Business Times

UN–HABITAT invites micro finance agencies to upgrade under-served settlements

By Dilshani Samaraweera

The UN–HABITAT Sri Lanka office is inviting microfinance institutes and non-governmental organisations to invest in upgrading under-served settlements (areas with less basic facilities) in urban areas.

UN–HABITAT has set up a credit guarantee mechanism, with government support, to allow banks to lend housing upgrading loans to Sri Lanka’s slum communities, through micro finance institutions. The credit guarantees are offered through the Lanka Financial Services for Underserved Settlements (LFSUS), a non profit company.

“LFSUS was set up as a credit guarantee institution, to bring commercial banks to the table. Traditionally banks will not lend to this category of people because the banks require securities to lend against, and need collateral,” said the Chairman of the LFSUS, Chandula Abeywickrema, last week at a forum on Leveraging Finance for Low Income Settlers in Under-served Settlements in Sri Lanka.

“LFSUS gives credit guarantees to commercial banks, to lend to micro finance institutions that would like to move into housing for low income groups,” said Mr Abeywickrema. The UN–HABITAT project says it works closely with central government and local government agencies and target communities to smooth the process.

“We link up with local authorities because in settlement upgrading, government plans for the communities and land issues, become important. Most slum lands cannot be used as mortgages because of title problems. So we work with the local authorities to work out some system to address these problems,” said the Country Adviser of the UN–HABITAT, Slum Upgrading project, Ayanthi Gurusinghe.

“All the settlement upgrading activities are decided by the communities themselves. When they are ready to upgrade and when they decide what to do, they themselves link up with the micro finance institute,” said Ms Gurusinghe.

Already a few pilot projects, where slum communities have accessed bank loans through non governmental organisations, under LFSUS credit guarantees, are successfully underway.
Some recipients of loans have already started building and upgrading their homes, said LFSUS. Already three commercial banks, HSBC, HNB and People’s Bank, said LFSUS, have come on board the project and is willing to give loans. The credit guarantee company says it has about 10 projects in the pipeline.

Growing slums
In Sri Lanka, in the commercial capital Colombo, alone, an estimated 65,000 families live in slum settlements and dilapidated buildings that are unsuitable to live in. Meanwhile, populations living in under-served areas in Sri Lanka’s other cities and towns, are also expanding. “An estimated 65,000 families in Colombo alone live in under-served settlements. Other cities in Sri Lanka are not that bad. But because of commercial opportunities, more and more people are moving into cities.

So unless we provide adequate facilities, the amount living in under served settlements will increase,” said the Secretary to the Ministry of Urban Development and Sacred Area Development, Dr P. Ramanujam.

The Ministry says in the last two years the government has spent Rs 450 million on upgrading under-served settlements and about 2,800 houses have been completed and another 1,200 are nearing completion. The 2008 national budget allocated Rs 100 million to clear under-served settlements in 10 cities in the country.

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