Over the past three decades, Kenya’s urban population has more than doubled and is expected to reach 50 percent by 2015. Poverty, poor government planning, and high population growth have contributed to the rampant increase of slum dwellings. However, small village savings schemes are helping address this proble

Weru, Jane

LSE Research Online

21/06/2017 Transforming slums by using access to finance - IGChttp://www.theigc.org/blog/transforming-slums-by-using-access-to-finance/ 1/3Authors Jane WeruExecutive DirectorAkiba Mashinani TrustPublished on: 10 Dec 2014Countries: InternationalResearch themes: Cities Transforming slums by usingaccess to ﬁnanceOver the past three decades, Kenya’s urban population hasmore than doubled and is expected to reach 50 percent by2015. Poverty, poor government planning, and highpopulation growth have contributed to the rampant increase ofslum dwellings. However, small village savings schemes arehelping address this problemOver the past three decades, Kenya has witnessed rapid urbanpopulation growth. During the 1989-1999 inter-censual period,the country’s urban population more than doubled, reaching34.5%. This is expected to increase to 50 percent by the year2015. Ineffective government planning, acute poverty (morethan half of Kenya’s population lives close to or below thepoverty line) and high population growth have contributed tothe rampant problem of informal settlements and slumdwellings which are prevalent in urban Kenya.One of the biggest informal settlements in Kenya is the Mukuruslums. These contiguous belts of slums are situated on privatelands or on contested public lands that are mostly unfit forhuman habitation. Because of their precarious tenure thesesettlements are often faced with the threat of eviction from theprivate owners. The constant threat of eviction, the highcongestion and lack of basic services has pushed the residents ofMukuru to seek for more humane living conditions.In 2007, leaders of a small saving scheme of slum dwellersapproached Akiba Mashinani Trust (AMT) asking forassistance to purchase a 23 acre portion of land situated inMukuru Kwa Njenga. The land belonged to a corporationcalled Milwhite Limited. In the initial meeting AMT committedto support the scheme but challenged the leaders to mobilise atleast 2,000 members to save what they could afford on a dailybasis in order to raise at least 20% of the purchase price.Financing the land purchaseWithin three months of this challenge, the scheme mobilisedabout 500 members and their savings had reached Kshs. 6Million (USD 71,300). AMT engaged with the land owner andnegotiated the price down to Kshs. 81 million (USD 963,000)from Ksh. 104 million (USD 1,235,000). During this time, thesavings scheme aggressively recruited members and today theMukuru Saving Scheme has recruited 2,200 members.Unfortunately AMT did not have sufficient funds to finance theland purchase and therefore needed to mobilise funds directlyfrom commercial banks. AMT consequently approached several21/06/2017 Transforming slums by using access to finance - IGChttp://www.theigc.org/blog/transforming-slums-by-using-access-to-finance/ 2/3banks, all of whom were hesitant to engage though they wereimpressed by the excellent saving history of the scheme. Theirapprehensions were:1. They were wary of transacting business with such a large groupof slum dwellers. They considered slum dwellers as anamorphous group of disorganised people with little or noorganisational structure.2. All the institutions approached did not have a product for middleterm loans for low income earners.3. The banks did not want to use the land as collateral as thereputational risk of trying to sell land belonging to slum dwellerswas too high in the event of default.Despite these impediments and after nearly two years ofsearching, AMT was able to secure a 5 year bank loan of Kshs.55 million (USD 653,600). This was only after placing a cashguarantee of Kshs. 24 million (USD 285,000) obtained fromSDI through the support of the Bill and Melinda GatesFoundation. The loan attracted a 16% interest rate (15.75%base rate + 0.25%), which however rose to 25.25% (25% baserate + 0.25%) within a year.Thanks to the vibrant savings of the Mukuru residents and theliquidation of the cash guarantee, the loan was fully repaidwithin 1 year 7 months of the disbursement. Today, theproperty carries an asset value of about Kshs. 600 million (USD7.1 million).Developing housing designsDue to the densities involved, it was apparent that the Mukuruproject would be a medium rise housing development. Thismodel came with various challenges, the most nagging beingthat of affordability. From the appraisals conducted by bothAMT and the saving schemes, it was clear that the maximummonthly mortgage repayment that most members could affordwas Kshs. 2,000, roughly what they were currently paying asrent.Two major challenges faced the technical team:1. How to develop a sustainable neighbourhood that is aestheticallyacceptable, with sufficient facilities such as schools and playgrounds and yet accommodate all the savers on a relatively smallportion of land.2. How to develop at least 45 sq metres of housing for everyhousehold at an affordable price and within an affordablefinancing scheme.Eventually it was agreed that the project would develop 2,000units for the savers. Most of these housing units would bedeveloped incrementally to ensure affordability.Organisation and fundingThe Mukuru Greenfield housing project is just one of severalprojects that AMT is currently supporting on behalf of theKenya slum dweller federation. With an annual operationalbudget of only USD 250,000, AMT is completely overwhelmed.The total cost of the Mukuru project is roughly USD 40 million.21/06/2017 Transforming slums by using access to finance - IGChttp://www.theigc.org/blog/transforming-slums-by-using-access-to-finance/ 3/3The total cost of the Mukuru project is roughly USD 40 million.The technical costs for successfully packaging a project of thisscale would be conservatively 10% of the cost of the project,USD 4 million (the technical team includes architects, engineers,planners, lawyers, quantity savers etc). As a result, AMT hashad to rely on the goodwill of professionals to support theproject on a partly pro bono basis. This has often led toinordinate delays. Many social issues have arisen due to thesedelays in implementation and the project has stalled as effortsare made to resolve these internal conflicts.Since this project, very many groups in Mukuru and otherslums have approached AMT for financial assistance in landpurchase as well as housing development. All of these groupsare forming vibrant savings schemes and mobilising people atan exponential rate. Their ability to effectively manage thesavings, the political and human resources (based on theMukuru model) is amazing. There is great untapped potentialfor affordable housing at a massive scale in Kenya.  

Transforming slums by using access to finance

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