FROM ENDS TO MEANS

Savings and credit as a means to community mobilisation, people’s power and housing finance

Introduction

This paper gives an insight into the mechanics and the achievements of these people’s organisations, all of whom have placed savings and credit, as vehicles to mobilise communities and to source development finance, at the centre of their development strategy. This strategy draws on more than twenty years of experience with development finance projects and programmes throughout the South, especially Asia. It is only in recent months, however, that the central role of grassroots organisations — as opposed to government officials, professionals or NGOs — has been fully realised.

Redistributive Development and Community-Based Finance

The main focus of this paper analyses the practice of innovative grassroots finance programmes, rooted within a redistributive conception of development. This involves the establishment of processes which shift resources to poor communities, via group-based savings and credit, targeting female household members. This is redistributive in three senses:

1. Because it extends affordable credit to communities previously denied it due to economic or social characteristics, it redistributes financial capital vertically, downwards into poor communities.
1. Because it involves access to credit by groups of people, it redistributes financial capital horizontally throughout poor communities, including to those who have little or no income to begin with, instead of focusing only on those who already have some resources, as is often the case with many conventional micro-enterprise programmes.
1. Because it aims to organise women into savings and loan groups, it helps in an oblique and non-confrontational way to redistribute financial capital, and social power, within social and family systems often dominated by patriarchy.

In this sense, this type of programme seeks not only to affect development quantitatively, through the increased flow of resources to poor communities, but also qualitatively, by enabling poor people to control credit and to determine who receives it and how.

Characteristics of Community-Based Finance

The innovative programmes from India, South Africa and Cambodia, considered in this paper share at least four critical characteristics. The Sri Lankan, Nepali and Thai programmes have some but not all of these characteristics embedded in their practice.

1. They all use savings and credit as penetration points for mobilisation of communities for broader development issues.
1. They all involve collective (group) loans, thereby strengthening community-based organisations, improving credit performance, and reaching the poorest households in the community.
1. They place the loan component within a more substantive and subsidised programme of support to secure development for those living in low-income settlements.
1. The more established groups are attempting to scale up their activities by influencing or interacting with government and bilateral agency programs.

Collective Savings

Saving is by far the most important of all the practices of the six groups. Savings activity is the ‘glue’ which holds together the community groups, and underlies their other activities. Indeed, the groups say ‘when we save, we are collecting people as well as money’. Although not always achieved in practise, the goal of five of the six groups is for savings to be collected daily. This has numerous positive effects:

• It brings members of the schemes in contact with each other continuously, helping them to consolidate their savings scheme and their community.
• It helps communities to discuss and identify common development priorities.
• It establishes the collateral relationships of trust which underlie collective loans.
• It facilitates loan application and consideration procedures by generating an intimate knowledge of the economic and financial status of the households,. This is especially beneficial to the very poor.

Besides the positive impact of the act of saving, collective savings plays a critical role in laying the foundation for broader development activities:

• It allows groups to begin small-scale loan activities, which provide an immediate tangible benefit to all members.
• It initiates or consolidates the development of skills and resources needed when accessing external credit: book-keeping, banking, regular meetings, non-hierarchical leadership.

Loan Systems

The loan systems practised at community level are inseparable from savings activities for five of the six groups represented. The Sri Lankan Women’s Bank practises a more formalised credit-union type programme which also provides loans, but asks members to buy shares in the Bank as a precondition.

For the other groups, loans are made out of the common pool of savings accumulated from the members. These loans are given for two broad needs, which are central to the lives of poor women: household crises and income generation. For example, women might borrow to purchase medicines; or to attend a family funeral far away; to meet social obligations during festival times; or to help pay for legal problems. Income generation loans are used for a myriad of activities, from informal trade to manufacture.

Most of the groups make loans on the basis of need, not savings; in other words, there is no fixed relation between the amount saved and the amount of a loan. This enables all members of the savings scheme to benefit from the process, and in particular allows the very poorest members of the community to improve their economic circumstances. Loan repayments vary from group to group, as do interest rates. The latter are usually much lower than those available from any other source of finance, and in particular help to reduce dependency on money-lenders. Interest rates for income-generation loans are generally somewhat higher.

The practice of small loans is critical to the development of savings groups. Besides giving a practical benefit to the members, they strengthen the acquisition of financial and organisation skills which can ultimately be used to manage overall community development programmes, such as housing construction or sanitation projects.

Accessing External Finance

Many of the groups in question have accessed finance from external actors such as NGOs, government institutions, or international lending agencies. There is consensus amongst the groups that such external finance is distributed to groups working in a collective structure, not to individuals. This strategy is one of extreme significance — it lies at the heart of the notion of redistributive development. Credit offered directly to individuals simply facilitates the investment process of individual households, without addressing the socio-economic relationships of poverty affecting that household. Loans offered on a collective basis through community organisations, on the other hand, seek to address poverty in a number of ways.

• They strengthen community organisations, especially with respect to the participation of women. This in turn enables such organisations to go beyond housing investment, for example, to address other critical issues requiring communal solutions: sanitation, water supply, income generation, and so on. This is an especially important feature when municipal authorities, who traditionally assume the role of collective investor, are unable to allocate sufficient resources to such needs.
• They constitute and then consolidate communities. The practice of group-based savings and credit has a powerful bonding effect on settlements of the urban poor, mainly through community surveys, information gathering, daily saving and regular meetings. In this way communities develop the identity and capacity to become development actors in their own right, able to identify and express their own needs, as well as to negotiate on their own behalf with government, NGOs, and development agencies.
• They reach the very poorest households of a community. By its nature, individualised credit favours those who have at least some income and/or collateral. In the absence of either, credit will be denied or will be too small to make a difference. Group credit, by contrast, utilises a relational security system. In this system, the solidarity and affinity of community groups serves as a guarantee for loans. If a member has trouble repaying, the others, aware of the reasons for the problem, support that individual, encouraging repayment and even extending further credit to him or her to help overcome the problem. This has two effects: it ensures much higher rates of repayment (see Table 1), and, most importantly of all, it enables very poor members of such communities to access credit.
• They increase the efficiency and effectiveness of development assistance. Savings and credit programmes avoid or reduce problems such as selection of recipients and dependency because households are self-selected. They also contribute directly to the development process as members provide ‘counterpart’ funding through savings and loan repayments. Government and other external funds are allocated more efficiently than might otherwise be the case because the households and/or communities are also spending their own funds, and become involved in the allocation decisions with a sense of ownership of the development process. External finance goes further because it draws in additional resources. Once again, development assistance is able to reach very poor households.

Micro-Enterprise Lending and Redistributive Development

These six community-based savings initiatives have not happened in isolation. In part they are a reaction to unsuccessful attempts to challenge poverty by mobilising the poor around violations of their rights. In part they are a response to the globalisation of the market economy, and restrictions placed on the poor’s access to state resources by structural adjustment programmes.

These initiatives have not been shaped by political considerations only. It must be recognised that they have taken place within a wider set of NGO/CBO credit initiatives. At the same time as these groups were developing housing finance initiatives using credit as a redistributive mechanism, many other NGOs (in both urban and rural areas) were becoming more involved in micro-enterprise credit and loan finance for small and medium sized entrepreneurs.

Superficially, these savings and loan programmes seem similar to micro-enterprise credit programmes. They share some of the traditions of informal sector finance and NGO micro-enterprise credit programmes, making use of the strengths of such systems in delivering small loans with little delay and at low or no cost. As with micro-enterprise credit programmes, these six programmes use group-based relational collateral and the successful repayment of small loans as a precondition for larger scale finance.

Most importantly, both micro-enterprise credit groups and these six savings and credit groups are concerned to address the gap caused by the reluctance, or inability, of formal sector institutions to service the poor. It is in their responses to this crucial gap that their paths diverge, because they have very different perceptions of the strategies most appropriate to improving the material conditions of the poor. Micro-enterprise initiatives are concerned with giving poor people access to money and markets. Five of the six savings and loans groups give poor people access to money and markets in order to build communities who can respond effectively to land, shelter and overall development challenges. The Sri Lankan group prioritises the provision of access to credit only.

Why Credit: Market Failure or Just Markets?

It is interesting to tease out some of the basic differences between the approach of the Sri Lankan Woman’s Bank which operates along credit union lines and the approach of the other groups, with the South Africans and the Indians at the core, which operate as community funds.

The methodology of the Women’s Bank is derived from an understanding of poverty as an expression of the imperfect functioning of capital markets and in particular access to credit. In this context the Women’s Bank extends financial services to its members to enable a better allocation of household income and to reduce the costs associated with cyclical or unexpected crises. In addition, there may be further benefits through improved support for enterprise formation and growth through the availability of investment capital, with subsequent benefits for the poor as shareholders in the bank, as employees and as consumers.

This view of market imperfection stems from the failure of formal financial markets to provide credit to the urban poor. The formal markets shy away from the provision of credit to the poor, even to viable revolving credit schemes or micro-enterprise initiatives because

• the high cost/value ratio of such small loans;
• the higher risk associated with unsecured loans to people with poor or no credit histories; and
• the high marginal costs of extending financial services to poor communities.

The conventional response to this ‘failure’ has been to encourage community organisations to develop their own credit institutions. The Women’s Bank in Sri Lanka is a successful example of this approach, one which has been made even more remarkable because there has been very little corrective state intervention in financial markets by the Sri Lankan Government.

The South Africans, Indians and Cambodians, on the other hand, refute in practice this popular assumption that poverty is related to market ‘failure’, which prevents the poor from accessing formal markets. Rather, according to the members of these organisations, their poverty is related to the very nature and functioning of financial markets.

In their view, whilst it is recognised that poor people are excluded from access to credit, this is seen as in the very nature of markets, not as a side-effect or ‘imperfection’. Markets reward participants who are already able to take advantage of what they offer; indeed they ‘structure themselves’ institutionally to serve those who can. Their ‘imperfections’ are in fact the rational response of market actors to the context in which they operate. The savings schemes from these countries (in the case of Nepal it is still too soon to tell) are therefore designed as a grassroots response to the exclusionary nature of markets — not as institutions that compensate for market imperfections.

Instead of trying to adjust markets ‘downwards’, the South African, Indian and Cambodian Federations are attempts to adjust them ‘upwards’ by providing an alternative source of credit at grassroots level. This has much more than an economic impact: these groups are using credit as a means to build material, intellectual and social cohesion into the groups, and to use this to enable communities to play a leading role in the social and economic transformation of their settlements.

Exchange Programs And Federation Building

The six savings and credit groups, even the youngest, the groups from Nepal, are networks of several community organisations. In order to foster communication within their networks and with associated networks, they have all placed community-level exchange programs at the centre of their information-sharing or training activities. These exchange programs take place at city, regional, national and international level. They are a coming together of active members of poor people’s organisations to share information and knowledge in an unstructured and informal way. Seldom if ever do these exchange programs take the form of formal workshops or training programs run by professionals. They are in-situ experiences of ‘learning by doing’ which take place at informal settlement level.

The exchange programs serve vital functions. They are effectively the life-blood of all these organisations. From the most basic form of exposure to another settlement to complex multi-country exchange programmes such as the one hosted in Bombay by SPARC and ACHR, these exchange programmes set the scene for horizontal information sharing and for the consolidation of linkages that are vital for the replication of the process. One savings scheme on its own has neither the experience, the resources nor the ability to develop the critical mass necessary for this redistributive approach to have any significant impact on the overall development process. Exchange programs link savings schemes, multiplying the capacity and the strength of the groups involved.

Federations of savings schemes have grown out of exchange programs and now survive and continue to grow because of exchange programs. In all these countries, on any given day there are dozens of local exchanges taking place. There are almost weekly inter-regional exchange program taking place in the stronger Federations, while in Asia in particular there are regular international exchange programs between the groups.

The international exchange programs link these groups to one another and to other grassroots savings and credit organisations in Latin America and Africa. These international linkages have been strengthened by the birth of an International Slum Dwellers Federation, a network of people’s organisations striving for security of tenure and affordable housing via savings and credit. The systems of mobilisation, information gathering, land struggle, savings, credit and house construction of these six groups are presently being shared with five other people’s organisations from four different countries.

This process of constant networking creates a latticework of linkages throughout squatter settlements in Southern countries. It sustains a solidarity born of shared experience and multiplies the impact of this experience exponentially, by making the knowledge and capacity of a single community available to all the groups in the network. In the process it aspires to realise a global vision of self-reliance of the homeless poor, thereby reducing debilitating dependence on external agents such as professionals, politicians and government officials.

Case Studies

What follows are case-studies of three of the six organisations. The case studies of Mahila Milan in India and South African Homeless People’s Federation in South Africa will show in some detail how the savings and credit schemes use the circulation and management of their own resources as the basis for allowing poor people to control and manage their own lives.

The example from Thailand is also considered. In this country government and NGOs have taken a pre-emptive step to provide loan finance to people’s organisations so that their demonstrable successes can be scaled up. These organisations have a rather patchy history of credit-management, decision-making and self-reliance. Nevertheless, a synopsis of the activities of the Urban Community Development Office (UCDO) is useful since UCDO presents us with an example of the kind of institutional support from government that is required if savings and credit as a vehicle for overall community development is to be mainstreamed.

The case study section is roughly organised in terms of the development of the process. It begins with an examination of the Indian experience which focuses primarily, but not exclusively, on the grassroots functioning of savings and credit schemes. Then it moves on to South Africa, where the emphasis is more on ways in which savings and credit schemes build an infrastructure of activities on the basis of these schemes, including interactions with formal institutions. This division is purely for purposes of elucidation and the focus could readily have been reversed. The final case study is Thailand where attention is devoted to an intermediary financial institution that exists at the point of interface between the formal and the informal economy and is used to develop grassroots capabilities at scale. Interspersed amongst these narratives are boxes which summarise the experiences of the other three organisations who attended the workshop.

NEPAL

The Group from Nepal was the youngest to participate in the workshop. Supported by an NGO called Lumati the Nepalese slum dwellers have not yet formed their own Federation. There are ten savings schemes in Kathmandu with a total of 100 members. The oldest group is barely three months old. Loan systems have only just started. Loans are for crisis only. A common request is money for the purchase of medications.

Savings are collected at meetings which are held once a week. Meetings are poorly attended because people have to come from long distances and are still uncertain about the savings scheme.

The group is staring an eviction in the face and is unsure about ways to prevent it. The group is keen to engage government about sanitation, land and other issues but is not sure about how to do it. Other problems the group has faced include opposition from political parties and having to organise in the face of ethnic rivalries.

The Nepalis came to the workshop in order to dialogue with the other groups, seeking support along the inevitably bumpy road towards the establishment of a Nepali Federation of Savings And Credit Schemes. They expressed an eagerness to gain exposure to the work of the other groups so that they too may become effective agents of social change.

The participation of the Nepalis in the workshop helped the older groups reflect on issues they too had been required to address in the beginning. The deliberations about the Nepali situation brought out the fact that it takes time and patience for a strong network of savings groups to evolve. In order to respond to the concerns of the Nepali delegation the other groups were required to reflect on their past practise and to examine their present activities with a critical eye.

The Indian Example

In seeking to develop solutions appropriate to the scale of need in urban India, SPARC invested increasingly in an alliance which was started several years after it was formed (1984). The other members of the alliance are the National Slum Dweller's Federation (NSDF) and Mahila Milan. The formation of Mahila Milan was a result of the partnership between NSDF and SPARC: NSDF agreed to help create a sister organisation whose role and function would be complimentary to its own, and whose processes would encourage more women to enter leadership roles in the Federation. In this partnership,

• NSDF organises and mobilises as many communities in as many cities as it can. It helps them to become articulate, explore new alternatives and begin negotiation with municipalities on issues of urban equity.
• Mahila Milan assists collectives of women — already deeply involved in managing community strategies of basic amenities — to get recognition for this role in their settlements; learn to develop skills to be able to develop consensus for priorities of communities; and expand assets owned by communities.

Wherever possible, when the alliance of the three organisations does manage to gain resources, these are given to local Mahila Milan collectives to manage and nurture for the community.

Over the years, the NSDF/Mahila Milan alliance has developed a familiar style. Large numbers of groups within communities are encouraged to articulate their problems. They get support from the NGO and experienced NSDF members to design solutions to their problems, a process in which women play a central role. Once they have done this, the NGO and NSDF assist the Mahila Milan to present these solutions to the relevant local authorities.

Thus, the alliance seeks to ensure that women are central to the process, that they are given an opportunity to experiment with possible options and that they are able to negotiate with city officials and other resource-holding agencies to develop solutions to their problems. The target communities identify themselves, since only those who are determined to go through the process volunteer to be ‘pilots’ for the Federation. The alliance then works with them through the process, regardless of how long that may take.

The first communities involved in the process contribute in turn to the alliance by becoming the trainers of other communities. Through community-to-community exchanges and training sessions, other groups can examine the solution developed by this group, and incorporate what suits them. Whilst some groups may find the entire process replicable, others adopt only parts of the previous experience. These modified solutions are then further disseminated through the Federation.

Over the last ten years SPARC and the Federation have developed a symbiotic relationship. The Federation is independent from SPARC, and the organisation is clearly ‘owned’ by slum dwellers, not by middle-class professionals. Both organisations now recognise that they bring their own ideas and issues to the process.

Yet the emergence of such a powerful and well-organised Federation poses the threat of a new slum-dwellers’ bureaucracy. To combat this, the NSDF has always placed a high priority on training. In part this strategy has developed to prevent the consolidation of new organisational resources in the hands of a small number of dominant leaders. If leadership feels under constant pressure to do many things, then they will train others. With knowledge of the basic principles wide-spread, the originators are prevented from becoming over-dominant. The training operates through horizontal exchanges: one group observes in practise how another group is approaching the problem. People see other people doing things, and then have the chance to do it along with them. The exchange process takes place between settlements in the same city, then between cities — and then internationally.

As the number of activities has grown, so has the strength of the leadership. In the first few years, the organisations were very dependent on key individuals. This is now not the case and many activities are successfully supported by local leadership. The alliance started work in Bombay and is now operating in 21 cities throughout India. In each city, several local Federations have been formed; groups are divided according to who owns the land on which they live. For example, there will be one local Federation for pavement dwellers, another for those squatting on land owned by the railway, another for those squatting on airport land. Each local Federation is divided once more by location, and residents within each neighbourhood form housing co-operatives. In some settlements this process is strong, in others it is much weaker. A critical component of this process is that it provides an organisational form through which to engage municipal and state government. Development of these contacts allows poor people to participate in every discussion that affects their lives.

Savings and credit is basic element in the development strategy. The process starts with a crisis credit fund established from the small change available to most households, collected in daily visits by treasurers. Women who are interested in taking part are drawn into the training process and shown how such crisis credit funds work in other communities.

Within three months, most settlements are able to understand, agree and manage the rules and regulations to make the crisis credit fund operational. Although groups are free to modify the model, nine out of ten groups end up with similar rules within six months of beginning the fund.

The savings groups are encouraged to be comprehensive and cover as many residents as possible in the settlement. If many women in each settlement wish to be involved, it is proposed that they divide into groups of about 10 households. Within each of these groups, one women is identified as a treasurer and the savings groups are linked to one another through these treasurers. Although most of the women are illiterate, they have very good oral memories. Though working with school children the treasurers learn sufficient skills to be able to keep written records of savings and loans. The savings groups and their treasurers are all members of Mahila Milan. Most Federations have a central meeting place which is called the community resource centre. This centre becomes the place where most financial transactions take place with savings being deposited and loans collected.

Within Mahila Milan Networks, there are three kinds of savings schemes operational: the crisis savings and credit scheme, the income generation scheme, and the housing savings schemes. Each community begins with crisis credit. Women save very small bits of money kept aside from the change from daily purchases, sometimes as little as Rs1 or 0,50 paise (1$US = Rs35). This process is often set up by the poorest women in the community.

Even when the savings fund is only Rs 200, women begin to borrow small amounts. This could be for medicines, to purchase a bus ticket to find work, or to give money to children for school book. These small loans are repaid very quickly. Women are encouraged to make their own rules about this fund, and Mahila Milan ensures they know how others do this rule-making for themselves. This consolidates the women’s collectives. Despite the small amount of the money, it fulfils crucial crisis needs, and women get community acknowledgement for having created these resources. Groups vary the interest they charge. Initially there was a wide variation; now its either 1% per month or a flat service charge is levied.

This ‘record’ of successful savings and credit transactions is used by the network of Mahila Milan to seek external credit lines. Presently funds from Rashtriya Mahila Kosh extends a credit line of Rs 50,00,000 a year to Mahila Milan through SPARC. The fund is used to offer credit for income generation only. This credit is available to the dispensing organisation at interest rate of 8% p.a., whilst the collective charges an interest rate of 12% p.a. for loans. Community collectives working in Mahila Milan have decided to charge a compulsory savings component of 1% per month additionally. This is kept as a community pool for consumption loans that all families need, but can get nowhere else. As a result, Mahila Milan achieves several benefits:

• Members do not lie about what they want credit for.
• Consumption credit is always available.
• Women in communities control the process, even though credit is dispensed to men and women.

Housing savings form the third savings and credit component. Presently in India, conventional housing loans are almost non-existent. 90% of salaried and professional people borrow from non-housing finance related sources. Such facilities remain totally inaccessible to the poor. Without land tenure, and without an institutionalised system of shelter construction for the poor this sector will take long to develop. In this situation, the Federation is working actively on many fronts to secure land tenure, to standardise house construction and design costs, and demand that housing finance institutions lend directly lend to organisations of the poor. This process moves at a snail’s pace. It does move, however, and in the process the Federation explores various possible options. One is to assist communities to begin saving separately for housing so that length of time between the initial commitment to save and actual construction is reduced. Savings also imply a reduced loan requirement for the household, and the savings record helps to create the track record to assure jittery bankers.

The management of the credit process serves many purposes. Most importantly, it creates conditions to ensure that women are central to the process. After starting with very small amounts, women gradually work with larger amounts. The Federation’s involvement and the collective strength of the network ensure that women remain in charge. Through the process of savings and credit, women's role has increasingly become recognised by men. The financial management skills they have acquired and the increased access to financial resources have changed the role of women within the community and increased their status. Secondly, as more and more communities participate in and refine this decentralised, highly accountable and transparent process, they become attractive organisations to which to lend. This is because they absorb much of the administrative cost financial institutions say prevents them from serving the poor. In return for this ‘community input’, communities can demand interest rates that suit them. Finally, in order to create large-scale changes, very large numbers need to participate. Such a multi-tiered, decentralised savings and credit process creates the basis for such large participation.

As the demand for credit grows and the skills for managing credit increase, the local savings and credit groups come to SPARC to replenish their capital. SPARC maintains meticulous accounting systems and keep records for individual repayments. With networking and constant communication a natural outcome of the community exchange strategy, it no longer matters that groups are located in several cities. Each group gets information about who has paid how much, and develops the skills are necessary to manage larger amounts of money. Local residents see the acquisition of these financial management skills as essential to the process of housing development. There is little point in negotiating for land if the communities do not have the resources necessary to develop the land. The issue of land tenure is critical, but there is also a need for communities to be ready to respond with strategies for residential development as soon as tenure is obtained.

Once savings groups have been organised and gained some experience with credit for crises and income generation, their ‘internal ‘ credit line begins. But that is not for housing: loans for housing emerge only when the co-operative obtains land. In this respect the Federation undertakes a very interesting exercise in collective action. Often a community gets land for external reasons other than their own preparedness to save and construct. Rather than refuse these groups assistance because other groups more prepared have not yet got housing, these groups are treated as flagships of the Federation. Those from other areas well-versed in the process participate in it. Credit-worthiness needed to access external finance is demonstrated by presenting the Federation as a whole which ‘guarantees’ the individual co-operative. And mistakes, however expensive, are absorbed by the Federation, rather than allowing them to increase the costs of housing. As training sites, these experiences are invaluable.

Loans for house upgrading and refurbishing are also made by the Federations. Initially they were part of the revolving savings pool. Now organisations such as HUDCO are creating special funds which operate like RMK does, but focusing on housing. Here the advocacy work of the alliance has helped, by creating such a window to formal institutions. The Federation tries to encourage those who wish to reconstruct their dwellings to form co-operatives and seek collective funding rather than reconstruct their homes individually. This has many benefits: the work is cheaper, people get better materials, and collective construction works well when the group is organised. The difference in cost between individual building and collective housing development is so great that it does not make sense for households to build on their own.

The main sources of housing finance in India are the HDFC and HUDCO. Although these companies receive subsidies through bilateral development assistance, they have not been successful in addressing the housing finance needs of low-income communities. By and large NGO intermediaries are necessary to deliver funds, and given the small number of NGOs working in this sector, this often becomes a bottle-neck. The Federation model, in which community organisations are empowered to act as intermediaries to their members, thus serves this purpose much better.

Initially at least, SPARC has played the role of intermediary in negotiations with financial institutions. When SPARC first started working with HUDCO, they realised that every lending rule and regulation needed to be changed for co-operatives of the poor to be able to access housing finance for poor people. In one example, a housing co-operative of 95 households needed US$100 000 for housing construction. Obtaining a land deed from the municipality took three years, during which period no loan finance was available. In order to be able to obtain finance, SPARC obtained a bank guarantee from an international NGO. Even with this guarantee, there were continuous delays in obtaining payments from HUDCO, which resulted in a significant increase in the final cost of the project.

This experience has been valuable in demonstrating to all involved how impossible this approach is. It cannot be a basis for significantly increasing the scale of housing finance for low-income communities. SPARC is now in discussions with HUDCO to obtain a credit line for housing. In these negotiations it is insisting that finance be given directly to the communities. SPARC is also investigating other sources of housing finance, including state and municipal funds. State housing boards are generously financed, but they have not proved to be effective in allocating this finance. City administrations, on the other hand, are much better than the central state in undertaking housing and infrastructure investments. Whilst there is now a general acknowledgement that the state has to reduce its overall role in society, this does not mean it no longer has a responsibility to intervene in issues of equity and redistribution.

The formal financial institutions want the poor to adopt formal financial systems with loan structures similar to those used by higher income groups. The alliance’s present experience is still somewhat limited, and it is still seeking a better understanding of the inner workings of people’s strategies to manage their loan repayments. Nevertheless, some lessons have already emerged.

For example, in any one given month, 20-30% of people cannot make their repayments. If allowed the space to be flexible, communities find a way to work through this problem. For example, when SPARC first insisted on regular repayments, communities coped by repayment-swapping by households. SPARC now understands more about these processes, and encourages them. Financial management within the Federation allows communities saving for housing to swop finance between branches of the Federation, if the trust between the two parties is sufficient and the will is there.

A remaining question is what to do with the women's Mahila Milan savings. The Federation has proposed that SPARC take over management of these savings, but SPARC is not enthusiastic. Most formal finance institutions who lend to the poor do not want to deal with individual households or with individual co-operatives. However, SPARC does not think that it would be helpful to take up an intermediary role between the formal financial institutions and the poor. It would be better for this relationship to be direct. There is a continuing need for this relationship to be better understood.

In recent months, SPARC has been able to take advantage of a new commitment in the state government of Maharashtra to address housing issues for poor households. In the absence of other ideas, the government has been willing to listen to SPARC. Relationships with local politicians can be difficult, and because of past experience, there is little romance about what politicians can be expected to deliver to the poor. Federation members can join whatever party they prefer, but the experience of the Federation leadership is that politics is not important: little has been achieved by the poor from party political processes. Federation members can stand for political election but if elected cannot also hold leadership positions within the Federation.

Relations with other NGOs are more difficult, because there is a tradition in India of only one NGO working in each community. The Federation is now very strong, and some NGOs feel threatened if some members of the settlements in which they are working wish also to belong to the Federation. SPARC has tried to persuade NGOs to see this as an opportunity, and to work with the Federation. This strategy has not been successful with the older generation of NGOs, but some of the younger NGOs are more responsive. In previous years the Federation did have had some links with other NGOs, but often the NGO wished to dominate the process. When the Federation starts work in new cities, SPARC contacts local NGOs and encourages them to be involved. But this strategy has never been successful. SPARC has maintained only a single office in Bombay, leaving many opportunities for other NGOs to be involved, but in general these experiences have been problematic.

SRI LANKA

The Women’s Bank of Sri Lanka can trace its origins back to 1989 when an NGO by the name of PSS helped to launch three small women’s savings groups. These groups were developed in accordance with the credit union model. Today there are more than 1000 groups throughout the country.

Initially the groups were started in an attempt to organise communities around shared problems such as housing and lack of income opportunities. The intention was always to enable members to use the shared resources of the scheme to find economic solutions to these problems. It was understood that poor people were unable to access credit through formal channels and that they, therefore, had to devise their own informal systems.

The Sri Lanka example of the Women’s Bank differs from the other case studies to the extent that in the Sri Lankan situation savings and credit have been seen to be economic ends in themselves, rather than economic means to social ends. This particular emphasis has determined the structure of the organisation to a large extent. It accounts for the Women’s Bank’s strengths in savings and in loan repayments. Similarly the relative lack of focus on methods of social mobilisation has meant that the highly cohesive groups that have been generated organically by the process have found it difficult to move on to determine and address broader issues of community development.

The Sri Lanka example served as a useful counterpoint to the approach of the other four groups at the workshop. Their contribution was extremely valuable because it enabled all the participants to draw a clear distinction between a bank and a community fund, between savings and credit as a vehicle to give people access to credit and to markets and savings and credit as a vehicle for overall development enabling poor people to gain complete control of their lives.

The South African Example

People's Dialogue on Land and Shelter is an NGO that was established in 1991 in response to a strongly expressed need for a system of networking informal settlements of homeless people in South Africa’s urban areas. As a result of this networking, People's Dialogue began to explore ways in which support could be given to homeless urban dwellers in South Africa so that they might address their own housing needs.

From the start, this exploration focused on financing options. Housing Savings Schemes (HSS) were formed to provide a local focus for household saving and organisation. From the beginning, membership has involved predominantly women members of the community. Over time, the networks linking the savings schemes were formalised into a Federation. As the strategy achieved greater recognition, and the savings schemes consolidated into a national movement, sufficient external loan capital was secured to enable the Federation to offer their members loans for house-building.

The South African Homeless People's Federation, established in 1994, is formalised network of autonomous community-based organisations, each with their own identities and decision-making structures. Most affiliated organisations in the Federation operate in broadly similar ways, but they all have their own internal rules. Nevertheless, these organisations are united by a common development approach, which has the following characteristics:

• All member organisations are rooted in shack settlements, backyard shacks or hostels.
• All organisations are involved in savings and credit, managed at grassroots level by the members themselves.
• Whilst men are not excluded, the vast majority of Federation members are women.
• All organisations are involved in struggles for security of land tenure and affordable housing.

As in the Indian example, saving is the central activity of Federation groups. Members have to belong to one of the Housing Savings Schemes, and they have to save small amounts of money on a regular basis. A frequent comment from other more sceptical members of the community is that members can save little in comparison to the total cost of housing construction. In fact, the Federation perceives a much more complex relationship between savings and housing finance. They have no illusions that the savings will be adequate to construct houses, but emphasise the importance of saving for the following reasons:

• Savings mobilise poor people. The Federation has a saying: ‘We do not collect money, we collect people’.
• Savings ensure high levels of participation and mutual interaction in an organisation. Through investing their scarce finance, the members have a material stake in their organisation and in its planning and decision-making. Savings encourage regular interaction and enable strong bonds to be created. This results in the Schemes becoming reliable support systems for their members.
• Savings create a space for the central participation of women in informal settlements. This is because women are much more interested than men in saving for credit and for housing. As a result the Schemes make a material difference to the lives of most marginalised people in South African society: poor, homeless, women.
• Savings and loans enable community organisations to develop the capacity to manage and control finance and to demonstrate this ability to the outside world, eventually even accessing external finance.

Some of the Schemes are stronger than others, but most are the strongest organisations within their settlements. They are not strong in terms of access to coercive force or to power, but they are strong in terms of empowering their members and creating the space for them to make their own decisions to improve their lives and carry them out.

The experience of saving, lending, and financial management provides a platform for acquisition of further development skills. The most important mechanisms to support this learning process are community-to-community exchanges of information, experience, and skill which are organised by the Federation. The training that takes place within these exchanges covers the spectrum of skills needed to consolidate community-managed housing and neighbourhood development. There are four main components to the training programme.

1. Savings schemes learn in practise how to map and profile settlements, and gather basic socio-economic data about the residents. This is undertaken to develop an understanding of the community living in the settlement.
1. Within a financial component, members of the Housing Savings Schemes teach one another basic financial management, including bookkeeping and banking.
1. A third component is the house-modelling process, whereby members collectively design and model the houses of their dreams, then consider issues of affordability and amend their designs accordingly.
1. The fourth component, once housing loans have been obtained and an acceptable house design identified, is training in building and construction techniques.

Whilst the homeless poor possess energy, initiative, skill, and experience, they lack the material resources to transform their situation. The alliance decided in 1993 that the only way around this problem was for People’s Dialogue to assist the Federation in becoming directly involved in managing its own loan fund. uTshani Fund began operations in January 1995.

uTshani Fund makes finance available directly to Housing Savings Schemes. Any Housing Savings Scheme is eligible to apply for an uTshani Fund loan. In order to apply, a Scheme has to provide affordability assessments for the potential borrowers and rough building plans. Schemes who are new to housing loans normally receive finance for a group of 10 members. Second and subsequent groups may be larger. Once the member’s monthly repayments have been worked out, uTshani Fund staff determine the amount which can be borrowed over a 15-year period at a simple interest rate of one per cent per month.

If necessary, the Housing Savings Scheme then adjusts its house designs to build within this amount. The final decision on whether or not a loan should be granted rests with the Governing Body. The Governing Body is firmly rooted in the Federation with representatives from each of the nine regions in which the Savings Schemes are active, and the three national convenors. Two People’s Dialogue staff sit on the Governing Body, but do not have voting rights.

Once a loan has been agreed, uTshani Fund advances the money to the Savings Scheme, which is responsible for all further aspects of local loan management. Loans are disbursed to members in the form of building materials (not cash). Great emphasis is placed on simplicity and transparency. The Schemes are encouraged to have weekly and bi-weekly meetings with open access to information. Bookkeeping, release of funds, distribution of building materials and management of the construction process is undertaken by the members, supported by other Federation groups in the course of regular exchange programmes. The Fund itself provides information to enable savings schemes to follow their loan balance and repayments.

uTshani Fund procedures are closely modelled on those of the Housing Savings Schemes. In particular, the determination of interest, collection of repayments, and record-keeping mirror those of the Federation. This serves two purposes: it ensures maximum ownership of the process by the members, and it allows loan finance to be extended at a greatly reduced cost relative to formal finance institutions. So far uTshani Fund has made loans reaching over 300 households.

One unique feature of the South African situation has been the window of opportunity provided by the recent election of the country’s first democratic government. The various development ministries, long discredited under the apartheid system, were suddenly taken over (at senior levels) by politicians eager to address the country’s badly skewed socio-economic development. These ministries have been much more accessible to people’s organisations then ever before, and more so than is the case in any of the other five countries discussed here.

This has allowed the South African Homeless People’s Federation to pursue a careful and sustained strategy of critical engagement with Government. The strategy has been to develop mechanisms for people-centred development — mobilisation and management of credit, information gathering, organisation building, house construction, loan repayment — and to then show government how these bottom-up activities ought to be supported.

While the post-apartheid government has constructed a discourse of people’s empowerment and support for the poor, these ideological positions have lacked any material underpinnings either in the form of enabling legislation or the capacity and actual will to deliver. The Federation has understood that governments rarely respond to the needs of the poor unless the poor are organised and politically adept at putting pressure on them. The Federation has also understood that the capacity to impact positively on legislation and to influence the institutional arrangements which govern delivery would be of little value to the poor if they lacked the ability at grassroots level to harness and manage human and material resources for the purpose of development.

In South Africa’s formal institutions, like everywhere else, there remains the assumption that people’s organisations, especially squatter organisations, lack capacity, and that it is the job of external agents to either deliver products or to build capacity through guidance and training. The Federation seeks to shift policy and change the institutional mechanisms governing housing support by demonstrating that

• poor people are far more capable than government and other formal institutions are willing to recognise;
• capacity is built via direct everyday experience, not via abstract teaching by so-called experts;
• the real lack of capacity, which needs to be addressed urgently, is the capacity of officials, politicians, banks, planners and other professionals to understand and (with that understanding) to support a people’s housing process.

Today the Federation enjoys significant moral support at National and Provincial Government level. The Federation has earned a high profile as a practical example of people-centred development. The Department of Housing regards the Federation as one of its key partners in the People’s Housing process. The Federation enjoys a similar relationship with the Department of Land Affairs. Since housing delivery is effectively a provincial responsibility, the Federation has developed working relationship with most Provincial Housing Boards, having set up joint steering committees to monitor the efforts of the Federation to gain direct access to housing subsidies for its members. Relationships with the recently-elected local authorities are not always positive. This is to be expected: newly elected councillors regard it as their responsibility to provide services such as infrastructure and housing and find it difficult to accommodate organisations which are calling for direct control of resources to manage such processes themselves.

One area where the South African Federation has moved quickly ahead is in attracting development resources on the basis of its successes at grassroots level. Late in 1994, the late first Minister of Housing, a popular and people-oriented veteran of the liberation struggle, agreed to make a grant of R10m (US$2,3m) to the Federation’s emerging uTshani Fund. He had met with the Federation and was impressed with its work; he also realised that his Ministry’s own housing policies were heavily biased towards formal private-sector delivery as a result of the political influence of big business. His offer quickly ran into trouble, however, when it became apparent that bureaucrats and financial controllers in the Housing Department did not share Slovo’s enthusiasm for a people-driven process. This situation was complicated by Slovo’s untimely passing in December 1994.

Using funds obtained from overseas donors, the Federation begun making housing loans anyway. It carefully built up a track record of saving, loan management, and construction of incredibly low-cost, but quality housing. It proved that Federation members, using their own systems, could build houses for less than one-third the cost of the private sector. It then embarked on a campaign of publicising its efforts by inviting politicians, bureaucrats, and the press to see what it was doing. As word spread about the Federation’s work, the tide turned against the obstructing bureaucrats, and the grant was finally put into effect in March 1994 — 17 months after it had been offered. Similar successes have been enjoyed in other areas, most notably in a recent agreement to channel state housing subsidies directly to the Federation through uTshani Fund.

The remarkable thing about this achievement is that it was built almost entirely on the basis of the successes of the ordinary Housing Savings Schemes themselves. By staying with their systems and resisting incorporation into externally-designed formal systems of management and accountability, the Federation demonstrated in practice that it could not only handle large-scale development finance, but could put it to more effective use than the private sector. The South African government has subsequently offered to increase its contribution to uTshani Fund.

The Thai Example

Savings and credit groups have been active in Bangkok for more than ten years. There are three Federations of the urban poor in Bangkok. Their savings credit process differs from those of India and South Africa to the extent that they have been built along the lines of credit unions. These Federation groups have been involved in land struggles and community mobilisation for a considerable length of time.

To an extent the shift to using credit as a community mobilising and empowering tool was introduced from outside the community based organisations. A number of far sighted individuals with backgrounds in the Thai civil service and with strong links with People’s Organisations managed to create the space for an intermediary financial institution which is funded by the state to provide loans to low income communities. This organisation, called the United Community Development Office (UCDO), and jointly managed by Government, NGO and people’s organisations, has launched a vigorous process of using what they call ‘integrated credit’ as a mechanism to strengthen community capabilities in dealing with their own integrated development process.

In March 1992 the Thai Government approved a budget of S50 million to initiate the ‘Urban Poor Development Program’. This resulted in the formation of UCDO, as a special project of the National Housing Authority, but working with a degree of independence and subject to the regulations of its own governing body. Efforts are under way to spin UCDO off from the National Housing Authority because this relationship has tended to stifle the autonomy of the organisation, slow the process with bureaucratic red tape and distance it from the people.

The Governing Body called a ‘board’, comprises 3 representatives from community organisations, 2 from NGOs, 3 from government organisations and 1 from the private sector. Most committees of a similar nature usually comprise government officials and specialists who would design policy and operational procedures for ‘beneficiaries’. The way the board of UCDO is structured has created the potential for equity, participation and co-operation. This has been inhibited by UCDO’s status as National Housing Authority project.

It has been calculated that the UCDO Fund can be sustained as a revolving fund with an average interest rate of 7% per annum. (The present rate of inflation in Thailand is estimated to be around 4%) .UCDO uses its fund to provide integrated credit systems for integrated community development purposes. Loans are provided to organisations with a three month track record of savings and credit.

These loans are for income generation, general revolving funds and housing. UCDO loans are restricted to 10 times the amount saved. Interest rates are structured in such a way that after communities have added 2-5%, rates of interest remain at market level or slightly below. Interest rates are cross-subsidised in such a way that housing loans carry the lowest interest and short term income generation loans the highest.

Social collateral — the composition of a savings and credit group — secures all loans. Committee members sign as guarantors to the loan scheme. The community that takes the loan will decide on the size of the loan and the period of repayment. The savings and credit group that takes the loan can decide to repay daily, weekly, monthly. The method of repayment is flexible and can be arranged according to the needs and processes decided by the group itself.

Since December 1992 (date of inception), UCDO has granted loans to 96 credit organisations, covering 162 communities for about 13,850 families. The value of loans disbursed totals the equivalent of approximately US$ 17 million. Rate of repayment stands at about 98,7%.

About 60% of the total value of loans has gone to housing loans. The experience has been that most new savings groups commence with a loan for a revolving fund in an attempt to increase their capacity. After this the group will start planning for more complex loans such as loans for income generation or for housing.

UCDO tries to use credit in such a way that it enhances the role of the community based savings and credit groups as initiator, planner, and director of development. The management of credit and all the attendant activities that this generates makes a qualitative difference to the community organisation. It becomes a strong unit for development, able to deal effectively with formal systems external to the settlement, as well as becoming the nucleus for participation by the marginalised and the poor.

The savings and credit schemes in Cambodia began when 25 local NGOs and 15 NGOs (Cambodia is virtually being run by NGOs) came together to try to address some of the problems faced by the urban poor. These groups passed a resolution that they would strive to inform their government of the conditions that affected the poor people in the country’s towns and cities. There was an overwhelming need in Cambodia to organise the poor communities in light of the massive destruction and elimination of human lives by the Khmer Rouge. Contact was made with the Asian Coalition of Housing Rights, and Mahila Milan started to work in the country.

Following the elections in May 1993 the first savings groups began to form. There are 187 slums in Phnom Penh. The Cambodian Federation now has a presence in 52 of these settlements. Although the first savings group was only established in May 1994 there are presently 6274 families in the 52 savings groups. Savings and credit records are kept by bookkeepers who were not trained in professional matters but by learning in exchange programmes. The role of the bookkeepers is regarded as being very important since sound practice will generate community support and NGO acceptance.

The Cambodian Federation stressed, at the workshop, that they felt that at this stage in their development exchange programs to other Federations in other countries could provide invaluable assistance.

List of Contact Organisations

P. O. Box 10546

Kathmandu

Nepal

Tel 977 1 527264 Fax 977 1 523197 Att Lajana Manandhar

Women’s Bank of Sri Lanka

151/13, E Zone

Seewali Pura, Borella

Colombo — 8

Sri Lanka

Tel

Fax C/- 94 1 85 0223 C/- KA Jayaratne SEVANATHA

People’s Dialogue

P.O. Box 34639Groote Schuur

7937

South Africa

Tel 27 21 47 4740

Fax 27 21 47 4741

SPARC

P.O. Box 9389

Bombay 400 026

India

Tel 91 22 285 1500

Fax 91 22 495 0505

Squatters and Urban Poor Federation

Sisowath Boulevard, Village 14

Sangkat Tonle Bassac

Khan Chamear Mora,

Phnom Penh

Cambodia

Tel: C/- Someth 855 233 62585

Fax Att Someth 855 23 27003

Asian Coalition for Housing Rights

73 Soi Sonthiwattana 4

Ladprao 110, Ladprao Rd

Bangkok 10310

Thailand

Tel: 66 2 538 0919

Fax: 66 2 539 9950