Bridging the Affordability Gap: The Nairobi Special Housing Fund

The Kenya Federation has the second oldest Urban Poor Fund in the network: Akiba Mashinani Trust. Based on its experience with community upgrading fund management, the federation and its partners in government have developed a detailed proposal for the establishment of a Special Housing Fund for Nairobi. The Special Housing Fund will establish a long-term source of affordable housing finance at the county level.

The Nairobi affiliate identified sources for financing the Special Housing Fund and recommended the use of subsidies and various incentives to help bridge the affordability gap for housing and services for the urban poor. Based on the analysis of profiling and enumeration data, the affiliate illuminated how funds currently circulating in the housing, services, and land markets of Nairobi’s informal settlements could be harnessed and leveraged to provide housing at scale for all citizens.

The Nairobi federation’s profiling and enumeration data made this case in a compelling way, by quantifying the poverty penalty faced by Nairobi’s slum dwellers. In Mukuru for instance:

  • Electricity: Households in Mukuru pay 45% – 142% more than the formal electricity tariff when connected to informal connections (called Sambaza).
  • Water: the penalty on water provision is especially high as residents can only access small amounts of very low quality water, at a cost that is 172 percent more per cubic metre than the water utility tariff.
  • Housing: a 10 by 10 foot shack, constructed using iron sheets, with inadequate ventilation costs more per sq meter than the equivalent space within Nairobi’s middle class housing.

Based on a conservative basket of services (electricity, water, toilet access, and rent) Mukuru’s annual economy is estimated at 7 billion Kenya shillings, much of which ends up in the hands of informal service providers. Beyond the monetary value, there is a far higher indirect cost associated to safety, security, time and even the indignity of accessing these services.

And while this poverty penalty presents a huge challenge, it also demonstrates the latent capacity of communities to make significant contributions for the upgrading of their housing and an ability to pay for better quality services.

Critically, much of the land in Mukuru is in the hands of owners of the slum shacks, often referred to as structure owners. Muungano’s research shows that up to 94 percent of Mukuru’s population are tenants to 6 percent of structure owners. There is also evidence that with a court injunction in place against the eviction of residents, some private landowners have resorted to entering informal agreements to transfer land ownership to structure owners in order to recoup the value of the lands.

By unlocking land value, rental incomes and the poverty penalty for water and energy suffered by the informal dwellers, the affiliate has shown how to finance informal settlement upgrading at scale.

City Finance That Works For and With The Poor

By Mara Forbes, Ariana MacPherson, and Noah Schermbrucker, SDI Secretariat

Flows of finance and the systems that perpetuate resource distribution are inherently weighted against inclusion of the poor. The inequality of rapid urban development in developing countries is a clear demonstration of this phenomenon.  Banks do not supply loans on terms affordable to slum dwellers, cities sink budgets into formal taxpaying areas rather than informal settlements while policies, rules and regulations prop up a grossly uneven distribution of wealth. Traditional market finance does not work for the poor on a city scale – slums continue to grow, as does the gap between rich and poor.

Finance for the poor demands flexibility. It demands understanding how poor people save money, how piecemeal incomes fluctuate, what interest rates and loan amounts are really affordable and what investments make sense locally. It also means understanding how to incorporate community-based financial systems, in addition to those pitched at individuals and households.

Flexible citywide urban poor funds need to change existing systems of exclusionary finance.  Local government is a change vector that cannot be dismissed and their inclusion in these funds has the potential to create citywide political impact. Organized communities, who can clearly articulate their demands and the rationale for their financial decisions, can negotiate this space ensuring that funds remain relevant to the poor.

Community-based urban poor federation members and support professionals from South Africa, Malawi, Zambia, Zimbabwe, Uganda and Bolivia came together in late 2013 to discuss citywide models for urban finance. They drew on extensive experience in managing urban poor funds in their various contexts to explore the design, political impact and practical slum upgrading benefits of flexible pro-poor finance facilities.

South Africa

The context in South Africa is one of at a subsidy-based development state, where many urban poor communities’ – and governments’ – mindset is one of state delivery. This, despite the fact that evidence shows that government is incapable of delivering housing or infrastructure services at the scale necessary. This challenge is central to the experience of informal settlement upgrading, both at the level of the community and in relating to government around new practices and policies that are seen to undermine the government’s responsibility to provide subsidized housing and basic services to the country’s informal population. Despite the available subsidies, much of South Africa’s population continues to live in insecure conditions without access to basic services, secure shelter or economic opportunity[1]. To date, there have been few alternative solutions to informal settlement upgrading in the South African context, but it is clear that new political and financial systems are necessary for the nation’s urban poor to become active participants in the development of inclusive, equitable cities. Central to this is the need for an alternative financing strategy – one that is sensitive to the needs and daily realities of the urban poor.

These issues were addressed at length during the South African delegation’s discussions of the formation of a citywide upgrading fund in Cape Town. Although the South African SDI Alliance[2] has adopted the Community Upgrading Finance Facility (CUFF), it has faced challenges in rolling it out as tool for informal settlement upgrading at scale and with support (financial and political) from local government. CUFF was created with the aim of providing a platform for informal communities to “engage government more actively around collaborative upgrading & livelihood projects” (CUFF Project Report 2013). The Fund does this by providing seed capital for settlement improvement projects that are proposed by communities. At the same time, communities must provide a 20% contribution to the total cost of the project, demonstrating their willingness to take ownership and participate in the co-production of their settlement’s upgrading and development.

During the recent exchange in Cape Town, the South African SDI Alliance had an opportunity to reflect on the implementation of CUFF to date. The Alliance emphasized that CUFF is not just about implementing projects, but about influencing policy. The Alliance stressed the significant value of community-based finance facilities like CUFF as learning instruments designed to change the mindsets of communities and governments – to change the mindset of communities away from dependency on the state, and to chance the mindset of government towards considering that communities may be able to offer in-situ solutions to their infrastructure and housing needs.

CUFF in its current incarnation is not set up as a citywide fund to which a broad base of stakeholders, including local government, other community-based organizations and non-government organizations contribute and access resources. The inclusion of a wider base of stakeholders is critical in order to moves from a fund that is only for federation members to a collective fund that allows for loans for entire settlements. This critical point motivated the South African delegation to discuss how to move CUFF into a position where citywide scaling up becomes a real possibility.


The situation in Uganda contrasts sharply with South Africa, leading to a different thinking and organization around finance facilities. There are no government subsidies so the poor have had to find alternative ways to finance upgrading initiatives.

Uganda has set up a national urban poor fund and used lessons learned to think through and design potential citywide funds. The goal of the fund to is to provide capital in the form of loans to members of the National Slum Dwellers Federation of Uganda (NSDFU). The decision to only provide group loans from the fund is deliberate. These funds are intended to benefit the larger community through group upgrading projects that set precedents for community urban development projects.  Loans are given out for housing, sanitation, and group livelihood projects. To date the fund has extended loans for 44 projects in Kampala. The fund is designed as a sustainable revolving basket fund. It receives funds from a variety of sources, including contributions from NSDFU and community saving groups, fundraising activities, government contributions, donations from local and international institutions, subscriptions fees, and UPFI loans. Particular to note about Uganda’s fund is that loans are not available to individual members, but to savings groups for community upgrading projects.  

Although the fund provides alternative financing solutions to the poor in Uganda, it has a larger purpose and vision. The federation uses the fund to build precedent-setting pilot projects that will attract government and other urban development stakeholders. It is not just about urban poor participation and decision-making but about using the fund as a tool to push an urban poor agenda, with sanitation being the key issue advocated in the Ugandan context. The community is able to demonstrate they are able to contribute savings to grow the fund which allows them to access a group loan to build a community sanitation unit. This process demonstrates the community’s ability to prioritize, contribute, and implement slum-upgrading projects. This work has altered the city government’s outlook on sanitation, the first step to effecting policy change.

The Ugandan federation has been able to use the urban poor fund not only to pilot community projects but also to shift the mindset of local government to eventually bring change in city policies. They have connected the role and strength of women-led savings schemes to each level of the fund.

Why is a city fund needed if a working national urban poor fund is in place? These were some of the questions examined during the exchange. Delegates were convinced that a citywide fund moves from a fund that is only for federation members to a collective fund that allows loans for entire settlements. This would allow local governments and other urban development stakeholders to channel money directly to communities to support infrastructure and upgrading projects that benefit whole communities and cities.


The Zimbabwean context is one in which the state has practically no internal resources available for the urban poor. Donor funds are channeled through departments at the local government level, but this is not a sustainable means of income. Despite acute resource scarcity the Zimbabwean federation has forged deep and meaningful partnerships with local government, changing attitudes towards evictions, introducing new sanitation technologies and leveraging technical and political support.

A dearth of government finance motivated urban poor communities to organize their own savings, not just for daily needs but also nationally through the Guungano Urban Poor Fund. The fund not only provides low interest rates on loans for the upgrading needs of poor communities but also has a political agenda that opens space for negotiation with local governments. Ideally the fund would like to attract government finance, but this has not yet been the case. The overly bureaucratic and politicized nature of government institutions undoubtedly contributes to the difficulties associated with accessing government funds.

Based on their experiences of administering an urban poor fund at the national level, the Zimbabwean federation decided to decentralize the fund to regional (Bulawayo & Matabeleland South) and citywide scale (Kariba and Masvingo). This speaks to the differences between national funds and citywide funds at a larger scale – a strategic move that is beginning to play out across the SDI network in divergent contexts.

In Harare, the Zimbabwean federation is in the advanced stages of negotiating a fund with city authorities. The lessons learnt through the administration of the Guungano fund both nationally and in its newer regional structure come to bear on these negotiations. The fund will become part of the implementation strategy of the cities new slum upgrading policy. The federation will contribute $25,000, the UPFI $50,000 and the City $125,000. The fund will not be housed in either the federation or the City Council and will focus on slum upgrading (incremental housing, water & sanitation and other infrastructure). Projects will be determined through community profiles and enumerations and loans will revolve. The city pushed for the fund to be registered as a microfinance institution, however the community was adamant that this would lead to systems that excluded the poor. The city has now agreed to register the fund as a trust. 

While negotiations continue it is clear that an organized community who can clearly articulate the rationale (the why) behind a city fund can have significant traction in shaping its structure and mechanisms. If these regulations are entrenched in a constitution the potential for a new type of financial instrument is created.


Despite attempts by Bolivia’s central government over the past decades to implement a social housing policy that addresses the country’s growing housing deficit, little progress has actually been made in providing a housing and infrastructure finance system that is accessible to the country’s urban poor population.[3]  It is estimated that about one third of the housing constructed each year in Bolivia is informal and largely illegal, with urban poor families occupying self-constructed, insecure structures with little or no access to basic services like water, electricity and sanitation.[4]

In light of this it becomes clear that an alternative solution is necessary to begin to meet the growing demand for affordable housing finance and informal settlement upgrading at a scale that can adequately address these needs in light of Bolivia’s rapid urbanization.[5]

At the exchange the Bolivian delegation spoke about their own solution to some of the housing and basic service challenges faced by Bolivia’s urban poor. The Fondo Para Vivienda Popular (Popular Housing Fund) was created in 2011 with a small donation of only USD 160 to be used for loans to assist with the costs associated with regularization of shelters in informal settlements in Cochabamba, Oruro and Santa Cruz. After about a year of operating as a national fund it was decided to split the fund into three localized city funds. Now, only two years later, the fund has grown to USD 10,000 through a combination of community savings and donations from individuals, the private sector and donor agencies. The objective of the Fund is to serve as a tool for the federation of women’s savings groups, Tejiendo Ciudades (Weaving Together Cities), to provide low-interest loans[6] for the needs and demands of savings group members. These include: housing repairs, regularization papers, water, electricity, sanitation, furniture and appliances.

In 2012, the Federation disbursed twenty individual loans and one collective loan. In 2013, these numbers rose to thirty individual loans and two collective loans with all loans in both years having been repaid in full. While the Fund is off to a steady and impressive start, there is a need to involve a wider network of stakeholders, including local government, in providing capital for the fund, if it is going to become a scalable solution to housing and basic service finance in Bolivia’s urban sector.


The Zambian federation has two funds, an urban poor fund and a city fund. The urban poor fund currently operates regionally and is controlled and managed by the federation. The urban poor fund has been working at a larger community level with both federation and non-federation members.

The city fund emerged from a need that was generated by profiling and enumeration in Lusaka. A potential commitment from the Lusaka City Council to contribute 35% to the fund has been tabled.

One of the crucial learning’s from the Zambian federation is the need for a citywide fund to be accessible and benefit not just federation members, but all of the urban poor. The fund can also then be used as an advocacy tool that introduces communities to savings culture and rituals of the federation. In order for a citywide fund to go to scale alignments and partnerships with other actors, such as local government, must be made. The Lusaka city fund has demonstrated how federation rituals (profiling and enumerations) can be used to get the local governments attention and bring them into the process. The Zambian example demonstrates how a fund was used to change the way government relates to and includes the poor.


The Malawian context is one in which government has made limited investment in slum upgrading. Foreign NGO’s and donors have invested in the various facets of the development sector but foreign aid is not a long term and sustainable solution, and the donor community is beginning to pull out of Malawi as well, further highlighting the need for a sustainable source of funds for slum upgrading projects. 

Daily savings for basic needs is the core strength of the Malawian federation. At a larger scale, the Mchenga urban poor fund has allowed community members to take out loans to build eco-san toilets and water connections. A community contribution of 10% is required and all community members, not just the federation, can access loans. Loan repayments are revolved back into the fund and used to provide further loans and attain maximum scale.

More recently citywide funds, and the challenges that they can present, have come into focus in Lilongwe. Donor finance was used as seed capital for a citywide fund for slum upgrading activities. The fund was envisioned as one in which the city and communities would collectively plan for slum infrastructure improvements. However the communities found it difficult to engage the city and access the funds – or even have a significant role in decision making around their distribution. The city only began to include communities in decision-making processes when the donor threatened to take the money back. The fund has since been used to construct markets, install water points, improve drainage, install water tanks and build roads and bridges.  Funds were distributed as grants and not loans, prompting the question, “If communities don’t have to repay the funds, how do they influence government to use funds to their advantage?”


The introduction to this report stresses that new types of finance are needed to make affordable capital available to the poor. A concomitant political shift at the local government level has the possibility to entrench these new modes of financial distribution at a city scale. However this can be a double-edged sword, with government retaining de-facto control of city funds and communities relegated to the role of passive beneficiaries. Strong and organized communities are able to negotiate the terms of funds clearly articulating structures and rules that make sense on the ground. Thus while citywide funds need local government participation to reach scale, they often do not need the traditional systems through which state funds are distributed and managed.

Click here for the full report, and here for the City Funds Manual that came out of this exchange. 


[1] According to the 2001 census, approximately 2 million households live in informal housing across South Africa, the majority of those in urban informal settlements. South Africa: Informal settlements status, The Housing Development Agency, 2012.

[2] The SA SDI Alliance is made up of two community-based organizations, the Federation of the Urban Poor (FEDUP) and the Informal Settlement Network (ISN), and three support NGOs, the Community Organization Resource Centre (CORC), uTshani Fund and iKhayalami. To learn more, visit:

[3] “Over half of Bolivia’s poor (2.9 million) and 43% of the extreme poor (1.4 million) were living in urban areas in 2002, up from one third (1.8 million) and one fourth (800 thousand) in 1997, respectively.” Housing Finance Mechanisms in Bolivia, UN Habitat, 2008, p.25.

[4] Basic service coverage remains highly unequal in Bolivia, with coverage sitting at 93% (water) and 80% (sanitation) for the richest income quintile, but only 38% (water) and 14% (sanitation) for the poorest quintile (in 2003). Ibid, p. 28.

[5] Between 1976 and 2001, the urban population increased 168%. In 2001, the urban growth rate in three of the main urban areas (La Paz, El Alto & Santa Cruz) reached beyond 5%. Ibid, p. 24.

[6] Interest rates are .5% per month for a period of up to 6 months. 


In Tanzania, Reaching the Wider Community Through Improved Sanitation


By the Tanzanian Urban Poor Federation with the support of the Center for Community Initiatives (CCI)

Dar es Salaam is the largest city in Tanzania with an estimated population of 4 million people. 80% of its population is estimated to be living in informal settlements where people are living with inadequate access to services such as water, sanitation and poor housing. Due to extensive use of pit latrines associated with inadequate supply of clean and safe water and unhygienic pit emptying practices, informal settlements dwellers largely live in high risk of contracting diseases including cholera and diarrhea.

In their efforts to improve sanitation in Tanzania, particularly in Dar es Salaam city, the Tanzanian Urban Poor Federation initiated sanitation projects by providing micro loans for latrine improvement to its members. In 2011, federation members from Dar- es-Salaam organized an exchange visit to Malawi aimed at acquiring the knowledge from fellow federations on how they are managing loans. While in Malawi federation members learned that the Malawi federation is giving loans to both federation and non-federation members with the aim of making intervention at a wider scale to enable poor communities to improve their sanitation situation. In July 2011 initial loans were given to 10 non-federation members. It was based on an understanding that the majority of federation members are tenants who are not able to apply for toilet loans due to their land tenure status and furthermore sanitation problems affect entire communities regardless of their land tenure status and whether they are federation members or not.

Before issuing the loans to the initial 10 borrowers the process of loan provision started with the training of twelve technicians of whom two were men and ten women and strengthening the relationship with the local administration at Mtaa (settlement) level. The loans given to non-federation members are managed at two levels; the saving scheme (which identified the borrowers) and Mtaa leaders. These two parties are working in collaboration. The Mtaa leaders are the guarantors of loans and make follow-ups with non-federation members while the saving scheme, based at the same locality, ensures that the loan follow-ups are made and the repayment is done according to schedule.

The loan provision to non-federation members started as a pilot project and so far it has been very successful, as all the initial ten borrowers have finished repaying their loans before the agreed time. This success has led to the implementation of a second phase where another loan has been extended to 10 people in August 2012. In total 20 toilets have been constructed which serve 120 households and 250 people respectively.

Amongst the second phase of beneficiaries of the loans was Mr. Khatib Athuman, 60 years old who did not manage to hide his deep appreciation for accessing the loan for improving his toilet. Since 1996 Mr. Khatib who has a family of 7 people has been using a simple pit latrine constructed with lined old car tires and dilapidated iron sheets which did not offer privacy, had bad smell and the pit was overflowing. This exposed him and other family members to high health risks and embarrassment due to poor means of emptying which was done using tins by Mr. Khatib’s son. Because of limited space it was very hard for Mr. Khatib to access a place for digging a big pit for diverting the waste, as an alternative he was digging a small pit for emptying little waste just to make the room available for toilets use for another three to four days. During the rainy season the situation becomes worse and emptying occured more than three times per week. Mr. Khatib’s wife added that the situation of their toilet was very bad to the extent that it has affected the relationship with her grandchildren as they usually wish to come and spend days with them but because of the lack of a proper toilet they could not allow them to come with the fear of risking their health.

“My grand children could not visit us because of a bad latrine, even this coming Eid holiday they asked if they could come but we did not agree with them because of the latrine” -Asha, Mr. Khatib’s wife

Speaking during the handing over of toilet construction materials to 10 non-federation members at Keko Machungwa settlement, the representative of Temeke Municipal Health Officer Mrs. Rehema Sadick said, “lack of adequate sanitation has been one of the major challenge contributing to eruption of diseases such as cholera and diarrhea which leads to a loss of lives as well as income.” She insisted that the community should use this opportunity by accessing loans for improving their toilets and although the Municipal Council has limited financial resources they are ready to work with the federation through provision of technical support and mobilizing communities.


In total the amount of loans given to non-federation members is TZS 8,780,000 Tshs (USD$ 5487.5) in Dar es Salaam. More community members are expected to be reached with the federation through this initiative not only in Dar es Salaam but as well as in other regions where they have already started implementing sanitation initiatives.

The Keko Machungwa settlement has set a good example of community led initiatives in improving water and sanitation services by constructing 1 public toilet at the market, constructing 30 households toilet and drilling one borehole connected to three water points. The federation has also initiated toilet-emptying programmes using Gulper technology and the training of Hygiene promotion teams (PHAST teams) for community mobilization on improving hygiene practices.

The federation has also managed to convince some land lords to adopt eco-san technology in order to get rid of the challenges involved in emptying pit latrines including the issue of space for digging another pit as well as unhealthy manual emptying practices and the lack of road access.

These initiatives focus to bring the government down to the settlement level to provide resources and work with communities to scale up sanitation improvements in informal settlements and improving living conditions in general.