In most developing countries, the poor have no access to housing finance from formal financial institutions. In the Philippines, official data indicate that more than 40% of urban families (over 10 million people) live in makeshift dwellings in informal settlements where safe water, good sanitation, and drainage systems are grossly inadequate. Some 91 million people live in Indonesian cities; the government currently estimates a shortfall of 6 million houses for poor families.
ADB’s Philippines Development of Poor Urban Communities Sector Project and the Indonesian Neighborhood Upgrading and Shelter Sector Project work with local governments and nongovernment organizations to ensure appropriate, affordable plots are available and that financial and microfinance institutions provide funds to purchase them.
The projects reflect the differences in the structure and capacity of the two governments, the sophistication of participating NGOs, and the capital market. In the Philippines, capital markets are more accepting of relationships between the formal and informal sectors, so it has been possible to enhance standard urban microfinance risk mitigation measures by linking microfinance institutions working with the project to the established partial cash flow guarantee of the Home Guaranty Corporation. In Indonesia, such an approach would have been too ambitious; the loans provided do not have collateral and are shorter term. In the Philippines, the microfinance shelter provision component will benefit over 20,000 poor urban households while in Indonesia, 180,000 households in a minimum of 30 urban local government areas will benefit.