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close this bookAssessment of Experience with the Project Approach to Shelter Delivery for the Poor (HABITAT, 1991, 52 p.)
close this folderII. Financial and economic impact of shelter projects
View the document2.1 Mobilization of household savings
View the document2.2 Affordability, subsidy and cost recovery
Open this folder and view contents2.3 Institutional framework and financial management
View the document2.4 Comparison with non-project shelter standards and costs

2.1 Mobilization of household savings

Evidence concerning the extent to which shelter projects have succeeded in mobilizing domestic savings is not easily available. In Sri Lanka, for example, there is no institution that takes in deposits and mobilizes resources with the aim of providing housing finance. Nonetheless, the MHP generated six times more investment by residents than that made available by the public sector (Jayaratne, 1990: 28). This was a major achievement by any criterion. Table 2 below shows that household savings mobilization in the three Sri Lankan projects reviewed in this report was two-and-a-half time that of the public contribution. Yet, cost recovery in public projects was very low, and greater success was achieved by thrift and credit cooperative societies (Jayaratne, 1990: 29).

About 86 per cent of all investment in house building is apparently made through informal processes, such as loans from relatives, friends and moneylenders. To encourage such investment, the Government of Sri Lanka provided 40-year leases to shanty dwellers in low-income project areas and installed services and community facilities as well. In the Aramaya Place upgrading project, it appears that the provision of tenure security and basic shelter were sufficient to encourage even low-income groups from ethnically mixed settlements to invest between SLRs.1000 and SLRs.150,000 in house improvements. Several links have also been established between the Community Development Councils (CDCs) and locally active NGOs (Jayaratne, 1990: 71-72).

In Turkey, housing finance is provided by the National Housing Fund. In practice, however, low-income households can only have access to such loans if the municipality in which they live is undertaking a shelter project, or if they can afford to pay the “buyer’s share” when purchasing a housing unit in the local market that meets the criteria of the Fund. Another consideration in Turkey is that all projects implemented by the Ministry of Public Works and Settlement require initial payments amounting to 25 per cent of total costs. Household savings are losing their value, however, due to inflation. In a situation where fewer shelter units are produced, the result is that household savings are utilized elsewhere (Tokman, 1990: 34). Low-income groups are thus effectively excluded from participation in housing projects. Yet, early experiences like the Aktepe project, when inflation was lower, have shown that well designed and affordable projects can be an effective means of mobilizing household savings.

In Zimbabwe, the shift of emphasis towards aided self-help resulted in a parallel shift of the financial burden on to project beneficiaries themselves (Mutizwa-Mangiza, 1990: 53-54). The projects are held to have generated a ratio of public to private sector investment of about two to one, representing a substantial amount of investment by households themselves (Mutizwa-Mangiza, 1990: 54). The ability of residents in sites-and-services projects to take in tenants, or use their plots for commercial purposes has further supported affordability and socio-economic development. This has a number of benefits; it enhances the incomes of project beneficiaries, ensures that investment in housing is increased and, by no means least, indirectly enables projects to benefit the poorest households by expanding the provision of cheap rental housing.

Several methods have been tried in Indonesia to stimulate domestic savings and improve housing affordability. One of these is the Down-Payment Saving system, recently renamed the Pre-Financing System. This was designed to help low-income households save for the deposit required on entry to public housing projects. The system attracts interest on the savings until the household can raise the amount necessary for the deposit. It also provides project agencies with an indication of the household’s ability to pay, and it encourages households to save regularly and to budget for large items, such as housing. Traditionally Indonesians prefer to keep their savings as cash, rather than investing them. When cash is available, they tend to spend it on consumer durables (Herlianto, 1990: 70). Housing has been a successful means of encouraging people to invest in major capital assets and has, of course, generated considerable employment in the process, to the benefit of the economy as a whole.

Table 2. Household savings mobilization and loan recovery in three Sri Lanka housing projects (up to April 1990)


Average loan amount

Average household
mobilization (SLRs.)

Loan recovery


15 000

36 000


Aramaya Place

15 000

48 000



15 000

30 000



15 000

38 166


Source: Jayaratne (1990: 99 and 105).

In Colombia, the Constant Real Value Savings System (UPAC), which was established in 1972, has been extremely successful in capturing savings. The system protects savings against inflation by means of a daily monetary adjustment, to which interest is added. It currently takes in about $US500 million a year, with total resources of about $US3000 million. Although it is not related to any shelter projects, it has enabled many households to participate in such projects (Utria, 1990: 14). In practice, however, the low-income households have been unable to borrow from the UPAC, due to the relatively high cost of such loans (Utria, 1990: 14).

The ability of a shelter project to mobilize domestic savings depends on many factors. A major factor is the perception by beneficiaries of the extent to which it meets their needs. Another is the extent to which they are able and accustomed to place small capital assets in an institution. Traditionally, low-income households have not considered such institutions an attractive or reliable place to deposit their savings, possibly for fear that they will attract official attention, or that they will not be accessible when needed. Any attempt to mobilize and put them to good use for the benefit of national and local economies will need to accept and address these deep-seated reservations. Given their limited experience of dealing with low-income groups, conventional banks or housing-finance institutions will find this difficult to achieve. Since the majority of all housing for the poor is financed by domestic savings, the total sums involved are clearly enormous. The potential for developing new forms of savings and lending institutions is considerable and has yet to be tapped.

The greatest success in this respect has been achieved by locally based community banks, savings associations, credit unions and similar institutions. These manage to combine local accountability with efficiency and ease of access, and are able to process small savings and loans efficiently. Furthermore, the benefits of success are shared by the community rather than outsiders, thereby reinforcing their attractiveness. The Grameen Bank in Bangladesh is a prime example of such successes.