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Urban Finance Programme
Providing loans and local finance facilities for better housing

UN-HABITAT's urban finance strategy is based on the agency's sustainable credit enhancement and catalytic investment approach. The agency invests in affordable and social housing and related infrastructure improvements for under-served communities. UN-HABITAT believes that integrating market-based solutions and business approaches with community-led efforts is an effective way to address the scale of inadequate housing, water, and sanitation for human settlements across the globe. Innovative finance mechanisms and institutional capacity leverage the contributions of communities, local authorities, the private sector, governments, and international financial institutions. The urban finance strategy has a two-pronged approach, involving a revolving loan fund programme and grants for credit enhancement through Local Finance Facilities.

Experimental Reimbursable Seeding Operations Programme
Upgrading up to 33,000 affordable and social housing units in 5 countries

UN-HABITAT is providing loans to affordable social housing and infrastructure projects through a revolving loan fund programme called Experimental Reimbursable Seeding Operations. Working with local banks, microfinance institutions, and non-governmental organizations in Palestine, Tanzania, Uganda, Nicaragua, and Nepal, UN-HABITAT finances land development planning, affordable and social housing construction, and takeout micro-mortgage and microfinance housing loans. It leverages its funds by working with international financial institutions and public–private partnerships. The revolving loan fund is a highly effective tool to reach underserved populations and is highly complementary to the Local Finance Facility approach, which reaches populations at the bottom of the income pyramid.

UN-HABITAT has reviewed over 50 potential investments to date under the Experimental Reimbursable Seeding Operations Programme. As of mid-2010, five loans had been disbursed (totalling USD 2.75 million). This initial round of lending is expected to support the creation and upgrading of up to 33,000 affordable and social housing units in Nepal, Nicaragua, Palestine, Uganda, and Tanzania (with housing investments that leverage additional investment and project value at a ratio of over 175:1 on the initial funding).

Slum Upgrading Facility Pilot Programme
Financing slum projects with community savings, private sector finance, and government contributions

In addition to lending activities, UN-HABITAT approaches under-served populations through Local Finance Facilities, a concept that has been established in pilot projects in Ghana, Indonesia, Sri Lanka, and Tanzania through the Slum Upgrading Facility Pilot Programme. Each Local Finance Facility uses one-time grant funding to set up operations and capitalize a revolving credit enhancement fund to support slum-upgrading projects desired by the community. Each Local Finance Facility operates as a sustainable business under the direction of an inclusive board of directors drawn from community groups, domestic banks, local municipalities, and relevant national ministries. Typically, each Local Finance Facility will seek to finance projects with a combination of community savings, subsidies from the municipality or a national ministry, and domestic commercial bank lending. This combination brings intended projects within the financial reach of the lowest income communities, while encouraging community sponsorship of the projects and pride in local ownership.

There are promising opportunities to expand the Local Finance Facility concept. The first is through establishing new Local Finance Facilities in other countries, as is now being planned in Kenya, working with the Millennium Cities Initiative and other key partners. UN-HABITAT is aiming to attract investment to extend the programme to all the Millennium Cities in Africa. At the same time, we are working to expand the scope and work of existing Local Finance Facilities. For example, in Ghana UN-HABITAT is planning to work with Cities Alliance and CHF International on joint project implementation.

Urban Economy and Social Development Programme
Promoting policies, strategies, and tools for economically healthy cities

The Urban Economy and Social Development Programme promotes urban economic, financial, and social development strategies and policies to enable cities to act as engines of economic development and resource centres for human settlement development. It provides an analytical focus on urban economy and local finance, relating them to the national and global economy and to housing and urban development. The programme focuses on poverty reduction and promotes policies, strategies, and tools that enhance the productivity of cities, encourage healthy finance, and promote equity.

The key components of the Urban Economy and Social Development Programme include the following:

• Global Urban Economic Dialogue: This component addresses the most pressing issues for improving the urban and local economy.
• Local Finance: Acknowledging that towns and cities are the engines of economic development, this component helps to address the consequences of rapid urbanization, in light of the increasing difficulties among local governments in meeting the growing demand for local public services and infrastructure.
• Housing Finance: This promotes inclusive housing finance systems and mechanisms to improve the effectiveness, efficiency, and accessibility of existing finance systems, creating and devising innovative finance mechanisms and instruments. It also publishes the Human Settlements Finance Systems and Financing Tools series.
• Productive Cities: This component explores how to make cities, towns, and villages more economically productive, expand jobs and business opportunities, increase incomes, and improve quality of life.
• Poverty Reduction: This includes raising awareness about poverty in urban development; analysing the nature, characteristics, trends, and distribution of urban poverty; and devising policies and strategies to tackle urban poverty problems.
• Integrated Social Development Initiative: This combines economic and social development with physical development and management to ensure that overall urban development is inclusive and equitable and benefits the entire population, with particular attention given to the most vulnerable and disadvantaged.
• Community-based Initiatives: These are helping to create, develop, and sustain the capacity of poor and grassroots communities to meet their housing, poverty reduction, and urban services needs.