Tag Archives: MEEs

Promoting a Rare Breed: Private Nonprofit Housing Developers in the GCC

This piece was originally published by Jadaliyya, an ezine produced by the Arab Studies Institute. Jadaliyya combines local knowledge, scholarship, and advocacy to better understand the Arab World and to fulfill its dedication to discussing the Arab world on its own terms. The original article can be found here.

By Maysa Sabah Shocair, AHI’s Managing Director of the GCC Region

While working as a Project Manager at the Fenway Community Development Corporation (CDC) in Boston and as a Consultant to Phipps Houses in New York City, I experienced firsthand how nonprofit developers can contribute to preserving housing affordability in central locations. Fenway CDC builds and preserves housing and champions local projects that engage the entire Fenway community in protecting the neighborhood’s economic and racial diversity. It has operated since 1973 and has developed nearly six hundred homes, housing approximately 1,500 low and moderate-income [1] residents, including those with special needs. In addition, Fenway CDC has supported residents through offering job placement and career advancement services, building playgrounds, running after-school programs for teens and operating a center for seniors. Similarly, Phipps Houses develops, owns and manages housing in New York City. Since its founding in 1905, it has developed more than six thousand apartments for low- and moderate-income families, valued at over one billion US dollars. Phipps Houses manages a housing portfolio of nearly ten thousand apartments throughout New York City. In addition, it serves over eleven thousand children, teens, and adults annually through educational, work readiness, and family support programs.

Now that I am working in the Gulf Cooperation Council (GCC) as an affordable housing consultant for several public and private entities, I often wonder: Could private nonprofit housing developers, like the Fenway CDC and Phipps Houses, make an impactful contribution to bridging the supply and demand gap in affordable housing in the GCC for both citizens and non-citizens? Could the experience of other countries with nonprofit housing developers be distilled and adapted to the GCC states?

To answer these questions, I will first discuss the main attributes of nonprofit housing developers, followed by a discussion on the shortage of affordable housing for citizens and non-citizens in the GCC and the resulting need for nonprofit housing developers. I will then recommend strategies to enable the growth of nonprofit housing developers and end with a few concluding remarks.

Domed roofs in Haram City

Nonprofits Housing Developers as Mission Entrepreneurial Entities

In its 2010 landmark study Mission Entrepreneurial Entities: Essential Actors in Affordable Housing Delivery, the Affordable Housing Institute (AHI) defined Mission Entrepreneurial Entities (MEEs) as “private nongovernment entities that are in the business of making housing ecosystemic change by doing actual transactions valuable in themselves that also serve as pilots and proof of concept.” MEEs could be Non-Governmental Organizations, Community Development Corporations, or Housing Associations, labels that have sometimes been used interchangeably. The study profiles twenty-three MEEs in the United Kingdom and the United States, where, in both countries, there has been a steady migration from entirely publicly managed and operated systems to hybrid public-private models, with MEEs as key delivery mechanisms.

According to the study, the three main attributes of MEEs are: (i) being mission oriented, since their goal is impact, not just profits; (ii) entrepreneurship, taking risks and persuading established institutions, including governments, to approve proposals, provide capital, etc.; and (iii) self-containment, because sustainable MEEs must make profits and maintain a positive cash flow. However, generated profits are used to further the purposes of the organizations instead of being distributed to managers and shareholders.

MEEs also share the following strengths:

· Willingness to serve populations that the private for-profit sector cannot or will not serve, including the hardest-to-house residents;

· Commitment to providing affordable housing to lower income people for the long term;

· Building strong connections with residents and the communities they serve;

· Commitment to providing various social services that lower income or special needs residents may require;

· Potential for accessing affordable land, buildings and funding through governments and philanthropic entities or individuals;

· Commitment to seeing projects through both during their early and post-delivery phases.

Given the potential of MEEs to serve populations that are not served by private or public housing provision, this essay discusses the potential relevance of this model to the GCC countries. This interrogation is critical at a time during when many GCC countries are facing a shortage of housing for low and moderate income households. It is also a time in which we are witnessing the emergence of institutionalized charitable giving that could be in part harnessed to help with housing provision. These conditions are creating a ripe environment for the growth of nonprofit housing developers, with the much needed support of the public and private sectors.

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Mortgage emulators: pro-poor housing finance innovations (Part 2)

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by Matt Nohn, AHI Senior Advisor

[Continued from last week’s Part 1.]

To answer these questions—and to solve the 5-dimensional puzzle—MHT has put in place the following mechanisms:

1. To screen the loanee’s probability of repayment

As this has been done innumerous times I will not describe it here in detail. Notably, MHT also requires two approved guarantors/co-signers.

Loan application form listing identification details, income, wealth status, etc

2. To screen the security of the collateral (part 1),
proofing tenure of the land (and home), as in case of a mortgage.

MHT basically checks the history of land, comparing official record in the land registry with informal papers documenting the (never officially recorded) transfer of land. In the best case, the informal transfer document is acknowledged through a lawyer (even if not recorded in the land registry) while the land registry shows the name of the informal seller. In that case, it is proven that the land was not invaded and it will be virtually impossible for the formal owner (who’s name is registered in the land cadaster) to repossess the property.

The sales contract (Kabja Rasid) proofing the informal transaction

7-12-Form documenting the formal possession of land (by the formal owner, not the loanee!)

Sometimes MHT needs to go back in time to check if the ancestors of the present formal owner have sold the land to an ancestor of today’s informal owner. If the informal owner is paying property tax (another important indicator for who is responsible for the land) and if landownership is not disputed, MHT considers the land to be at least in adverse possession of the informal owner. In that case, MHT and the credit cooperatives would give green light, as it is virtually impossible that the informal owner would get evicted from the land. (Adverse possession is recognized by India’s civil code.)

Property tax bill

On the other hand, if the land were under dispute MHT and the cooperatives would not permit the loan. The decision is marginal if the land was not disputed but formal landownership had changed through multiple channels over time or the informal owner could provide little evidence for peacefully obtaining the land.

3. To screen the security of the collateral (part 2),
eliminating potential conflict with the urban planning regime

In order to check whether or not the collateral is potentially in conflict with future development, MHT checks the provisions of urban development plans and town planning schemes. Key information obtained is whether the collateral is affected by future infrastructure development (particularly roads and road widening) and which land use is established. Especially if the determined use is “residential” or “residential with a social purpose” it is virtually impossible that the collateral is negatively affected.

Provisions of the Town Planning Scheme

However, the fact that many town planning schemes are not yet finally sanctioned is complicating the approach because their content could still change. MHT considers the likelihood of such an event by checking how far the town planning scheme process has advanced. As soon as the scheme has a final draft status, it is considered very safe. Changes negatively affecting people living in the area are hardly possible.

Status of the Town Planning Scheme (TPS): the more the process has progressed, the higher the

security of provided information

4. To establish contractual proceedings that, in case of default, allow the lender to take possession of the collateral—even without mortgage.

Finally, this is the crucial part in order to “emulate” the mortgage. MHT and the credit cooperatives let the loanee sign an advanced power of possession. The document is signed with presence of and certified by a notary. The effect of the advanced power of attorney is simple: basically it states that the lender is allowed to sign any transfer on behalf of the loanee. Thus, in case of default, the lender is able to transfer the property to herself. (Of course, this document is signed before loan closure and before construction starts.)

Advanced Power of Attorney

5. To screen the security of the collateral (part 3),
proofing the physical qualities of the collateral

To check the structural safety of the house (and to also proof that the money is invested into the collateral) MHT sends an engineer on site to document the construction progress in at least 4 steps. Each step is documented and only after successful completion the respective installment of the loan is disbursed.

Technical checks are documented with photos and brief reports by the responsible engineer. Here the report at the plinth level and photos at the slab level

Finally, after all checks have been passed successfully MHT and the credit cooperatives place a hypothecation board at the new home.

Just as lenders in the formal market do, MHT and the credit cooperatives use a hypothecation tablet in order to demonstrate their achievements and to advertise their product.

Then the loanee and her family can move into their new home.

Shakuntalaben and her family in front of their new home financed by Surat Mahila Cooperative Mandali’s innovative loan

MHT’s achievements are significant. We estimate that the market niche (if “niche” is still appropriate) that could be served with such mortgage emulators may be of over 1 trillion Indian rupees (or approximately USD 200 billion). However, to serve that market lenders need to understand the intricacies of the land management and urban planning regimes. MHT originated as a technical, rather than a financial organization and, therefore, displays of this knowledge.

The intent of our study is to share this knowledge and enable others to copy MHT’s approach. You can read the full story here. If you need anything else please do not hesitate to contact us at AHI and/or MHT.

Matt Nohn, AHI Senior Advisor

February 11, 2013

Mortgage emulators: pro-poor housing finance innovations (Part 1)

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by Matt Nohn, AHI Senior Advisor

Last summer I came back to India to revisit the Mahila SEWA Housing Trust (MHT; see www.sewahousing.org). I know MHT well, as I worked with them in Ahmedabad, one of India’s fastest growing cities, for three years. Still today I serve as an advisor to MHT, too. AHI and MHT are closely collaborating since around 2007, as AHI supports the larger SEWA network, to which MHT belongs, in launching a market-driven housing microfinance company that is co-governed by the urban poor.

MHT is a Mission-Entrepreneurial Entity (MEEs) founded by the Self-Employed Women Association (SEWA; see www.sewa.org). The support of poor, informally and self-employed women (and their families) to access improved housing and neighborhoods is its mission. MHT’s poor members are usually self- or informally employed—such as street vending day laborers and home-based piece-rate artisans and industrial outworkers. Particularly for the later group, rarely leaving their settlements and producing at home, housing improvements are of the highest relevance and closely related to income improvements (e.g. through access to electricity, subsequent use of more productive machines) and expenditure reductions (e.g. through better health but also reduced fees for access to subsidized or fairly priced public services).

In this regard, through slum upgrading in the scope of Ahmedabad’s Parivartan Slum Networking Program, MHT became a big player in low-income housing in India MHT implements various schemes for improving service delivery and basic infrastructure in low-income areas, especially informal ones; see e.g. https://www.box.com/s/6ui7j8zvfr8lc4lp5co8. Since inception in Ahmedabad, these poverty reduction programs have been replicated across multiple Indian states, often with the participation of MHT. For example, at present MHT works with DFID in order to replicate sanitation and solid waste service projects in Bihar, one of India’s poorest states. Since 2007 MHT, SEWA Bank and AHI collaborate in launching SEWA Grih Rin, an emerging housing finance company. To bridge the time until Grih Rin’s launch MHT works with two credit and savings cooperatives that also deliver housing finance. This work allows MHT to test new products and to innovate the housing finance space. One of these innovative products is what we call Home Asset Loan Finance at AHI: or, simply, HALF as it squares half way in-between typical microcredit and traditional mortgage finance.

No margin, no mission

Launching HALF for semi-formal properties is challenging because it requires to do all of multiple things right: failure to do so may even lead to extermination of the lender—as housing is a capital intensive product, and the lender is “nothing but” a group of poor women:

1. To screen the loanee’s probability of repayment,
as in case of any typical microfinance product

These proceedings are basically identical to any microenterprise or consumer loan.

2. To screen the security of the collateral (part 1),
proofing tenure of the land (and home), as in case of a mortgage.

However, unlike in case of a mortgage this can be hard in case of HALF, as the underlying asset’s title is neither illegal/informal nor fully legal/formal but is placed somewhere in-between. On this regard, UN-Habitat speaks of the continuum of land rights, which also reflects in the latest Report of the Special Rapporteur on adequate housing Raquel Rolnik to the UN Human Rights Council. Thus, how to establish the likelihood of eviction and loss of collateral?

The continuum of land rights (Source: UN-Habitat (2012). Handling Land, Innovative Tools for Land Governance and Secure Tenure. Accessible online at: http://www.unhabitat.org/pmss/getElectronicVersion.aspx?nr=3318&alt=1)

3. To screen the security of the collateral (part 2),
eliminating potential conflict with the urban planning regime

Even if land tenure is safe, the house may still be destroyed if it was in conflict with future development—such as this road in Wenling, Zhejiang province, China.

Would you give them a loan? Will they hold out? (Source: Reuters)

Well, they did not—even though they thought the compensation wasn’t worth it. (Source: Reuters)

4. To establish contractual proceedings that, in case of default, allow the lender to take possession of the collateral—even without mortgage.

Thus, how do you make sure you get the house in case you need to take the defaulting borrower to court (in absence of mortgage foreclosure, which would allow you to just take the house even without the court.)

5. To screen the security of the collateral (part 3),
proofing the physical qualities of the collateral

Even if land tenure and construction site are safe, the lender still needs to ensure that the structural quality of the house is safe enough to e.g. withstand a disaster. Also the lender needs to ensure that the money is really invested in the construction of the tangible collateral.