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housing deficits in some developing countries), at the expense of the broader aspects
of habitability, location, availability of services and infrastructure and
non-discrimination, which have been largely ignored. As one commentator
observed, the new stock of subsidized housing often created a greater housing
problem: “the problem of those ‘with roofs’”. 77
C.
Housing microfinance
49. The majority of the urban poor live in unplanned and unserviced urban
settlements and self-produce their habitat incrementally, mobilizing their own
material and financial resources. In 2005, over one third (37 per cent) of the urban
population in developing countries lived in slums and UN-Habitat estimates that by
2020 the world slum population will reach almost 1 billion. 78
50. Until the 1980s, slum dwellers and the urban poor had not been a market for
financial services. 79 As previously mentioned, the reasons were the inability of low- and
even middle-income households to afford housing finance debt; the incompatibility of
formal finance loan requirements (such as complex collateral and extended repayment
capabilities) with the characteristics of low-income households (low level and
irregularity of income and lack of security of tenure); and the fact that financial
institutions perceived few incentives to lend to the poor, who usually “consume” small
loan amounts and entail high transaction costs. As a result, low- and even middleincome households adopted “informal” finance strategies based on individual savings,
family loans and remittances, or moneylenders or pawnbrokers. 80
51. However, in the 1980s a new finance paradigm emerged, one that appeared to
be able to address poverty through the expansion of small, informal-sector incomegenerating credit: microfinance. Private financial investors became convinced of the
profitability of microfinance and came to regard the poor as “bankable”. 81 The
result has been a dramatic rise since then in the flow of private investment capital
(supported by donors, multilateral banks and international organizations) into the
microfinance sector and, more recently, into housing finance services adapted to
support incremental building processes. 82 The growing commercial presence of
major Western banking groups in developing countries and their interest in
microfinance (including for housing) has been based on the idea that the “bottom of
the pyramid” represents a large untapped market. 83
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77
78
79
80
81
82
83
16
See Rodriguez and Sugranyes.
UN-Habitat, State of the World’s Cities 2010/2011: Cities for All: Bridging the Urban Divide
(Nairobi, 2010), p. xii.
UN-Habitat, Financing Urban Shelter.
UN-Habitat, Housing for All: The Challenges of Affordability, Accessibility and Sustainability:
The Experiences and Instruments from the Developing and Developed Worlds (Nairobi 2008),
p. 11; UN-Habitat, Financing Urban Shelter, pp. 99-100.
Don Johnston, Jr. and Jonathan Morduch, “The Unbanked: Evidence from Indonesia”, The World
Bank Economic Review, vol. 22, No. 3 (2008), p. 517.
See, for example, the UN-Habitat Slum Upgrading Facility and the Shelter Finance for the Poor
Initiative of Cities Alliance; Bruce Ferguson and Peer Smets, “Finance for Incremental Housing;
Current Status and Prospects for Expansion”, Habitat International, vol. 34 (2010), pp. 288-289;
World Bank, Housing Finance Policy in Emerging Markets, p. 395.
C. K. Prahalad and S. L. Hart, “The Fortune at the Bottom of the Pyramid”, Strategy and
Business, Issue 26 (First quarter 2002), p. 1.
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