Financing the inclusive city: the catalytic role of community savings

Abstract

Global conversations around financing urban development typically neglect the importance of coordinating the activities of different stakeholders behind a shared vision for their city. In particular, low-income and other marginalized groups must be seen as entrepreneurs and partners in service delivery to enhance the efficacy of resource use and to reduce poverty. This paper explores the creation of non-traditional business models and alliances to invest in informal settlements. It presents examples from India, Kenya, Pakistan, Thailand and Zimbabwe, where local authorities, commercial banks and other formal actors have co-financed and co-delivered urban plans, housing and infrastructure through collaborations with organized groups of the urban poor. These groups make three critical contributions: financial resources, detailed information on the composition of informal settlements, and capabilities for collective decision-making and action. These contributions are underpinned by the financial and social capital developed through collective saving, and enable the delivery of complex urban improvements at scale.

I. Introduction

The 11th Sustainable Development Goal (SDG11) – to make cities and human settlements inclusive, safe, resilient and sustainable – poses a huge challenge. The UN classifies nearly 60 per cent of the urban population in sub-Saharan Africa and more than 30 per cent of the urban population of South Asia as “slum dwellers” – that is, households meeting one or more of four criteria: lack of durable housing, inadequate living space (three or more persons per room), and no access to either improved water or sanitation.⁽¹⁾ These figures illustrate that informal settlements are the principal form of development in cities across much of the global South.⁽²⁾ With the urban populations of sub-Saharan Africa and South Asia forecast to double in the next two decades, there is likely to be significant and continuing growth in informal settlement.⁽³⁾

In this context, there appears to be little prospect of tackling urban poverty without a shift towards more inclusive forms of urban development. In particular, there is a need for innovation and reform at the interface of urban finance, participation and planning. Realizing change is, however, constrained by a lack of institutional, technical or financial capabilities in municipal government.⁽⁴⁾ The widespread preoccupation with large-scale resource mobilization (in the forms of taxation and private capital) obscures the grounded and iterative actions that may be both achievable and, in the short term, more effective for the urban poor. Systems of public administration may be weak and conventional planning methods ill-suited to urban conditions in much of the global South,⁽⁵⁾ but municipal authorities have substantial scope to address the deprivations associated with life in informal settlements through security of tenure and good-quality provision of water, sanitation and drainage. However, in many cases the state is uninterested in the urban poor, and residents of informal settlements are granted very few citizen rights and entitlements.⁽⁶⁾ In the worst examples, governments neither accept responsibility for meeting the needs of informal settlement dwellers nor consider approaches to urban development that include low-income communities as stakeholders in the future of cities.

This paper advocates for a broader view of urban finance, which recognizes that municipal authorities can create an enabling environment for public and private investment, while meeting the needs of all urban residents. There is already some recognition of the need to contribute to poverty alleviation through adopting new business models and alliances to reach the “bottom of the pyramid”.⁽⁷⁾ But fully realizing inclusive approaches to development will require both removing disadvantage reproduced through the governance of development and inventing new processes that incorporate the voices and respond to the needs of marginalized groups.⁽⁸⁾ Conventional approaches to the financing of urban development, as discussed in Section II, neglect the importance of aligning the activities of different urban actors behind a shared vision for their city, and steering and optimizing existing resources accordingly.

Collective savings are presented here as a means to coordinate diverse urban residents and to bridge formal and informal urban systems. In cities and towns across the global South, residents of informal and low-income settlements have established savings schemes as a way to create financial services and assets, as detailed in Section III. The process of collective savings builds social capital, enabling residents to: discuss difficult issues affecting homes and livelihoods; obtain the commitment and support of individual households towards collective action; and negotiate with the state as a constituency of urban residents.⁽⁹⁾ The financial resources and organizational capabilities created through savings schemes are used to upgrade local housing and service infrastructure in informal settlements, often in partnership with municipal government, as illustrated by the examples presented in Section IV. Collective savings and co-production change relations within and around informal settlements,⁽¹⁰⁾ demonstrating how the interests of diverse urban actors can be aligned within a common framework of action. Scaling inclusive finance models of this kind will be essential to build new approaches to funding and managing complex development, and thereby making it possible to meet the global targets set out in SDG11.

II. Financing Urban Development

Public resources, including official development assistance (ODA), are insufficient to deliver development targets.⁽¹¹⁾ One estimate suggests that the implementation of the SDGs is likely to require additional investment of over US$ 1.4 trillion per year in low- and lower-middle income countries,⁽¹²⁾ not including the ongoing revenue required to cover the operational and maintenance costs of new infrastructure.

Municipalities have a key role to play in delivering the SDGs, in keeping with their responsibility for the provision of essential infrastructure, land use planning⁽¹³⁾ and representative government.⁽¹⁴⁾ The Third International Conference on Financing for Development, held in Addis Ababa in July 2015, accordingly emphasized the importance of building financial capabilities at all levels in order to mobilize and guide finance.⁽¹⁵⁾ Yet the deficit in financial resources and capabilities is particularly stark in urban governments, where there are both growing demand for services and a lack of finance to invest in extending infrastructure.⁽¹⁶⁾ Many local authorities, particularly those in sub-Saharan Africa, have an annual planned budget of less than US$ 20 per person – and their actual budget may be smaller if central government transfers are less than expected or if money committed is not spent.⁽¹⁷⁾ Once operating costs (particularly salaries) are taken into account, limited or no public resources remain for capital expenditure. The low incomes of many urban residents make it difficult to cover operational costs, let alone recoup capital costs.

There is consequently an urgent need to improve the development impact of the public budgets that are available and to attract additional capital to fill the financing gap. The Mexico City Declaration for Habitat III highlighted the importance of unlocking public and private savings, and building cross-sector partnerships to realize SDG targets.⁽¹⁸⁾ However, large investors typically view investments in informal settlements as being high risk or offering low returns, particularly where informal settlements are on privately owned land and permission from owners cannot be secured. The difficulty in establishing satisfactory risk-return ratios limits the ability of governments to attract capital for infrastructure in ways that balance social and private returns.⁽¹⁹⁾ With municipal access to investment capital constrained by national legal frameworks, more creative approaches to capturing finance will need to engage all tiers of government, particularly where cities are opposition hubs to central government.⁽²⁰⁾ The options available to cities include the following:

• Own-source revenue collection and management. Local authorities can increase the value of own-source revenues by improving their tax registries, administration and collection, particularly by training relevant staff and introducing clear operational procedures. They can also diversify their revenue sources (subject to the financial powers granted by national governments), with particular scope to increase financial flows from land and property taxation, development fees for off-site infrastructure, and capital gains taxes for urban properties.⁽²¹⁾

• Leveraging rising land values. Ownership or control of land may be the primary asset of local government and offers potential to generate revenue linked to growing demand for space or rising value from development.⁽²²⁾ The ability of authorities to generate revenue through land assets relies on strong administrative systems and accurate information on land use, enforceable legal rights and credible valuation systems.⁽²³⁾

• Debt financing. Options for borrowing may be limited for municipalities, which are often restricted by national regulations or lack the credit history or internal financial management systems required by lenders. Municipal debt markets typically evolve through bank lending, with bond transactions emerging later and often co-existing with bank lending. There has been some recent success in India and South Africa where municipal bonds have been used to fund the construction of service infrastructure, although efforts in Senegal and Uganda have not proved as successful.⁽²⁴⁾

• Blended finance, whereby public or donor funding is used to improve the returns or reduce the risks associated with particular development projects, with the aim of attracting private capital. A range of financial instruments fall into this category, including public–private partnerships, subordinated debt, concessional loans, tax credits and loan guarantees.⁽²⁵⁾ Blended finance is often used to establish evidence of, or conditions for, commercial returns.

These instruments primarily raise or steer finance from large, formal actors: legal title holders, commercial banks, institutional investors and corporations. Investors have particular time horizons, risk appetites and liquidity needs, with each option being more or less suited to specific interventions and geographies. They can help to fill the financing gap, particularly where private investors have committed to responsible environmental, social and corporate practices, consistent with their fiduciary responsibilities.⁽²⁶⁾ However, both private and public investment in informal settlements has been limited by assumptions about the difficulty of delivering schemes and extracting value. Residents of informal settlements may not be able to pay bills – or may choose not to do so where they are receiving poor services. Where households and firms avoid taxation or regulation,⁽²⁷⁾ formalizing land becomes prohibitively expensive. The perceived risk and the illiquidity of urban infrastructure investment further deter conventional actors, even without the additional uncertainties associated with informality and lack of public land ownership. It is therefore important to move beyond discussions of the relative efficacy and sufficiency of particular financing instruments to recognize the complementary functions of different sources and types of finance in delivering transformative change.

Research on financing the “bottom of the pyramid” has concentrated on the roles of different firms (multinationals, domestic firms, and small and medium enterprises), with some consideration of not-for-profits and public bodies.⁽²⁸⁾ Yet it is increasingly recognized that reaching low-income groups is contingent on regarding them as entrepreneurs and partners in delivery, rather than merely prospective consumers.⁽²⁹⁾ An inclusive approach is even more important where the aim is to shape and deliver complex urban improvements without elite capture. The improvement of informal settlements will therefore require building the efficacy of communities to fully participate in development⁽³⁰⁾ and creating non-traditional business models and alliances among communities, government and private sector actors.⁽³¹⁾ Local authorities, corporations and other formal actors must formulate new approaches to urban planning and service provision based on co-creation and co-delivery with low-income groups.⁽³²⁾ These collaborations can develop financially viable models and fill capability gaps, as well as build a shared understanding of how urban space can and should be used.

Such collaborations are extremely difficult to realize unless urban communities are organized. In the next section, this paper considers the potentially catalytic contribution of community savings. The coordination and mobilization of low-income residents through savings groups enable them to act collectively, and then to bridge the formal and informal.

III. Forms and Uses of Community Savings

Community savings schemes are created among neighbours and friends in order to construct a financial service and asset that is otherwise unavailable. Saving money has long been recognized as an essential strategy for people living in poverty to smooth irregular income, pay for education and health costs, make productive investments and cope with emergencies.⁽³³⁾ Savings groups can provide a means for individuals to retain control of money, while also enabling the accumulation of assets for larger-scale investments in land, housing and livelihoods. Savings schemes are predominantly established and run by women as a means to cope with low and unstable earnings, and as a response to the risk of keeping savings in the home.

While the individual financial benefits of savings are important, it is collective working that enables savings groups to make a significant contribution to urban transformation. The organizing structure provided by savings groups enables residents of informal settlements to extend their activity to collective investments in development. The generation of a financial asset can underpin the organization of social movements and (when these are networked at city and national levels) create the collective voice to engage and collaborate with local authorities. The operation of savings schemes varies from group to group, but all members are required to play an active part in the collection, banking and auditing of money. Financial transactions are recorded in the books of individual savers, as well those of the group’s collector and treasurer. The treasurer keeps all bank receipts, which are audited weekly to reconcile the collection and withdrawal.⁽³⁴⁾ The approach builds clear mechanisms of accountability within savings groups, as well as creating a platform for information dissemination and collective decision-making about loans and investments. The process of forming and federating savings groups is centred on building structures of mutual support. This relational asset creates the capability to organize for collective action, make joint decisions on difficult issues, obtain commitment and support from individual households, and negotiate as a constituency of urban residents.

Collective savings, linked within a federative or network structure, create horizontal relationships among residents of informal settlements, which underpin coordinated efforts to secure land tenure, improve housing and upgrade service infrastructure. Delivering small-scale improvements also depends upon establishing vertical relationships with local authorities, utilities and other public bodies. Savings groups network at city, national and international levels to strengthen their horizontal and vertical relationships. Two international networks of grassroots organizations and slum/shack dweller federations – SDI (formerly Slum/Shack Dwellers International)⁽³⁵⁾ and the Asian Coalition for Housing Rights (ACHR)⁽³⁶⁾ – have between them some 800,000 members and a financial asset base of around US$ 70 million, operating across 698 cities in 48 countries.⁽³⁷⁾ These international networks support and reinforce national and local activity by providing technical support, joint advocacy, shared experience, and access to state and donor funding.

National federations that are members of SDI have networks of community savings groups, varying in size, that are the foundation for all collective activity and decision-making. Savings are aggregated at settlement, city and country levels in “urban poor funds”, creating a pool of financial resources to contribute to community-led development projects. Collective savings are used to establish revolving loan schemes for investment in housing and environmental improvements to extend the impact of savings, while retaining the essential characteristics of community ownership. Urban poor funds have financed an array of urban development initiatives, including public goods such as improvements to walkways and drainage systems, as in Uganda,⁽³⁸⁾ and private assets through livelihood and housing loans to individual savers, as in Kenya.⁽³⁹⁾

In some cases, savings are blended with external finance. The National Slum Dwellers Federation of India and Mahila Milan, for example, has used its savings to leverage INR 3.6 billion (US$ 55.9 million) in subsidies and INR 1.2 billion (US$ 18.6 million) in ODA. This has been used to provide sanitation for more than 163,000 families and shelter for more than 86,000 families.⁽⁴⁰⁾ Similarly, the Homeless People’s Federation in Zimbabwe established the Gungano community loan fund in 1999, which combined regular savings of Z$ 5 (US$ 1) per month from each of its members, with external funds from the government and donors (including Homeless International [now Reall] and Misereor). The current terms of the Gungano Fund provide loans of up to US$ 1,000 per household at an interest rate of 1 per cent per month for housing and infrastructure development. These loans are issued to savings groups rather than individuals to strengthen ties within the community and act as a form of social collateral.⁽⁴¹⁾

ACHR also regards community savings as the foundation for delivery of local housing and environmental initiatives, but is structured differently to SDI. The ACHR model uses community development funds as a framework to connect savings groups in informal settlements with government bodies. The community development funds are initially capitalized with community savings and supplemented with public resources or development assistance, and then governed by committees comprising representatives of communities, local authorities and other relevant actors.⁽⁴²⁾ In 2008, ACHR launched the Asian Coalition for Community Action (ACCA) to support the implementation of community development funds across South and Southeast Asia. This stimulated the formation of urban networks of savings groups and facilitated the delivery of housing and infrastructure improvement projects. These included repairs to public toilets and construction of public walkways in Dhaka, Bangladesh; paving of a community courtyard in Thankot, Nepal; and planting of mangroves in Quy Nhon, Vietnam to create a natural barrier to typhoon waves and wind.⁽⁴³⁾ Since 2009, ACCA has approved over US$ 11.04 million in project budgets in 215 cities across 19 countries, supporting some 1,820 initiatives.⁽⁴⁴⁾

While these individual initiatives are small in monetary terms, they have a significant impact on the wellbeing of communities where the works are taking place. The achievements of SDI and ACHR affiliates clearly demonstrate how community savings can be used in ways that achieve locally determined development in low-income communities, leverage public or donor resources, and institutionalize more inclusive approaches to urban development. Moreover, the formation of international, decentred networks enables peer-to-peer learning and knowledge exchange, which can enable scaling and replication of successful models.⁽⁴⁵⁾ Forging collaboration between community savings groups and formal actors can be challenging, but these relationships offer ways to coordinate existing resources and mobilize new streams of finance to upgrade informal settlements. The following section explores some of the learning from community savings, and considers the scope for this model to truly drive a transition to more inclusive forms of urban development.

IV. Integrating Community Savings into Planning and Decision-Making Processes

While organized communities are providing leadership and generating finance across cities in the global South, the dominant narratives and structures of development continue to favour large-scale financial programming towards modernization agendas. Many of the regulations governing land and property development derive from colonial rules or are modelled on Western planning systems,⁽⁴⁶⁾ with urban plans geared towards commercial schemes and networked infrastructure (transport, sanitation, power) that attract and benefit high- and middle-income households. These plans frequently do not reflect existing land uses or accommodate the needs of the urban poor.⁽⁴⁷⁾ Such approaches reproduce a vision of the “modern city” that is inconsistent with the messy realities of fast-paced urban growth and entrench patterns of inequality that may be impossible to alter in the long term.⁽⁴⁸⁾ Perpetuating such approaches through choices about urban policy and finance makes it difficult to argue for more inclusive modes of development that include community members as agents of change, rather than merely consultees or beneficiaries.

The activities of federated savings groups challenge this mode of urban development by contesting business-as-usual approaches and demonstrating the capabilities and resources of informal settlers. Initially, federations or networks of savings groups provide the organizational structure that enables residents of informal settlements to engage and negotiate with local authorities, while at the same time having the local base required to take action. Over time, these relations can mature into partnerships that increase opportunities to access international funding and expand the scope for collaborative action.⁽⁴⁹⁾ This section presents examples to illustrate how community savings and the associated participatory structures have successfully enabled public and private investment in informal settlements. It focuses particularly on the ways that savings groups can negotiate land-sharing arrangements to accommodate public, private and community objectives and reduce the costs of extending urban infrastructure to low-income households. Negotiated solutions to development challenges may provide the most effective means of securing the interests of informal settlers and establishing a longer-term platform for dialogue with government. These examples demonstrate the value of involving savings groups in the delivery of improved housing and urban environments, and the importance of grassroots partnerships to drive the transition towards more inclusive modes of urban development.

a. Managing urban land use

From the outside, large informal urban settlements can appear disorderly and unknowable compared to the formal residential and commercial areas of the city. Informal settlements may not be registered on city plans or maps and, despite providing homes and business premises for large numbers of people, are frequently denied the recognition that might justify comprehensive public infrastructure investment.⁽⁵⁰⁾ Additionally, informal settlements may be located in increasingly valuable or strategically important sites that real estate interests and municipal or national government want to exploit as part of wider economic strategies. In these cases, most commonly inner-city areas, land use and ownership may be fiercely contested, and it is typically low-income households that are forced to relocate to make way for formal business or high-end residential development. In contexts where authorities have little information on the composition of informal settlements and have oppositional relationships with the residents of these areas, they can struggle to realize the full social and economic value of land without resorting to violent policies of clearance.

Where residents of informal settlements have organized through savings groups, they have proven capable of negotiating with city authorities and private investors to release the full developmental value of land. In Thailand, the Community Organizations Development Institute (CODI) supports community organizations formed by informal settlers to negotiate with the owners of the site where they live. Residents can draw on CODI’s support to allow them to buy or lease the land or share it, through a model where the owners retain part of the site and inhabitants obtain tenure for the remainder of the site. If landowners are not willing to negotiate, communities look for alternative land they can buy or lease. In addition to loans that are available for housing, infrastructure subsidies of US$ 3,000 are available to households through CODI to upgrade in-situ, re-block or relocate.⁽⁵¹⁾ Where land-sharing is the outcome, the state-supported negotiation allows landowners to capture the commercial value of land, but also secures the housing needs and rights of residents and their access to employment and social networks. A negotiated solution is supported by city authorities who foresee a transformation of dilapidated sites and the reduction of urban poverty.

Negotiating the release of land occupied by informal settlers for strategic urban development is also important for cities aiming to build capacity for economic growth. Recent upgrades to the railway network in Mukuru and Kibera, Kenya, demonstrate that land-sharing arrangements involving government, informal settlers and private companies can be negotiated, where communities are engaged as stakeholders, using established savings groups to involve local residents.⁽⁵²⁾ In 2006, the operation of the Kenyan rail network was contracted to Rift Valley Railways, a private company given responsibility to run passenger and freight services for 25 years. Rift Valley Railways identified that the presence of informal settlements along the railway line created serious hazards and limited the profitability of the service. Improving the operation and safety of the Nairobi railway was impeded by the close proximity of households to railway lines in Mukuru and Kibera. The initial proposal from the government was to evict and compensate settlers, and construct a wall to prevent future encroachments.

After extensive consultation, including a visit to Mumbai to see how they had managed the relocation of people along the railway tracks, it was concluded that constructing a wall would be an ineffective deterrent to reoccupation of the land along the railway lines. Rather than obtaining compensation, residents stated that they would prefer help to relocate within the local area in order to maintain work and family contacts. Rift Valley Railways, the World Bank and the Government of Kenya worked with the local savings groups and their federation, Muungano wa Wanavijiji,⁽⁵³⁾ to establish an exclusion corridor of 20 metres on each side of the railway line. Small housing units and market stalls were then constructed in a 10-metre strip along the edge of the exclusion corridor to create a “living wall” against future encroachment. Households and businesses formerly located within this 30-metre zone were supported to relocate within Mukuru and Kibera so that they could maintain their livelihoods and social networks. The savings groups played a key role in enumerating and verifying affected households, and collating input into the location of new footpaths and market sites.

The Oshiwara housing development in Mumbai, India, offers further evidence of the strategic value of working with savings groups to jointly shape land use.⁽⁵⁴⁾ In Mumbai, residents of informal settlements have legal protection under the 1997 Slum Rehabilitation Act. Land developers are required to re-house residents in – at minimum – a 21-square-metre unit with provision for water and sanitation. For those households that live on land that cannot have in-situ upgrading for any reason, private landowners are incentivized to collaborate to construct tenements for relocation. The private landowner, provided they can hand over land and construct housing stock, can secure the right to construct additional floor space above usual building constraints in return for providing affordable homes for informal dwellers.

The Indian Alliance (comprising two community-based organizations, Mahila Milan and the National Slum Dwellers Federation of India, and a support organization, SPARC) was approached by a landowner to discuss joint development of an informal settlement in Oshiwara in northern Mumbai. This site had an established low-income community that did not trust the landowners to deal fairly with them. Meanwhile, the Mumbai Metropolitan Regional Development Authority (MMRDA) wanted this land for relocating households affected by a railways project. So the commissioner of MMRDA invited the Indian Alliance and landowners to undertake a joint project: the Alliance would develop a plan whereby residents would be rehoused on site and additional tenements constructed for households needing to be relocated. A partnership was established between the landowner and the Indian Alliance, which coordinated the construction of 800 homes, involving the community in planning the site, constructing the buildings and infrastructure, and managing the resettlement process. The Indian Alliance was also able to secure development capital to meet the costs of design and temporary resettlement, so that construction could commence. The success of this collaboration was underlined when the owners of an adjoining site approached the Indian Alliance with a more ambitious scheme for over 3,000 homes.

The Indian Alliance has used its experience of cross-sector partnerships to identify and mitigate the perceived risks associated with investment in informal settlements. This has included using partnership structures to access private finance in order to capitalize on land assets in informal settlements. One of the earliest Slum Rehabilitation Authority projects in Dharavi, the largest informal settlement in Mumbai, was financed by a loan from Citibank secured with a 10 per cent guarantee from the UK charity Homeless International. The Indian Alliance owned land in central Mumbai, and sought a US$ 1 million loan for the construction of a residential block of 208 units, accompanied by ground floor shops and commercial offices. This would be repaid using revenue from the sale of transferable development rights and rent from residential and commercial properties.⁽⁵⁵⁾ Finalizing the financial package for the scheme highlighted difficulties for all partners of meeting the regulatory and evidentiary requirements associated with commercial lending, but importantly, it helped each partner to understand the operating practices and expectations of the others. The scheme demonstrates the potential of multi-sector partnerships, including organized communities, to overcome the financial and regulatory barriers associated with inclusive urban development. Subsequently, several of the Alliance’s construction projects utilized this combination of an international bank guarantee for a local currency loan to fund low-income housing and basic infrastructure.

These development projects in Thailand, Kenya and India demonstrate how joint ventures among public, private and community organizations can drive systemic changes to urban land use and finance. Typically, in African and Asian cities, informal settlements would be demolished to make way for large-scale housing and infrastructure projects. However, these examples show that meaningful community participation can stimulate additional capabilities that create scope for more efficient and effective infrastructure investment – as well as delivering better social outcomes. Key community contributions include enumerating and mapping informal settlements, so that savings groups can verify affected households and manage compensation or relocation processes on behalf of property developers. These capabilities enable public bodies and private firms to develop financing and planning arrangements that reduce the reputational and financial risks typically associated with investing in informal settlements.

b. Extending urban infrastructure

The provision of basic infrastructure is vital to the quality of life of urban residents, and to sustaining the growth of urban and national economies.⁽⁵⁶⁾ SDG11 commits to adequate, safe and affordable basic services for all by 2030. SDG6 also pledges universal and equitable access to drinking water, sanitation and hygiene. WHO and UNICEF data from 2015 indicate that some 663 million urban residents worldwide lack access to improved drinking water and 2.4 billion people lack access to improved sanitation.⁽⁵⁷⁾ These numbers would be even higher if the more rigorous criteria of the SDGs were adopted, such as safe, affordable and reliable provision.⁽⁵⁸⁾ While there is substantial demand for basic infrastructure, municipal authorities and utilities are deterred by the political ramifications of investing in unapproved settlements, the lack of capital finance and the difficulties of accessing dense informal areas. There are, however, examples of local communities, organized around savings groups that have overcome these challenges to deliver urban infrastructure and services.

The provision of piped water in the informal settlements of Kisumu, Kenya, offers a compelling example. Residents of the Kisumu informal settlement, organized through the grassroots federation Muungano wa Wanavijiji, negotiated with their local water utility company to obtain delegated responsibility for distributing water to households. The utility company laid trunk pipes to the entrance of the settlement, where the savings group constructed a shed to house around 120 water meters for individual households. Pipe connections from the trunk mains to individual houses were financed through the savings group with donor support. By sharing the cost and construction of infrastructure extending to individual houses, the utility company was able to access the settlement and local residents benefitted from the new service.⁽⁵⁹⁾

This collaborative approach, involving residents of informal settlements and the utility company, demonstrates the potential of cross-sector working and blending of finance. In this case, the community group manages the household connections, and is responsible for monitoring meters and collecting payments from households. The community group covers its costs by buying water in bulk and retailing at a higher price (which is still lower than the per-unit price that formal settlements are charged).⁽⁶⁰⁾ The model indicates a co-productive relationship in the provision of piped water to informal settlements and an alternative approach to financing and operating infrastructure. In the absence of strong tax revenue from informal communities to city government and a high risk for utility companies of non-payment for services, delegating management to community groups lowers and shares the risks associated with extending mains infrastructure.

Establishing collaborative models of infrastructure delivery can have significant cost benefits and provide access to areas of informal settlements where investment can have a high impact on the health and wellbeing of low-income residents. Savings groups can support infrastructure provision through component sharing, whereby community input into construction design and delivery can effectively increase the number of users. For example, sanitation blocks designed and operated by communities have proved to have much longer lifespans than those planned by governments or donors, and lower total costs.⁽⁶¹⁾ Similarly, while most water and sanitation utilities aspire to centralized, integrated piped networks, residents can enjoy significant improvements from lower-cost options, such as community toilet blocks and decentralized wastewater treatment systems, and can provide the institutional capabilities to manage them.⁽⁶²⁾ Savings groups may also organize for residents to directly support infrastructure construction by providing labour to construct local distribution infrastructure networks through settlements to homes. As well as reducing costs, these community construction contracts provide local employment opportunities.

The Orangi Pilot Project Research and Training Institute (OPP-RTI) in Karachi, Pakistan is a well-documented example of both component sharing and community contracting. The OPP-RTI has supported the residents of informal settlements to work together to fund and construct sewers to connect 96,994 houses to the city’s trunk system. The cost of this network is estimated to be around one-sixth of the cost of using local authority contractors.⁽⁶³⁾ The savings were realized in part because the residents selected simplified lane sewers at a lower per-unit cost, and in part because they contributed to the construction and maintenance of this infrastructure.⁽⁶⁴⁾ The Orangi Pilot Project was driven by collective action among urban residents, who persuaded authorities to invest and enabled utilities to reach more households with the same levels of capital expenditure. The trunk infrastructure is now provided by the city through conventional construction contracts, monitored by community groups to maintain standards.

These forms of co-productive activity generate significant financial and operational benefits that can facilitate the extension of urban infrastructure to the residents of informal settlements. A World Bank report on sub-Saharan Africa notes that “because spending on infrastructure consumes a significant share of GDP, even small efficiency gains can contribute to large savings”.⁽⁶⁵⁾ Approaches that generate monetary and human contributions, when these are “blended” as part of public investment programmes, are likely to have a major impact on the availability of development investment in low-income communities. This may include an increased willingness of residents to invest in their housing units, given that improvements to basic service infrastructure are perceived to reduce the risk of demolition.⁽⁶⁶⁾

To capture the benefits of more inclusive approaches to development requires a reshaping of governance arrangements to enable public, private and community actors to come together around shared development goals. The alignment of different but complementary forms of resources and capacity expands the range of possible development responses available. As well as improving the efficacy of interventions, new forms of collaboration can also have a positive effect on power relations. Amplifying the voice, building the capabilities and strengthening relationships among diverse local urban players – including the urban poor – can contribute to goals beyond resource mobilization, including political accountability⁽⁶⁷⁾ and resilience to shocks and stresses.⁽⁶⁸⁾ Making a connection between communities as stakeholders in development and the processes of generating and using funds for improvement of the public realm is an important principle of local finance that can help to change exclusionary forms of governance. It also improves perceptions of legitimacy of both communities as development actors and of state actors as service deliverers. Research indicates that people have a more positive view of government, and are therefore more supportive of public policy, when they are included in decision-making and informed about future plans.⁽⁶⁹⁾

V. Conclusions

Informality is the prevailing mode of urban development across much of the global South, yet there are important differences regarding which informal activities are implicitly or explicitly accepted by the state.⁽⁷⁰⁾ Governments may evict residents and demolish their settlements; they may tacitly accept the presence of informal settlers, while also accepting the insecurity and poor conditions within these urban spaces; or they may retroactively provide the formal approval, frameworks and support necessary to provide public goods.⁽⁷¹⁾ Too often, informal land development by and for elites is legitimized through connections to utilities and the provision of public infrastructure, while land development by low-income and other marginalized groups is punished through eviction and demolition.⁽⁷²⁾

Delivering more inclusive cities requires a conceptual shift in the planning and practices of development delivery, particularly an evolution of the finance systems that support them. In the context of expanding urban populations, limited government capacities and a substantial financing gap, new approaches are required that mobilize all available resources and stakeholders within a common framework of delivery.

Across cities of sub-Saharan Africa and South and Southeast Asia, residents of low-income communities have organized to improve their access to land, housing and basic services. In coming together, these groups have often secured formal recognition of the needs of informal settlements and demonstrated how collaboration among communities, state and the business sector can mitigate the risk and complexity of investment in informal settlements. This has been possible because residents have brought three critical elements to their development activities: financial resources, detailed information on the composition of informal settlements, and new organizational capacities to negotiate and deliver plans and projects. These three contributions are underpinned by the financial and social capital developed within informal settlements through the practice of collective saving.

A recognition of the complementary role that community savings can play alongside conventional urban development practices provides new insights into delivering the SDGs. Models of co-productive and devolved delivery have been proven effective in cities across the global South. Private firms, ranging from commercial banks to railway companies to property developers, are already partnering with community organizations in a piecemeal fashion, subject to local relations and opportunities. There are notable successes at the city scale, as in Nairobi or Mumbai, and even at the country scale, as in Thailand. The evidence presented in this paper suggests that involving low-income groups in urban planning and programmes can ensure that their priorities (secure tenure, affordable housing, basic services) are sufficiently addressed, while also reducing the perceived financial and reputational risks facing prospective investors, whether public or private. Adapting and scaling up successful practices could also maximize the efficacy of existing resources, not least by realizing the complementary capacities of different stakeholders. Supporting community savings, and institutionalizing the practice into urban development policies and practices, could thereby promote more inclusive and equitable cities, and thus accelerate the achievement of the Sustainable Development Goals.