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Rethinking Development Finance for City "Slums"

By David Satterthwaite | International Institute for Environment and Development | October 15, 2012

CREDIT: Akshay Mahajan (CC).

Very little aid is actually available to low-income urban groups and grassroots organizations. If it is, it is subject to the conditions and priorities established by the aid provider. The Asian Coalition for Community Action (ACCA) is challenging this funding model by providing small grants to low-income communities for the initiatives they choose and supporting these communities to work together and work with their local governments.

Around one in seven of the world's population lives in informal settlements in urban areas. City economies would collapse without their labor and the goods and services from informal enterprises—yet city governments often ignore them or see them only as a problem. In the absence of support from local governments, aid agencies, or development banks, they have had to manage by themselves. They've built a high proportion of all new housing in informal settlements with insecure tenure because they cannot get land legally and have often built on land ill-suited to housing because they were not allowed to settle on good quality land. They struggle to cope with problems such as regular flooding, and face high levels of fire risk (caused by widespread use of candles, kerosene lamps, and stoves in houses constructed from flammable materials located very close together). They face the constant threat of eviction—or actual eviction.

The Asian Coalition for Community Action (ACCA) sees these people, and the grassroots organizations they form, as the basis for urban development.

Since 2009, ACCA has developed a working finance system in which urban poor organizations have the power to choose what they will undertake. ACCA has provided small grants to 950 community-initiatives to upgrade "slums" or informal settlements in 165 cities in 19 nations. Up to $3,000 of grant finance is available, and communities use this to, for example, construct or improve their water supply systems or toilets, drains, roads, paths or bridges, community centers, household waste management, playgrounds or parks. Up to $40,000 has been available for larger initiatives at the city scale.

These sums seem very small in relation to the scale of the problems they seek to address. They are. But the funding is available quickly for what a community identifies as their key priority and what they themselves will undertake.

There is not enough development money to fund everything that needs to be done in all informal settlements sufficiently. But as the organizers of ACCA explain, this insufficient funding catalyzes new ways of using finance—people have to think harder about what resources they can contribute, what additional support they can negotiate, and who they can work with. This can lead to the forging of new partnerships to address other needs. As the funding is sufficient for several communities in a city to undertake an initiative, these communities frequently visit each other to learn from others' experience.

These small grants can lead to important changes within the city. The efficacy of the grassroots groups may be recognized for the first time. When a community constructs some public amenity that is meant to be provided by the local government, it gets noticed by that local government. The improvements are visible evidence of what communities can accomplish on their own.

This often leads to local government support—and the development of a city-wide platform in which representatives from grassroots organizations sit as equals with local government officials and other stakeholders. It often leads to the development of a City Development Fund in which all the active community organizations have a financial stake by pooling their resources and to which city government or external agencies can contribute. ACCA has supported the setting up of 107 City Development Funds across the countries where ACCA works and has also financed 100 larger housing-related initiatives

ACCA initiatives are planned and undertaken by the residents of informal settlements as collective processes:

  • collective information collection (settlement mapping, city-wide surveys),
  • collective definition of problems and a search for shared solutions,
  • collective funding systems managed by networks of savings groups (the City Development Funds),
  • new collective relations, as linkages are built between those living in informal settlements and local governments.

These ACCA initiatives are assessed by their peers—other urban poor groups. Perhaps surprisingly, this is unusual. Development projects that are meant to benefit urban poor groups are generally not assessed by their peers (community groups and NGO supporters) but by outside (usually foreign) professionals who visit the project briefly and who have no expertise in living in informal settlements with very inadequate incomes.

A woman sells cardboard on the streets of Karachi, Pakistan.A woman sells cardboard on the streets of Karachi, Pakistan. Photo: Fareena Chanda

A New Paradigm for Development Funding?

Perhaps it's too early to suggest that this shows a new trend or (to use a much over-used word) even a new paradigm in development. But there are certain features ACCA shares with other successful development initiatives. First, it makes funding available direct to low-income groups. But many forms of social protection now do this. Second, unlike social protection initiatives that provide income-supplements to individual families, it funds collective initiatives chosen by grassroots organizations. This encourages organized networks of the urban poor to plan and act collectively and, as noted above, to bring this planning to the city level by engaging with local governments. This often leads to city or national funds being set up that can continue support for community initiatives.

The Urban Poor Fund International is another example of a finance system that makes funding available to grassroots organizations and federations for collective initiatives that they choose. It, too, has supported hundreds of community initiatives where the use of funding is determined by the federations of slum or shack dwellers.

Can Aid Agencies and Development Banks Effectively Help the Urban Poor?

Official aid agencies and development banks were not set up to work directly with low-income communities. They were set up to work with and fund national governments. Bilateral aid agencies have to be accountable to the government that funds them (and beyond this to the voters who put the government into office). Multilateral development banks, such as the World Bank and the Asian, African, and Inter-American Development Banks have to be accountable to the governments that sit on their boards—especially those that provide them with funding. These funding agencies have no direct accountability to low-income groups, even though these groups' (unfulfilled) needs are what justify these agencies' work and funding.

Initially, it was assumed that international funding agencies would support national (recipient) governments to address these unfulfilled needs. It was also believed that stronger economies would lead, through increased incomes and larger government capacity, to, in turn, providing the basics—secure housing, water, sanitation, health care, education, the rule of law, and political systems that were accountable and democratic. But this has not happened for a large and often growing number of urban dwellers. Perhaps aid agencies and development banks have actually inadvertently inhibited this process because national or city governments are focused on maintaining links to their donors, international agencies, and not on being accountable to their own population.

If large, centralized development assistance agencies cannot work directly with urban poor groups and their community organizations, can they learn to work with and through intermediary institutions, which are on the ground financing, working with, and accountable to urban poor groups?

ACCA sees these people and the grassroots organizations they form as the basis for urban development. The collective initiatives that it has supported draw on their ingenuity, their capacities, and their contacts (that help leverage additional local support). Over time these initiatives support the growth of their collective political power to change both how city and local governments work, and how governments work with them.

The October 2012 issue of the journal Environment and Urbanization has papers examining different aspects the ACCA program—including how it evolved, how it uses finance to unlock potentials of community action and engagement with local government, what it supports on the ground, and how this contributes to larger-scale social change.

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Read More: Aid, Cities, Development, Finance, Asia, Global

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