INNOVATIVE FINANCING INSTRUMENTS : SHELTER and URBANIZATION
Private sector can provide :
- Affordable Housing Structures
- Mortgage Finance Facilities
FMO invests $ 29.9 MLN in local currency in Indian Slum Rehabilitation
FMO & Ackruti City Limited (ACL) recently signed a USD 29.9 mln fully convertible debenture facility denominated in Indian Rupees to promote slum rehabilitation in India. ACL is a long standing and reputable real estate developer active mainly in Mumbai and surrounding region, and has developed more than 7 mln square feet. Financing will enable the construction of free housing and services for 30,000 slum dweller households, implying improvement in the lives of approximately 135,000 slum dwellers.
In 1992, the Government of Maharashtra, the jurisdiction in which Mumbai falls, introduced the Slum Rehabilitation Scheme (SRS) in return for constructing new residential buildings for slum dwellers, the developer is granted the right to develop a portion of former slum land for their own purposes or transferable development rights, thereby greatly improving the lives of slum dwellers in a commercially viable manner. Mumbai alone has 2805 mln square feet of slum areas where over half of Mumbai’s population of 17 mln inhabitants lives. Under the SRS, slum dwellers receive free, good quality housing with basic amenities such as running water, sewage and sanitation. They also receive legal title to the home which represents a valuable asset and provides security of tenure. Since its start-up, ACL has delivered 12,000 free houses under SRS with another 10,000 under construction.
Deutsche Bank was lead arranger of the USD 64.9 mln transaction, investing USD 5 mln; remaining funding was provided by FMO (USD 29.9 mln) and FMO’s partners Guarantco (USD 19.8 mln) and Cordiant (USD 10 m).
International Housing Solutions (IHS)
An example is the International Housing Solutions (IHS) is a private equity firm focused on the development of residential housing. IHS partners with financial institutions, real estate developers, private capital groups and local government authorities to provide equity finance for residential projects, primarily in the affordable housing market. Currently focused on South Africa, IHS is set to expand its presence to other African countries and globally in future.
IHS brings not only capital resources, but also research experience and risk assessment to local partners providing affordable housing to low-to-middle income families.
Urbanization is a cause for concern. A report by the U.N. Population Division of the Department of Economic and Social Affairs reveals that urban population in Africa will increase to more than 1.2 billion by 2050; in the same year, Asia’s urban population will soar to 3.3 billion. India, China, Nigeria and Indonesia will account for the largest increases. And the projected increases in India and Nigeria are reportedly higher than in the past four decades.