Slum Upgrading Facility

SLUM UPGRADING FACILITY Slum Upgrading Facility Working Paper Domestic Financial Sector Analysis for Housing 1 and Related Infrastructure in Ten Selected Developing Countries Improving access to domestic capital for slum upgrading and low income housing UN-HABITAT projects Slum Upgrading Facility Slum Upgrading Facility Working Paper Domestic Financial Sector Analysis for Housing and Related Infrastructure in Selected Developing Countries UN-HABITAT Human Settlements Financing Division Slum Upgrading Facility (SUF) – Pilot Projects Implementation Phase December 2005 SUF Design Team, Slum Upgrading Facility Programme Management Unit UN-HABITAT, P O Box 30030, Nairobi 00100, Kenya Telephone: +254-20-623131 E-mail: [email protected] 1 CONTENTS 1.0 Context 2.0 Summary of Economy, Financial Sector and Finance for Housing and Related Infrastructure in SUF Countries 3.0 Lessons Learned 4.0 Emerging Financial Products in SUF Pilot Countries Annex 1: Country Status Reports on Financial Sector A. Bangladesh B. Cambodia C. Ghana D. Indonesia E. Kenya F. Senegal G. Sri Lanka H. Tanzania I. Uganda J. Zambia References This report was prepared by the Sub-programme 4 SUF Design Team of UN-HABITAT consisting of Bruce Bouchard, Koki Kyalo, Michael Mutter, Valerie Patrick, V. Satyanarayana and Chris Williams based on SUF Design Phase findings and the desk research. 2 ABBREVIATIONS ADB Asian Development Bank AfDB African Development Bank BI Bank of Indonesia BHS Banque de l’Habitat du Senegal CBK Central Bank of Kenya CHF Cooperative Housing Federation of US C3 City-Community Challenge Fund DFCU Development Finance Corporation of Uganda DFID Department for International Development, UK EIU Economist Intelligence Unit FDI Foreign Direct Investment FDV Foundation Droit á la Ville, Senegal GDP Gross Domestic Product GSE Ghana Stock Exchange GuarntCo Guarantee Company HDR Human Development Report of UNDP HDI Human Development Index HFC Home Finance Company, Ghana HFCU Housing Finance Corporation of Uganda IFC International Finance Corporation IMF International Monetary Fund LuSE Lusaka Stock Exchange MFI Micro-Finance Institution NAV Net Asset Value NPL Non-Performing Loans NSE Nairobi Stock Exchange ODA Official Development Assistance PIDG Private Infrastructure Development Group PRSP Poverty Reduction Strategy Paper SCB Standard Chartered Bank SDI Slum/Shack Dwellers International SIDA Swedish International Development Agency S&P Standard and Poor SUF Slum Upgrading Facility of UN-HABITAT SUF PMU SUF Programme Management Unit SUF PT SUF Pilot Team – International Service Contractor TAWLAT Tanzania Women’s Land Advancement Trust UNDP United Nations Development Programme UN-HABITAT United Nations Human Settlements Programme USAID United States Agency for International Development UPDF Urban Poverty Development Fund WDI World Development Indicators of World Bank 3 CURRENCIES Bn or bn Billion Cedi Ghana Currency CFA Senegal Franc CR Cambodia Riel Kw Zambia Kwacha Kshs Kenya Shillings Rs Sri Lanka Rupee Rp Indonesia Rupiah Tk Bangladesh Taka Tshs Tanzania Shillings USX or Ushs Uganda Shillings USD US Dollar US$ US Dollar 4 1.0 Context The Slum Upgrading Facility (SUF) is a new global facility located within UN- HABITAT, Sub-programme 4, Human Settlements Financing Division, based in Nairobi, Kenya. The central objective of SUF is to assist developing countries to mobilize domestic capital for their own slum and urban upgrading activities. With support from DFID and Sida, UN-HABITAT established a SUF Design Team in September 2004, to identify projects that could be supported by a subsequent SUF 3-Year Pilot. In order to assess the potential for developing slum upgrading projects with domestic, the SUF Design Team has undertaken scoping missions to 10 countries, namely, Bangladesh, Cambodia, Ghana, Indonesia, Kenya, Senegal, Sri Lanka, Tanzania, Uganda and Zambia during October 2004 and August 2005. This report presents findings of status of domestic financial sector for housing and related infrastructure in these countries. This paper substantially benefited from the discussions with several partners during the scoping missions to these countries and analytical and sector documents prepared by several agencies such as the Governments, Local Governments, Community Associations, Banks, Stock Exchanges, Economist, UN-HABITAT, World Bank, ADB and the IMF. The UN- HABITAT SUF Design Team gratefully acknowledges the wealth of information from these sources. The second section presents summary of the status of the domestic financial sector in these countries and third section presents lessons from missions. The fourth section provides emerging financial products that are likely to be supported by the SUF in pilot countries during SUF 3-Year Pilot Phase. The annexes present brief description of domestic financial sectors in each of the countries. 2.0 Status of Domestic Financial Sector This section presents the macro-economic performance as well as the status of domestic financial sector especially for housing and related infrastructure. 2.1 Macro Economic Performance Table 1 and Table 2 summarise the key indicators of economic performance of all countries. Some of the indicators are available only for the year 2003. The size of economy of SUF mission countries varied from US $ 4.7 billion in Zambia to US$ 243.3 billion in Indonesia in 2003. The per capita Gross Domestic Product (GDP) was in the range of $252 (in Uganda) to $1103 (in Indonesia). With the exception of Kenya, the economic growth for 2003 was above 4.5%. Kenya’s economy has improved in 2004 and 2005. Keeping with the global trends, economic growth was well over 5% per annum in all countries during 2004. The economic upturn is expected to continue in 2005. The fiscal deficit as a percent of GDP hovered around 0.4 (in Kenya) to 11.3 in Uganda during 2003. Senegal experienced zero inflation in 2003. In Zambia and Ghana, the inflation was well over 20% in 2003. Ghana reduced the inflation rate considerably during 2004. With the exception of Ghana, Kenya, Zambia, the inflation in other countries is within 10% during 2004. With the exception of Indonesia, all the countries have poverty levels well above 30%. Zambia, Senegal and Kenya have poverty levels well over 50%. Five countries in the list receive donor support higher than 10 percent of GDP. Majority of the development assistance for African countries is in the form of grants as a result of Debt Relief. Majority of the development assistance for Asian SUF countries is in the form of loans. Indonesia received lowest net official development assistance in relation to its GDP compared to other nations. 5 Table 1: Key Macro-Economic Indicators, 2003 Country Population in % of GDP in US GDP per Fiscal Economic Growth in % Inflation in % million popula- $ Bn capita in $ deficit as 2003 2004 2005 (EIU 2003 2004 2005 (EIU tion below % of GDP estimate) estimate) poverty (including line grants) 1. Bangladesh 146.7 44.3 51.9 354 4.3 5.5 6.3 5.4 4.5 3.2 6.7 (2000) 2. Cambodia 14.1 40 4.2 298 6.0 5.1 4.9 5.2 1.2 3.8 6.1 3. Ghana 20.9 40 (1999) 7.5 359 3.4 5.2 5.8a 4.3 26.7 11.8 15.8 4. Indonesia 220.6 15 243.3 1103 1.3 4.5 5.1 5.0 6.8 6.1 10.6 5. Kenya 32.7 56 15 458 0.4 2.8 4.3 5.2 9.8 11.7 10.5 6. Senegal 11.1 53.9 6.5 586 1.4 6.5 6.2 5.8 0.0 0.5 1.6 (2001) 7. Sri Lanka 19.3 33 (2000) 18.0 956 5.1 5.9 5.4 5.3 6.3 7.6 11.2 8. Tanzania 36.2 36 9.6 265 5.1 5.2 6.7b 6.8 4.4 4.1 4.2 9. Uganda 25.8 38 6.5 252 11.3 4.7 5.9 5.5 7.8 3.3 9.7 10 Zambia 10.8 58 4.7 438 5.1 5.1 5.3a 6.8 21.4 18.0 18.5 Note: a. EIU Estimate, b. Official Estimate. Fiscal deficit for Kenya corresponds to 2004. Sources: Economic Intelligence Unit Reports for Individual Countries for the years 2004 and 2005. Poverty Level in Cambodia is from World Bank Report for Consultative Group (Dec, 2004). Poverty level for Kenya is from World Bank, ‘Country Brief’, presented on www.worldbank.org, September 2005. For Tanzania, poverty estimates are from PRSP, 2004. Fiscal deficit for Tanzania is from Bank of Tanzania website. Table 2: Key Economic Indicators and Country Rankings by International Agencies (Indicators correspond to 2003 unless other stated) 6 Country Net official Net official Central Currency UNDP World Transparency FDI in $ Total FDI Latest Credit Rating for developm developm governme exchange HDR 2005 Bank Ease International Corruption Million Stock as sovereign long-term ent assist- ent nt revenue rate to US for 2003 of Doing Index (2005) (2004) of 2004 in foreign currency rating ance in $ assistance (excluding $ at the (out of 177 Business Score (0 - Rank (out US million (on scale A to D) million in % of grants) as year end nations) (2006) (out totally of 159 GDP a % of of 155 corrupt countries GDP nations) and 10- totally clean) 1. Bangladesh 1396 2.67 10.1 58.42 139 65 1.7 158 460 3433 No rating 2. Cambodia 545 12.97 8.31 3984 130 133 2.3 130 131 2090 No rating 3. Ghana 907 12.1 16.1 8852 138 82 3.5 65 139 1917 B+ (Fitch) 4. Indonesia 1741 0.71 21.0 8465 110 115 2.2 137 1023 11352 B+ (S&P) BB- (Fitch) B2 (Moodys) 5. Kenya 485 3.23 24.4 75.95 154 68 2.1 144 46 1223 No rating 6.

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