Bridging the Affordability Gap : Towards a Financing Mechanism for Slum Upgrading at Scale in Nairobi – Analysing NGO Experiences with Local-Level Finance

The purpose of this paper is to contribute to an understanding of more inclusive financing options for decent low-income housing with a specific focus on experiences of housing improvements in Kenya's low-income urban neighbourhoods. The paper summarises the findings of a study of three community led housing developments in Nairobi and Nakuru (Kenya). It has a specific focus on the affordability of loans given to residents and on the speed of consolidation within these neighbourhoods. The developments are all supported by the Muungano Alliance with the residents being members of Muungano wa Wanavijiji (a Kenyan federation of women-led savings schemes) and the monies being advanced by their loan fund, the Akiba Mashinani Trust (AMT). The study uses data on affordability assessments and loan repayments collected by AMT staff, and additional information that was collected to understand the scale and speed of future housing investment. Our findings show that repayments are lower than anticipated and that both affordability and weak loan management may be responsible. Based on what households have been able to repay, inclusive housing finance is likely to require both capital and interest rate subsidies, and must recognise the range of income levels and other heterogeneity within low-income urban communities. For example, considerable housing investment has been made in the form of additional rooms in the incremental development process; this shows that at least some households find the development affordable. A key motivation for additional investments is commercial opportunities including rental income