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MANILA, PHILIPPINES (19 December 2003) - The Asian Development Bank (ADB) is helping to upgrade housing, services, and overall living conditions in Indonesia's crowded urban areas, including slums and squatter settlements, through a loan package approved today totaling US$88.6 million.
The Neighborhood Upgrading and Shelter Sector Project will address key issues facing the urban housing sector, including the lack of serviced, tenured plots; appropriate shelter finance; and the need to strengthen sector institutions.
The project helps to identify, prioritize, and program activities to upgrade poor neighborhoods, and to design and undertake the required investments.
It will also boost planning and provision systems and the national organizations serving them, and enable financing systems to respond efficiently to the needs of the urban poor.
More than 100 poor communities in at least 30 local government areas will be targeted. Physical improvements will include street lighting, storm drainage, public toilets and communal sanitation facilities, water mains, and solid waste management programs. The project will also fund investments to provide links to citywide networks of urban services such as feeder roads.
A portion of the ADB loan proceeds will be re-lent to central financial institutions to establish a housing financing system accessible to low-income households.
Through this, around 30,000 loans, based on market rates, will be made available to fund home improvements such as house extensions and roof and floor repairs, or even to buy plots of land to improve land tenure security.
"Besides physically improving slums and developing new sites for the poor, the project provides affordable financing terms for the poor through the formal financial system, thus bridging the gap between these institutions and the poor," says Michael Lindfield, an ADB Senior Housing Finance Specialist.
"It offers the prospect of improved living conditions and housing for low-income groups and provides mechanisms for better security of tenure."
Indonesia's urban infrastructure and services are under increasing pressure from a growing population that in 2003 reached 212 million, of whom 40% live in cities.
Despite heavy investments in infrastructure, conditions in urban areas continue to deteriorate, aggravated by the impact of the 1997 economic crisis. For example, only one third of the urban population has access to piped water.
As well as lacking services, the poor are virtually excluded from access to credit, which usually requires a land title, down payment and verifiable income.
The resolution of land ownership issues and distribution of individual or other forms of secure tenure are expected to directly benefit 180,000 poor urban households in the 30 local government areas. Nearby communities will indirectly benefit from the improved infrastructure, including flood protection facilities, main roads, and drainage.
To support project implementation and sector strengthening, the project will undertake a range of capacity-building activities to strengthen local communities, local governments, the national Land Agency, financing institutions, and the Directorate Generate of Human Settlements (DGHS).
The project will also contribute to establishing a policy, institutional, and regulatory environment that meets the housing needs of the urban poor.
ADB will fund 70% of the project, which costs a total of $126.5 million, through two loans. One loan of $68.6 million comes from its ordinary capital resources, with a 25-year term, including a grace period of six years. Interest is determined in accordance with ADB's LIBOR-based lending facility.
The second loan - for US$20 million - comes from ADB's concessional Asian Development Fund, with a 32-year term, including a grace period of eight years. Interest is 1% per year during the grace period and 1.5% per year afterwards.
The balance will be provided by central and city governments, beneficiaries, and participating financial institutions.
Directorate General of Housing and Settlements is the executing agency for the project, which will be conducted over about six years to 2010.
More at adb.org/media