, it does reflect
the wider acceptance of the MFI approach—small loans, short repayment periods and
alternative security arrangements—to slum upgrading, especially for housing improvements
in the concerned countries.
Has SUF provided value for money?
The real judgment on whether SUF has provided value for money has to be deferred until
after more projects have actually been implemented on the ground in its design phase and
pilot programme, the LFFs are providing credit enhancement in a sustainable way, and the
target slum dwellers are not defaulting on their loans. On the surface to have spent some
US$12 million from 2005 to 2008 to produce about 180 improved houses in three countries
seems expensive. But the delays in implementation have cost money, and there is a
growing pipeline of projects being processed for credit enhancement.
Project identification has been slow, especially the negotiations with the local banks—PT
waited for funds to be released before final negotiations with banks was undertaken. Instead
agreements should have been negotiated with financial intermediaries, finalized and made
ready for signing as soon as the funds were received by the LFF. In addition, more projects
should have been prepared earlier. Agreements could have been conditional, becoming
effective upon the availability of funds—as has been the case in Sri Lanka.
But, the high research and development costs incurred to date can be spread over more
schemes as further projects are prepared for credit enhancement. The incremental cost of
additional projects is small compared to the initial development costs incurred. But these
projects need to be much larger than some of those in the pipeline. Furthermore, its is
suggested that better links are established with ongoing slum upgrading initiatives—the
World Bank supported basic infrastructure improvement projects in Ghana and Tanzania
are ideal partners.
The next nine months, to end of the pilot phase in December are crucial to assess the value
of SUF. If all LFFs in the pilot countries are established, credit enhancements arrangements
are entered into, priority projects prepared and construction starts on them before the end of
2009, value for money is likely to be demonstrated. Failure to accomplish this is certain to
lead to a negative view of SUF. Critical times are ahead for the PMU and the LFFs, who will
have to take SUF forward, lever investments and help communities and NGOs prepare
bankable projects.
March 2009
SUF Mid-term Review 33
3. THE FUTURE OF SUF
The previous section has highlighted the findings of the review. It presents an optimistic
picture of progress so far, but highlights potential difficulties and challenges that face the
PMU and LFFs over the next few months and beyond. The demand for slum upgrading is so
large, while the resources allocated by government are far too little, despite the rhetoric.
The UN-HABITAT, donor agencies and multi-lateral development banks, too, need to
respond more positively. SUF has been set up and has funds—should it continue?
Should we continue with SUF beyond the pilot phase?
Although this assignment and report is seen as an interim solution to a formal longer term
review, a more exhaustive assessment should be undertaken before the completion of the
pilot phase at the end of 2009. If all goes well considerable progress is expected from now
until the end of the year. But past experience of commissioning consultants for the mid-term
review, raises certain questions. A request for proposals for undertaking this review were
originally sent out on 12 May 2008 to about 30 firms—submission of proposals was due by
June 12, 2008. Only one bidder submitted. After sometime the bidding process was
abandoned—even though the proposal proved to be responsive and was “satisfactory to
[SUF] from a substantive point of view”. Questions were raised concerning the company’s
involvement in assessing the implementation of SUF under the Observation Team contract,
it inferred that one of the experts proposed was a former UN-HABITAT staff member, and
that preferential treatment would be seen to be given to the only bidder! Approval too was
hindered because of a change of leadership within UNON. The decision, however, was left
hanging for several months, and the only bidding firm still has to be notified officially that the
process has been abandoned. The reasons for the non selection of the only responsive bid
were never given. The process for hiring consultants for the mid-term review, should start in
mid-2009, with a view to mobilizing consultants in the field in January 2010.
In the meantime it is suffice to say that there is not enough development on the ground at
this stage to realistically assess performance. The objectives of SUF are good but there is a
need to show that it works—and this can only be ascertained once actual projects have
been constructed and families are repaying their loans on a consistent basis. Nevertheless,
experience to date and the potential, given active project preparation assisted by PMU and
LFFs over the next nine months, suggest there is a need to continue the pilot phase. It is too
soon to be definitive one way or another, and accordingly it is recommended that SUF be
further tested in the field over the next two years—from May 2009 to April 2011—the latter
to coincide with the ending of the ERSO pilot. Only after the extended pilot phase can any
decision be made on a real scale up.
The two-year extension should focus on encouraging further project preparation in the four
pilot countries, preferably developing several types, including providing for infrastructure
improvements; and a return to the other six pilot countries assisted before the arrival of the
PT. This would involve the development of alternative approaches and new projects. In
view of the problems with the contracting of the PT, and the mutual agreement not to extend
their contract for the optional 24 months, it is probably better and faster for the PMU to
undertake the extended pilot in-house, and contracting international and domestic
specialists individually as required.
March 2009
SUF Mid-term Review 34
Proposals for SUF post April 2009
An internal discussion paper has been prepared by the PMU on the future of SUF21 which
poses the basic question—where does the Consultative Board want SUF to be at April 2009
and beyond? Correctly the paper notes decisions are needed first on the period up to
December 2009 which would see the operationalisation of the LFFs, their sub-projects
established and the monitoring framework showing results—this has been facilitated with
the four country coordinators hired by the PMU. Beyond this, the paper outlines three
scenarios:
• A major donor-led capitalisation of a ‘SUF Trust Fund’ as an open-access, demand-led
fund based in Nairobi for establishing facilities in other locations on a grant basis over
the period 2010-2017, able to take on later ERSO-type capitalisation—the main
proposal. Total costs have been estimated to be US$14.0 million for the first two years,
and US$36.5 million beyond.22
• Merge SUF with other Habitat trust funds—ERSO23 and WSTF.24 SUF would be
essentially a technical assistance fund, where the groundwork at the local level would
still be undertaken to form new multi-stakeholder bodies to undertake projects and
financial packaging. This would provide a basis for accessing the capitalisation required
from ERSO and other sources. Total costs are estimated to be $4m for the first two
years and $14.5m for the further 5 years if progress is demonstrated.
• Centre of excellence’ and a slum upgrading finance network that would map global and
local facilities and their inter-relationships—ERSO, GuarantCo, PPIAF/IFC, EAIF,
CLIFF, for example, as a lesson-learning process, and letting the initial LFFs
demonstrate their effectiveness, sustainability and replicability with minimal financial
support. Costs of $2.5m for two years and $9.5m for the further five years given
satisfactory performance.
• Other potential scenarios—there was no option for ‘closing down’ SUF because it would
mean that the Governing Council reversing its earlier commitments; it remains to be
seen what final shape SUF takes, however, subject to funding
The proposal sees SUF as the starting point in any location, establishing the pipeline of
prospective projects and local finance facilities for others, including ERSO, to follow up with
appropriate capitalisation on a reimbursable basis. When SUF was started it was assumed
that the financial packaging could be blended with existing slum upgrading projects. This
was attempted in the early field testing, but the experience showed that this would not be
successful without considerable groundwork involving all the stakeholders working together
21 Michael Mutter, Senior Adviser, SUF Human Settlements Financing Division, UN-HABITAT 26 February 2009
22 Cost estimates are as follows:
Item 2010/11 (US$) 2012/17 (US$)
TA/admin staff at $400k pa—within HSFD Urban Finance Branch. $0.8m $2.0m
HPM/Country Coordinators, 4 countries, then 10 countries
Application Fie $0.4m $4.5m
identification Support Process $2.8m $8.0m
Credit Enhancement Access—Trust Fund $10.0m $22.0m
Total $14.0m $36.5m
23 ERSO: UN Habitat and Human Settlements Foundation - Experimental Reimbursable Seeding Operations Trust Fund or its successor
24 WSTF: UN-HABITAT Water and Sanitation Trust Fund
March 2009
SUF Mid-term Review 35
to fine tune how the projects work in practice with an affordable element of commercial
finance acceptable to the slum dwellers. The discussion paper concludes with a
recommendation that UN-HABITAT seeks funding of up to $50.5m for facility operations
over a 7-year period, in two tranches—2010/11, and 2012/17—scenario one.
It is the view of the consultant that SUF should continue and be scaled up massively, once
evidence is gathered from the successful implementation of projects on the ground. But
funds of the pilot needs stretching for 2 more years. Afterwards, serious consideration
should be given to setting up SUF as a proper trust fund—perhaps even establishing SUF
Asia and SUF Africa. The plan for a major upscaling of SUF would be for an initial five-year
period, from 2011 to 2016, advancing, the end of phase 1 by nine months from the PMU
draft proposal.
How to improve, continue and upscale
Two “phases” are now suggested for SUF—an extended pilot to the end of May 2011
including the completion of the pilot phase to end 2009, and a coming of age phase with
substantial investments from 2011 to 2016. But this should not mean simply continuing with
business as usual that blindly follows the initial approach.
First, there is a need to pilot other approaches besides LFFs—four under the guidance of
the PT are sufficient to test the concept and evaluate it over the next two years. Particular
attention needs to given to financing required for land tenure regularization and basic
infrastructure improvements. This would focus on working with communities, private entities
and local governments, encouraging them to raise funds for slum upgrading—land
acquisition/tenure security, and infrastructure and basic services. It should consider possible
credit enhancement for local governments, perhaps through SPVs, NGOs and private
companies raising money for such investment. Families should be encouraged pay in part
for basic infrastructure—through infrastructure/land acquisition loans and/or cash or in kind
contributions.
Second, the coverage of the pilot phase should be extended to the six countries not
included under the pilot project—Bangladesh, Cambodia, Kenya, Senegal, Uganda and
Zambia—and possibly others where ERSO is active. Partnerships with local commercial
banks need to be developed, which should be a prime thrust of the activities of the LFFs in
the countries where established. Furthermore, the LFFs should obtain maximize leverage of
their resources by encouraging the reduction of the guaranty cover to minimum—already
Anzania Bank in Tanzania is only seeking a 1:4 cover, and LFSUS in Sri Lanka has a 1:2
cover.
Third, for longer-term upscaling, it might be possible during the extended pilot phase, to
formalize SUF by involving the regional banks—Asian Development Bank and African
Development Bank—to upscale the programme. Formal trust funds could be set for Asia—
SUF Asia, and Africa—SUF Africa, each financed jointly by the concerned regional
development bank, and UN-HABITAT, using donor funds.
Finally, without designing slum upgrading projects around the client-led repayment
schemes—slum dwellers taking out loans and their willingness to pay the required
March 2009
SUF Mid-term Review 36
amortizations—they will not work. Clearly the financing aspect is not an add-on, but a key
design feature.
March 2009
SUF Mid-term Review 37
Appendix 1
List of Persons Consulted, UN-HABITAT
Dr Anna Kajumulo Tibaijuka Under Secretary General and Executive Director UN-
HABITAT
Bert Diphoorn Director, Human Settlement Financing Division
Antoine King Director, Programme Support Division
Michael Mutter Senior Advisor, Slum Upgrading Facility, Human Settlements
Financing Division
Christian Schlosser Human Settlements Officer, Human Settlements Financing
Division
Felista Ondari Chief, Management Support Section, Programme Support
Division
Mohammed Robleh Methods and Oversight Officer, Programme Support Section,
Programme Support Division
Phillemon Mutashubirwa UN-HABITAT Programme Manager, Tanzania
Angela Mwai Project Finance Advisor, Slum Upgrading Facility, Human
Settlements Financing Division
Inam Ullah Monitoring, Evaluation and Policy Advisor, Slum Upgrading
Facility, Human Settlements Financing Division
Jacqueline Macha Programme Management Officer, Slum Upgrading Facility,
Human Settlements Financing Division
Liz Case Communication and Knowledge Management Consultant,
Slum Upgrading Facility, Human Settlements Financing
Division
Richard Mugo Assistant Administrative Officer, Slum Upgrading Facility,
Human Settlements Financing Division
Note: This is in addition to the people met in each of the pilot countries whilst undertaking the
Observation Team reviews. Each report has listed the names.
March 2009
SUF Mid-term Review 38
Appendix 2
Summary of Past Observation Team Findings
SRI LANKA
Appropriate level of intervention:
Three basic elements of designing and implementing programs of slum upgrading: (i) A sound financial mechanism that
facilitates and guarantees the flow of private and public investment towards slum upgrading. (ii) A sound project design
process that ensures that slum upgrading initiatives fully meet affordability criteria, genuinely respond to the community’s
needs, and can therefore benefit from the poor’s willingness to save and incrementally invest in improving their own living
conditions. (iii) Ownership or political support at all levels for both the financial mechanisms and the project design process.
For SUF to succeed, it is, therefore, necessary to ensure that all three of the above elements are in place. Getting only one
or two of these right will not be sufficient.
Affordability should drive project design:
Developing projects with and those that are affordable to the slum dwellers is essential. But this must start with estimates of
what amounts slum dwellers are able and willing to pay for improvements. First priority is normally secure tenure followed
by infrastructure improvements and then housing. Key lessons are (i) An incremental upgrading approach that matches the
residents’ capacity to pay works. (ii) Without subsidy, medium/high rise developments are generally unaffordable. Most of
the schemes examined include massive subsidies. Such a level of subsidy, even if supported by cross subsidies from the
sales of land with commercial potential is unsustainable on a long-term basis. (iii) Design solutions ought to allow for
maximum possible flexibility and room for expansion— horizontal and, more likely in dense slums, vertical.
Sustainability leads to scaling up…
Project sustainability starts with building on existing housing assets and beneficiary savings. Increasing the value of assets
is a must. This means where possible retaining current houses and not destroying investments that people have made on
their plots. It strongly suggests that on-site upgrading must be the norm. Savings are the catalyst for asset creation. Many
programs have succeeded when savings schemes have been introduced before improvements are made. In addition to
high-level political support at central government level, ownership at local authority level will also be crucial for the long-term
viability of SUF. The lesson for SUF is that ownership at the local government level is critical to SUF. SUF cannot take
such support for granted. It must remain engaged with municipal councils by keeping in close contact with them, and
educating them about the wider importance of slum upgrading. Furthermore, SUF must reach a certain size to be effective
and support a sufficient portfolio of pipeline projects. But with the small number of pilot projects currently prepared, there is
a significant risk that too few are implemented during the pilot phase to form a sufficient basis for learning appropriate
lessons.
Community buy-in is a cornerstone of “bankability”…
Community buy-in means the full involvement of slum dwellers in planning, design and implementation of proposed
improvements. Successful projects require a consensus of all within the neighbourhood.
Ensuring viability
Viability involves matching incomes with technically sound and affordable schemes, minimizing development subsidies in
the process. Cross subsidy appears to be seen as the panacea for making slum upgrading affordable to the residents.
International experience, however, shows that such “land sharing” approaches involving substantial cross subsidies do not
work and can often lead to property market distortions. Cross subsidy can under price housing units to the target population
(selling below market) and often leads to the early sales of subsidized housing where the poor cash in on a windfall profit.
For the sponsors of SUF, the Team would like to reiterate that the complexity of the process and the imperative of ‘getting it
right’ argue against setting strict and inflexible deadlines for producing the needed results, in this case, bankable projects.
Soundness and ultimate success are at this stage infinitely more important than speed. Flexibility in the mandated duration
of the Pilot Phase and in deadlines for delivery of outputs may need to be considered to reduce margins of uncertainty.
From now until the expiry of the TA contract time is too short to identify and facilitate the development of true community-led
slum upgrading projects. But this should not negate the needs to continue with existing and start new projects whose
March 2009
SUF Mid-term Review 39
implementation may extend beyond the Pilot Phase.
Development subsidies should be minimized in an effort to match incomes with affordable houses:
This also argues that while cross subsidy may be warranted, extensive price differentials that result in prices well below
those of the market should be avoided. But if used sparingly, cross subsidy can provide the means to generate surpluses,
Furthermore, cross subsidies are probably more effective when used on a program basis, rather than applied to a specific
project where the high value land is located, since many other project sites may have little potential for such revenue
generation. Viability also involves developing appropriate financing schemes for on-site (lane) infrastructure where local
governments do not have sufficient funds. Until such a time when local government have more resources and the political
will to support slum upgrading, cost sharing arrangements between slum dwellers and local governments may have to be
adopted, with the beneficiaries perhaps assuming small loans to finance their contribution where savings are insufficient.
Ghana
Finding an appropriate level of intervention in slum upgrading:
The PT has made a strategic choice through credit enhancement for home improvement as its point of entry. While the local
facilities are being established, the pilot schemes currently under design, including retail market developments, may not be
typical of those needed to promote sustainable slum upgrading. This first generation of pilot subprojects is essential to
ensure that the facilities continue and expand, and introduce clear parameters for subproject selection. A stronger buy-in
from public authorities is needed during pilot subproject design to ensure that the prerequisites for slum upgrading, tenure
resolution and service provision, are undertaken. Raising communities’ expectations too soon through the design of detailed
housing schemes, before the viability of the overall subproject is proven, may not be advisable. A stronger linkage between
specific area development pilot subprojects and city-wide strategies for slum upgrading should be encouraged. This would
place the credit enhancement facilities on firmer ground for future replication and should involve linking, more closely, the
initial PMU sponsored proposal for CDSs and associated city without slums programmes with the selection and design of
pilot subprojects.
Using SUF to spearhead a broader strategic discourse on slum upgrading.
SUF is part of a global effort, articulated in various programmes, multilateral, bilateral, national and local, all addressing
slum upgrading at various levels and through different partners. All should be used to promote a broader strategic discourse
to capitalise on the potential for complementarity and strengthen SUF’s specific entry point in slum upgrading.
A ‘joint modelling’ approach for complementary programmes – both at the global policy level and at country level – seems
an urgent priority. SUF’s expected results in the current programme phase, need to be placed within a broader context of:
(i) national supportive policy frameworks to promote progress in tenure stabilisation and sustainable service delivery; and
(ii) city-wide strategic frameworks for slum upgrading to better gear credit enhancement facilities to a scaling-up of
interventions based on buy-in and commitment from local authorities and communities. This needs to be set up through
consultations and specific collaborative arrangements. But discussion over modalities to promote this may be more
appropriately undertaken as part of a forthcoming SUF mid-term review.
Ensuring the credit enhancement facilities operate effectively:
The two facilities established in separate municipalities will facilitate mobilisation of finance for slum upgrading activities in
low income settlements. Both are innovations and follow the approach adopted in Sri Lanka. They will provide wholesale
rather than retail guarantees along with possible bridging finance and technical assistance. Major aims of the facilities are
“to catalyze the integration of commercial finance into slum upgrading”, and “to provide a financial mechanisms to support
the implementation of city-wide slum and settlement upgrading strategies”. Five key areas need to be developed to
operationalize the facilities:
Establish the coverage of guarantees and provisions: A master contract document is required, which would be issued by
the facilities to lenders and set out the conditions of the guarantee. It should define the procedures the lenders must follow
to secure the guarantee, what to do if borrowers become delinquent on their payments, and how to make a claim. It also
must define how the lenders and guarantor manage default risk. Such contracts are tailored to local regulations and should
incorporate the rights and responsibilities of policy holders and the guarantor. They would be enforced in the same manner
as other business contracts. An early start should be made on preparing such contracts. Furthermore, all stakeholders
should work collaboratively on guarantee provision to share existing good practice and provide practical examples of
effective city level support for commercial financing of slum upgrading.
Determine all revenue sources: Work should start on the methodology, approach and determination of appropriate charges
March 2009
SUF Mid-term Review 40
for the provision of guarantees; developing a business plan for each facility; and designing a computerized financial
planning model to test alternative development scenarios. The business plans would be for three to five years but would
include a longer term vision.
Develop appropriate systems, procedures and accounts: It is now time to develop a chart of accounts and prepare
accounting policies for both funds. Financial statements should be designed that clearly separate out the more commercial
operations from the social obligations. Financial ratios need to be established to monitor performance; these should relate
to reserves, earnings, revenues and asset exposure, amongst others.
Identify the financial intermediaries and pipeline subprojects: A marketing program needs to be developed for each facility
and operationalised. This could be launched at workshops within participating municipalities and others with critical housing
needs, including Accra. This would be followed by promotional activities with mainstream banking and financial institutions
and potential financial intermediaries. Also, a pipeline of subprojects needs to be built-up, based upon the results of closer
programme development with city authorities.
Better promoting sustainability
Appropriate assessment of subprojects under the Pilot Project: A cost and financing format is needed to use in estimating
subproject costs to ensure that all items are included. This would also identifying the potential recovery of such investments,
including that from direct subsidy and any surpluses generated from cross subsidies where there is such potential.
Fund management in the medium-term: The development of the business plans will clearly indicate the future work load of
the facilities over time and the most appropriate time for the facilities to hire staff on a full and or part time basis. Also, it is
advisable for each facility to hire a small core staff team, comprising the chief executive (even part time), a finance person
and a slum upgrading specialist well in advance of the completion of PT assistance.
Defining what is meant by “demand driven” subproject proposals
One of SUF’s key premises is that “slum upgrading will only be successful when communities are empowered and can
make true decisions about design and affordability”. Community “ownership” of upgrading subprojects, through participation
in the design process, provides the necessary support for slum upgrading. Moreover, the involvement of communities in the
design process is an important mechanism to ensure subprojects are affordable. To promote ownership and achieve
community driven pilot subprojects, the PT has prioritized settlements with existing community savings schemes and is
working closely with a local NGO, People’s Dialogue (PD). Underlying this approach are two inter-connected assumptions:
(i) the facilities in both areas will attract bankable slum upgrading proposals; and (ii) the subproject proposals will reflect
“community” demand for slum upgrading.
Revisiting cross-subsidization and land sharing:
In the case of Amui Djor, and other possible future subprojects, SUF is considering supporting proposals that are based on
financing a large proportion of slum upgrading costs through cross-subsidies from commercial development. But SUF is
meant to concentrate, in the current phase, on setting up facilities for credit enhancement and on ensuring that a first set of
pilot subprojects is in the course of or ready for implementation. The Team has already recorded (see Sri Lanka report) that,
in its view, the programme time-frame may be inadequate to that effect. Hence the time pressure on the PT is noted which
may be the basis for suggesting a choice of pilot subprojects where a cross-subsidy element may make the whole financial
equation more viable. Nevertheless, in the interest of ensuring a future broad applicability of the SUF model, the PT ought
to seriously analyse the pre-conditions for replicating the model in a broader range of slum conditions, the vast majority of
which would not present a cross-subsidy potential. This should be integrated into the broader policy discourse which the
Team recommends above.
Indonesia
Capitalization of facilities:
There have been delays in the processing of applications and releasing funds for capitalizing the SUF credit enhancement
facilities. Rules and procedures within UN-HABITAT necessitated that the original financing agreements in all countries had
to be revised and resubmitted. But, as at September 26, 2008, none of these agreements have been approved nor any
funds disbursed by UN-HABITAT.
Housing focus:
Successful slum upgrading takes place within a comprehensive policy framework involving three main components -- land
tenure security, basic service provision, and housing improvement. In Indonesia, Ghana and Sri Lanka, home improvement
March 2009
SUF Mid-term Review 41
is the main point of entry, through credit enhancement.
Intervention within national government policy framework:
SUF activities in Indonesia are more closely integrated within the government housing policy framework than they are in Sri
Lanka and Ghana. In this respect the credit enhancement facilities seem to be designed to complement and fit into current
policy.
Little or no variety in subproject financing arrangements:
To date, SUF interventions are entirely through credit enhancement in the form of providing wholesale credit guarantees
and bridging finance in Indonesia, Sri Lanka, Ghana and Tanzania
Test at least one other approach during the pilot.
So far the major approach to credit enhancement has been to create facilities to guaranty wholesale loans and provide
bridging finance. Whilst this approach is innovative, its application in all four pilot countries means that alternative
approaches have not been tested and restricts the assessment of SUF to just one. Alternatives should have been devised
and tested in at least one of the pilot countries.
Document step by step experience of setting up the facilities.
The PT has now been working for more than eighteen months and has gained considerable experience as a result of
setting up the new facilities. Lessons learnt from this exercise are invaluable to others attempting similar approaches.
Documentation of this experience is recommended.
Sources:
1. Innovations To House, Findings of the Observation Team for the Pilot Phase of UN-HABITAT’s Slum Upgrading Facility (SUF) in Sri
Lanka, October 2007.
2. Homeless But Not Hopeless, Findings of the Observation Team for the Pilot Phase of UN-HABITAT’s Slum Upgrading Facility (SUF)
in Ghana, April 2008
3. SUF Observation Team Report, Indonesia Mission, October 2008.
Note:
The Observation Team Report for the Tanzania Mission is under preparation at the same time as this report. But since they have yet to
be agreed with EMG and still have to be presented to the Consultative Board, they are not summarized here. Preliminary conclusions,
however, have been noted earlier in Chapter 1.
March 2009
SUF Mid-term Review 42
Appendix 3
SUF Project Document Targets and Accomplishment
Item Target in Project Document Accomplishment (as at mid February 2009)
Starting date 15 February 2005
Scheduled completion 14 February 2008 31 December 2009
Total budget US$ 30 million US$ 18.75 million
Sources of funding DFID – US$ 10 million DFID – US$ 9.7 million
SIDA – US$ 10 million SIDA – US$ 4.2 million
Other - US$ 10 million Other - US$ 4.6 million
Programme costs US$ 0.98 million (3.5%) US$ 0.8 million (3.5%)
Long-term development goal To improve the lives of slum dwellers— Too early to assess—no projects yet completed
supporting Target 11 of the Millennium on the ground, although 3 LFFs have been set
Declaration—to significantly improve the up and funded and loans given and
lives of at least 100 million slum dwellers by construction started in 6 locations
2020.
Objective To assist with the mobilization of local, Agreements entered into to attract private
domestic capital for slum upgrading sector funds in Sri Lanka. None elsewhere,
initiatives undertaken by member states although pipeline projects envisage private
and Habitat partners, including shelter and sector funding
related urban infrastructure in cities in the
developing countries
Outputs: Four pilot projects prioritized and ready for Three projects under construction, xx others in
implementation, including pretesting of pipeline and awaiting finance.
design instruments
Four pilot projects mobilizing domestic No projects have yet been implemented,
capital for slum upgrading successfully although three are under construction—one of
implemented the pilot team (PT), two in-house UN-HABITAT
projects
Six additional projects prioritizes, receiving See above
financial advisory services of which at least
two are readied for implementation
SUF capitalized, operational and effectively US$18.7 committed by donors, but SUF is not a
assisting in the mobilization of domestic fully functioning fund as yet.
capital for slum upgrading
Implementation plan:
Strategy for identifying, March to June 2005
prioritizing and preparing the
ground work for implementation
of field projects
Approach for packaging June 2005 to May 2008
financial, technical and political
element of slum upgrading in 4
pilots
March 2009
SUF Mid-term Review 43
Item Target in Project Document Accomplishment (as at mid February 2009)
Prepare projects in 6 additional June 2005 to may 2008 This has not been pursued since the donors
countries requested that the PT and UN-HABITAT focus
on projects in the four pilot countries first.
Operationalize SUF March 2005 to May 2008 SUF is essentially
Mid-term evaluation June 2006 Mid Term Review in February 2009—full
independent evaluation planned for late
2009/early 20010 end of pilot, when a number
of projects should have been implemented on
the ground.
March 2009
SUF Mid-term Review 44
Appendix 4
Slum Upgrading Facility Timeline
Date Action Notes
Early 2004 UN-HABITAT established a SUF as a programme
under its Human Settlements Financing Division
June 2004 SIDA approved grant of US$0.9 million and DFID An initial design phase of 10-12 months
matched with US$0.9 million to support the
Design Phase of SUF
June 2004 DFID pledged US$10 million for a 3-year Pilot
Project, and continue efforts to capitalize SUF at
US$30 million
Design Phase—Prepare groundwork for the 3-Year Pilot Phase (US$ 1.8 million)
October 2004 Five person SUF Design Team established Operations Manual and Annual Investment Plan
for 2005 prepared
December 2004 First meeting of SUF Consultative Board Decision to set up a Programme Management
Unit taken
December 2004 UN-HABITAT and World Bank signed agreement DFID earlier had authorized the use of US$ 10
to use World Bank Trust Fund (Cities Alliance) for million of World Bank Trust Fund (Cities Alliance)
the 3-year Pilot. for SUF 3-year Pilot Project
October 2004 to March Scoping missions to ten countries East Africa—Kenya, Tanzania, and Uganda;
2005 West Africa— Ghana and Senegal; South Asia—
Bangladesh and Sri Lanka; Southeast Asia—
Cambodia and Indonesia. In addition Zambia
was included.
December 2004 Request for expression of interest for an Technical services in project and investment
international service contract for a Pilot Team, by finance for urban upgrading initiatives in Asia
United Nations Office at Nairobi (UNON). and Africa.
February 2005 UNON released the request for proposals
43 firms were long-listed
March 2005 Bids received and cost and technical evaluation of
the five bids for SUF Pilot Team undertaken by
UN-Habitat and Consultative Board
March/April 2005 Second meeting of Consultative Board Included the presentation of five Team Leaders
of consortia bidding to serve as the Pilot Team.
Tanzania, Ghana, Sri Lanka and Indonesia
selected as countries for in depth pilot activity.
Agreed to work with Government of Kenya to
support the financial strategy for Kenya Slum
Upgrading Program (KENSUP) and provide
advice and assistance to Uganda, Senegal,
Bangladesh, Cambodia and Zambia.
May 2005 Grant agreement with Cities Alliance entered Enabled access to DFID money
into—came with funds to enable the
establishment and payment of the PMU, initially
with 3 persons
June 2005 to March Design Team developed Country Strategy Papers For Tanzania, Ghana, Sri Lanka and Indonesia.
2006 and recruited country project consultants reporting
to SUF Design Team via the Habitat Programme
March 2009
SUF Mid-term Review 45
Date Action Notes
Managers (HPM). Field testing design instruments
and pilot project preparation
February 2006 UNON awarded SUF Pilot Team contract. To the Emerging Markets Group Consortium
(EMG)
SUF Senior Advisor/Programme Manager
appointed
Pilot Phase—July 2006 to December 2009, US$18.75 million
November 2006 International service contract with EMG finalized. 30 month contract with a provision for an
extension period of up to 24 months.
October 2007 First Observation Team report
Relating to progress in Sri Lanka
March 2008 Second Observation Team report Relating to progress in Ghana
October 2008 Third Observation Team report Relating to progress in Indonesia
November 2008 Decision taken by Executive Director/Chair of EMG to focus on capacity development until the
SUF Consultative Board not to extend EMG contract ends in April
contract
February 2009 Internal UN-HABITAT review of SUF This report represented the output
March 2009 Fourth Observation Team report Relating to progress in Tanzania
April 2009 Closure of EMG service contract Function to be taken over by SUF PMU and
through the direct hiring of the former EMG
country coordinators
October 2009 Formal retirement of SUF Senior Adviser Role to be assumed by the appointment of the
Chief of the Urban Finance Section within the
Human Settlements Financing Division, and a
possible role for a consultant to SUF later in
2010
Late 2009 or early SUF evaluation Competitive bidding proposed to hire consultants
2010 to undertake the evaluation of SUF
March 2009
SUF Mid-term Review 46
Appendix 5
Status of Pilot Projects [November 2008]
Credit
Name of the Project Physical Plans Financial Plans Construction
Enhancement25
GHANA
1. Tema and Ashaiman Fund registered, board in USD100,00 for development N/A 1, 2, 3
Municipal Settlement place & functioning, Signed & administration
Upgrading Strategy and agreement with UNH & USD800,00 for credit
associated Settlement awaiting initial funds to set up enhancement UDS90,00
Upgrading Fund secretariat as required. first trench
USD10,000
2. Pilot Area Development In process – signed land Being explored Commencement 1, 2
Project in Amui Djor acquisition agreement, delayed until
(Tulaku) Settlement, housing designs agreed on credit
Ashaiman, Tema at charette but to be revised enhancement
due to affordability issues, (CE) in place
financing options being
sought, building technologies
explored.
3. STMA City Wide Slum Fund registered board in Awaiting initial capitalization N/A 1, 2, 3
Upgrading Strategy and place & operational, physical of USD75,000; USD65,000
Associated Settlement plans in process, business USD10,000
Upgrading Fund plan developed & engaged
consultants to advice the
projects in the areas of
architecture, quantity survey,
legal services & engineering.
Sign agreement with UNH
2. New Takoradi Area In process - Initial draft 1,2,3,
Upgrading Project market design done, an
assessment is being done to
inform the development of a
business plan
5. Kojokrom Area Business plan & detailed Delayed till CE in 1,2,3
Upgrading Project project implementation plans place
(Kojokrom market developed, bank negotiations
improvement) in process, construction to
start once loan secured.
INDONESIA
1. Surakarta City Agreed and costed by The first housing loan has 1058 substandard Application has
Development Fund (LP3) Municipality of Surakarta. A been disbursed and houses to be been submitted
strategic and business plan construction under way upgraded before to UN-Habitat in
and operations manual is 2009 end. December 2007.
being prepared.
A mixed use
building – 77 unit
flat and retail
space (area
25 Type 1: project implementation support, Type 2: bridge finance and other revolving fund mechanisms, Type 3: guarantee
funds.
March 2009
SUF Mid-term Review 47
Credit
Name of the Project Physical Plans Financial Plans Construction
Enhancement25
development).
A new target of
2,700 relocated
river-based slum
dwellers
2. Area Upgrading, Cost being calculated by the The financial model is being 68 substandard To be submitted
Yogyakarta Municipality and to be discussed within the houses will be in January 2009
integrated with other municipality and the affected relocated on site
programs run by the community to a owned flat by
Municipality the end of 2009
3. CoBILD Housing Loan - - - -
Program, Yogyakarta
SRI LANKA
Sri Lanka Financial UNH agreement ready for USD 1,424,237 within a To be determined 1,2,3
Services for Underserved signature by LFSUS period of 3 years for issuing (TBD)
Settlements-LFSUS chairman’s loan guarantee agreements,
provision of bridge financing,
Fund Management & operational costs
agreement with National
Development Bank – (NDB)
and LFSUS has been
finalised
Sri Lanka Area Upgrading Project - USD 100,000 million for 5 On site upgrading 1,2,3
Kirulapana settlement Project approved by the years. and the interest rate
LFSUS board and the project is being negotiated effective
has being evaluated under rate in Sri Lanka as of
the selection criteria of August 22%, first phase
LFSUS operational manual. loans disbursed and
construction started—
February 2009
Sri Lanka Slum Upgrading Project - Business and Project On site upgrading 1,2,3
Kuruniyawatta Project approved by the implementation proposal has
LFSUS board and the project being send for USD 30,000,
has being evaluated under first phase loans disbursed
the selection criteria of and construction started
LFSUS operational manual. (Feb 09)
Sri Lanka Project approved by the TBD TBD 2,3
Walauwatta LFSUS board to see the
possibilities of Settlement
Upgrading
Sri Lanka Underway TBD TBD 2,3
Majid place
TANZANIA
1. Buguruni Settlement Concept paper provided by NSSF to provide project Expected first 3
Upgrade NSSF with project costings funding against fixed quarter 2009
identified. Indicative term charge over new
sheet prepared. Refinement development and SUF
of concept to include satellite guarantee for a portion of
stalls and toilet blocks etc. to the loan
be completed during the
upcoming quarter.
March 2009
SUF Mid-term Review 48
Credit
Name of the Project Physical Plans Financial Plans Construction
Enhancement25
2. Kurasini Community Boundary survey completed. Strong savings base to Expected last 1,2 and 3
(Port) Relocation Preliminary land use plan leverage commercial quarter 2008
Programme prepared by Cities Alliance. finance which will be done
Preliminary house design with through housing society
costings prepared. Financial and on lending to
model prepared. respective members
3. Kinondoni 12 Hectare Some detailed plan in place Range of ad hoc plans in N/A 1, 2 and 3
Redevelopment Project for commercial and middle place, but much more
income residential strategic approach needed
development. Low income with SUF-PT support
housing focuses within mixed
development need
considerable work.
4. Ilala Mchikichini Area Project likely to be large and More strategic approach N/A 1, 2 and 3
Development Project long term needed with SUF-PT
support
5. Kunduchi Low Cost No physical plan in place More strategic approach N/A 1, 2 and 3
Housing Project needed with SUF-PT
support
6. Temeke Mwisho No physical plan in place. More strategic approach N/A 1, 2 and 3
Quarters Redevelopment Development plan in process needed with SUF-PT
Project of being drawn out for the support
Municipality
7. Liquidity Facility for TBD TBD TBD
Slum Upgrading
8. Financial Sector No project tabled yet but draft Well developed, and should Expected fourth Not required
Deepening Trust (FSDT) Credit Enhancement be able to start negotiations quarter 2008 from SUF
low income housing application prepared but not once satisfied with physical
finance products yet submitted. plans
March 2009
SUF Mid-term Review 49
Appendix 6
SUF PMU within the Organizational Structure of UN-HABITAT
Executive
Director
Deputy Office of the
Executive Executive
Director Director
Governing Programme Information Monitoring &
Council & Support Liaison Offices Services Evaluation
External Affairs Division (PSD)
Regional & Monitoring & Shelter & Sustainable Human
Technical Research Human Settlements Settlements
Cooperation Development Financing
Latin America Asia Pacific Africa & Arab Urban Water Water Infrastructure
Caribbean FUKUOKA States Finance Africa Asia
RIO DE JANEIRO NAIROBI Section
SUF ERSO Urban Finance
March 2009
SUF Mid-term Review 50
Appendix 7
Do’s and Don’ts of Slum Upgrading
Do’s Don’ts
Ensure that financing for slum upgrading is recognized as a Don’t rely on one off poverty-focused upgrading projects.
priority within national development planning and as a key
investment element contributing to economic growth. This
emphasis should be reflected in a slum upgrading budget line
within national and local authority budgets.
Encourage local and international banks and micro finance Don’t rely solely on housing or government finance
institutions to become active participants in financing institutions.
upgrading as part of their core business.
Ensure that guarantees are available to encourage banks to Don’t provide guarantees that support interventions based
lend to slum upgrading projects. on political patronage.
Build investment in slum upgrading on a firm foundation of Don’t assume that community involvement is best
community based savings and loan systems and local restricted to cost recovery and loan repayment and that
authority commitments to provide in kind and monetary local government has no responsibility for planning g
allocations on an annual basis. investment in upgrading.
Recognize that financing for slum upgrading requires a mix of Don’t assume that one financial product fits all.
short, medium and long-term loans, integrating finance for
building, infrastructure and livelihoods.
Provide mechanisms to blend municipal finance, cross Don’t rely on government subsidies or on full cost
subsidies and beneficiary contributions to ensure financial recovery from slum dwellers.
viability of upgrading projects and home improvement
programmes.
Develop a process for sharing risk analysis and planning for Don’t expect residents of slums to be the only risk takers
risk mitigation and management with all the key stakeholders. in developing new approaches to upgrading.
Plan projects on a mixed-use basis with revenue generating Don’t assume that lending for slum upgrading will
elements such as saleable residential units and rentable necessarily be asset-based. Where banks do lend for this
commercial space in order to maximize financial viability. purpose lending is more than likely to be revenue based.
Ensure that subsidies are effectively targeted so that the Don’t assume that all the problems of a slum can be
benefits reach those for whom they are intended and build on addressed quickly with the framework of a single project.
the basis of long term engagement.
Recognize that not everyone who lives in a slum is poor. Don’t insist that interventions should only benefit low-
Where an area upgrading strategy is to be implemented income families.
provision needs to be made for a range of income groups
with steps taken to ensure that the poorest are not excluded.
Recognize that home ownership is not the solution to Don’t restrict interventions to developments based on
everyone’s problems. Provision for the development of clear land title and private ownership of property.
affordable rental property is an important component of
financing slum upgrading.
Make the real cost of finance very clear so that people clearly Don’t hide the real cost behind misleading promotional
understand the commitments they are making to loan messages.
repayment.
Where appropriate establish local upgrading finance facilities Don’t assume that existing finance institutions will have
so that funding is locally available. the capacity to deliver the full range of financial services
required.
Explore options to use land allocation, readjustment and Don’t place unnecessary restrictions on land use.
sharing methods to release finance for upgrading.
March 2009
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