MATERIAS PRIMAS, AGUA Y MATERIAL DE ACONDICIONAMIENTO

As practitioners creating solutions at the BoP, we are faced with many challenges.

The traditional business models we all grew up with, which have worked well for decades in middle- and upper-level income levels, do not work at the BoP, at least not for long or at scale. It is clear that new frameworks are needed for BoP success.

Is the BoP one very large uniform market, albeit different from its more affluent cousins? We soon learned that in a country as large, varied and filled with poverty as India, BoP populations varied tremendously.

Solutions aimed at them without

understanding exactly the level of their assets, needs, preferences and abilities were doomed to fail.

A new arrival to a slum and a rickshaw driver living in a slum both are defined as BoP. But the differences between them are as vast as night and day. How can they all be treated the same when it comes to delivering products and services?

Mapping the landscape of India’s

Affordable Housing Sector. When Ashoka launched Housing for All in India in

2008, the need was clear: The 2001 India Government Census confirmed the lack of housing at 24.7 million, with 99 percent of gap at the BoP. Many past attempts to close

the gap between need and supply had failed miserably. The gap remained, and it was growing larger each year (by 2010, it had reached 26 million).

We investigated, first, our potential partners and clients:

ƒ Who were the major players in the Indian housing market?

ƒ What was not working properly in the housing sector value chain (otherwise we would already have seen many more affordable housing projects under way)?

ƒ Could we innovate solutions to fix the value chain where broken?

ƒ Could we apply different frameworks to overcome the barriers clients faced as they wished to improve their housing conditions?

ƒ Who, precisely, needed housing?

ƒ How much did they actually earn, even if that income went unreported?

ƒ Did they have assets?

ƒ Did they have jobs or small businesses, even if in the informal sector?

ƒ What were they already spending on housing?

ƒ Could they be assisted to qualify for mortgage or housing loan?

ƒ Could we help develop loans at rates and with terms they could afford to repay?

ƒ What did they need to learn or to access to accomplish this?

Hybrid Value Chain: A new framework for market forces to develop and sustain solutions. We used Ashoka’s Hybrid Value Chain (HVC) framework to address where the traditional housing value chain was broken. HVC involves building strong alliances with all the stakeholders in a sector, to co-create solutions that are good for business (increased revenues and market share) and good for citizens (improved, affordable products and services, increased income, and movement from informal to formal market participation).

Whatever strategy we arrived at, ultimately

it had to rely on market forces to keep it going so that the solutions we developed could be scaled up and sustained over time without our continued intervention.

We came to a few initial conclusions:

One: There were several large, private home building and real estate development companies interested in BoP housing, but had not yet found the right way to succeed in it.

Two: There were several microfinance institutions that wanted to branch out beyond their loans for micro-enterprises.

They expressed interest in affordable housing as an added product and service for their BoP clients and to help them attract new ones.

Figure 1: HFA India targets the Top of the BoP for market-based affordable housing solutions

Three: Two large, experienced and

respected citizen organizations — SAATH and SEWA — worked with over 150,000 BoP citizens and had deep, trusted relationships and knowledge of their communities. Both agreed that the lack of affordable housing was critical and wanted to be part of an HVC alliance. The three sturdy legs of an HVC affordable housing stool were now in place.

We also explored government’s role in provide affordable housing. We visited several subsidized government housing developments and saw that, in addition to being too few to solve the problem (the government’s ambitious plan to construct 12 million houses by 2014 would address less than 50 percent of the gap), the conditions in them were truly miserable.

Photos courtesy of Ashoka HFA India.

There were other government policies – such as subsidies for new apartments or small homes for sale. But real estate agents or the middle class often purchased these properties and either flip them for profit or rent them to the poor at inflated prices.

The Pyramid within the BoP: segment the market and match the right solutions to each client segment.

After working closely with our partners in BoP communities, we identified three types of solutions for three groups, based upon their income level, employment and capacity to establish themselves in new, urban environments.

We developed a model based largely on household income (see figure 1 at head of this post), and adding indicators such as whether income was occasional and insecure, or steady but informal and undocumented; whether there were savings; family size and health; etc.

Then, we developed categories to help us match products to segments of the BoP.

This confirmed our strong conviction: each of these groups needs different types of housing solutions:

1. Transitional or Rental Housing for the BBoP: We call the first segment “Bottom of the Base of the Pyramid,” or “BBoP,”

and it includes migrants newly arrived to urban slums with no savings or tangible assets, no jobs, few skills suitable for

urban employment options. It also includes widows, single parents with several small children, the handicapped, squatters, beggars and occasional day laborers who cannot earn enough to afford to pay for even minimal housing. People in this segment earn less than Rs. 5000 (US$100) a month, and are in “Extreme Poverty.” 2010 estimates show the BBoP has approximately 44.5 million households needing affordable housing, or 22 percent of the BoP population in India.

As we look at housing provision, it is evident that market-based solutions are not

appropriate. A subsidy-supported model, either from the government or a charity, is the most plausible solution for those at the BBoP. Specifically needed are subsidized transitional housing or rental models of Housing, as long-term ownership for this segment is not possible at present market rates in cities.

2. Progressive Housing or Home

Improvements for the MBoP: We call this segment the Middle of the Base of the Pyramid (MBoP), and it is step up from the BBoP. Here, slum dwellers live in houses ranging from Kutcha (raw) to Pucca (fully finished). They often lack clear title or tenure rights to the land on which their homes are built, resulting from squatting

practices, where houses are built illegally. In such cases, it is impossible to use the home as collateral to qualify for a loan to finance a new home. These households earn between Rs. 5000 to Rs. 12000 (US$ 100 to US$ 250) a month. 2010 estimates show the MBoP has 11.7 million households, or 49 percent of India’s BoP population.

For these families, the most appropriate strategy is to help them get land tenure, so they can use their home as collateral for small loans to improve them. Another is to work with organizations like SEWA and SAATH to help them document their income, and vouch for them as responsible and able to get small home improvement loans, while at the same time helping microfinance institutions develop new loan products for home improvements (a strategy that Ashoka Housing for All is advancing in Brazil and Colombia, for example). Many slums across India have what is called a “No-Eviction Guarantee”- these are prime venues for fostering home improvement.

This process involves providing financial planning, starting microsavings accounts, and helping households obtain microloans to improve their dwellings – what is

called “Progressive” Housing or “Home Improvements.”

3. New Homes for the TBoP: Those at the Top of the Base of the Pyramid, or TBoP

— still within the BoP — are households earning between Rs 12000 and Rs 25000 (US$250 to US$500) a month, who may have several wage-earners, steady jobs (e.g. rickshaw owners) or stable small businesses (neighborhood grocers). They can save and pay a mortgage for a home.

According to 2010 estimates, there were 60.5 million households in the TBoP, or 29 percent of India’s BoP population.

So why are they still in the slums? Because although they financially could qualify by income, they live and work in the informal economy, with no pay stubs, tax returns, receipts or other formal ways of proving income and credit-worthiness.

If a family cannot prove their income sources they are essentially locked out of the formal banking economy. They rely on local moneylenders, whose high interest rates make it impossible to finance a home over many years.

These families live in slums but have improved their housing to a full fledged one or two-floor concrete house, have a television, own a vehicle (typically a two-wheeler) and can afford to send their children to private schools. If new homes were available for less than Rs 10,000,000 (US$20,000), these families could afford a monthly mortgage payment (40 percent of

their incomes), which would allow them to own their home outright in 15 years.

A fully market-based model can essentially serve TBoP families. In developing the HVC alliance, we have focused on demonstrating that for the TBoP in India, affordable

housing can be delivered with quality, matched to customers’ needs, and give developers decades of work and profits.

Our thinking was that if we proved our model worked, the market itself would adapt and grow to meet these needs.

From One City in 2009 to Fifteen by 2015:

Once we decided to focus on providing new home solutions for the TBoP segment, we began to unleash the power of the HVC and leverage the expertise of each of our stakeholders.

We developed new assessment tools, and employed slum dwellers to use them to collect and analyze more accurate information about TBoP housing needs where we worked so builders and innovators could assess their potential profits and design the most appropriate products. (See post by Kirthee Kiran in this ebook for more details.)

Our market data model has proven very useful to private developers, many of whom relied on inaccurate government data in the past. Now they know in relevant detail the demand, size, design, structure and costs they need to meet to be successful. Their caution has turned into momentum to get shovels in the ground and buildings built.

From our start in Ahmedabad, we are now in 4 more cities, and growing to 15 more, which we estimate will enable companies A rickshaw driver and his family before HFA India

assisted him to get better housing for his family.

to build and sell 18,000 homes by 2015 (and financial institutions to gain 18,000 new clients and earn interest from their loans).

Three lessons are clear from our work thus far:

First, identifying and segmenting the BoP when designing appropriate housing solutions is critical to sustainable success;

Second, good financing models are

essential for the those in the MBoP and the TBoP (together accounting for 78 percent of the total BoP population); and

Third, new frameworks such as HVC, which include the citizen sector in collaboration with for-profit corporations, are the best economic engines to close the affordable housing deficit in India.

A house is more than a roof overhead: it gives a sense of security, empowerment and hope. This is one of the core beliefs that drives Ashoka’s Housing for All (HFA), along with the principle that the affordable housing market is ripe for market-based solutions.

I learned this message at the start of my summer 2011 internship with HFA’s India team. Yet the meaning of it didn’t really sink in until my visit to a potential housing site in an impoverished area of Patna, Bihar. The time I spent there deepened my understanding of the tremendous importance decent, affordable housing has in the lives and possible futures for those I met, who in turn stand for many millions more throughout India.

Finding potential clients ready for a decent new home. Market-based affordable

housing targets the “top” segments of the bottom of the pyramid in India, where there is still no common definition of poverty. Nor is there reliable government data to help citizen organizations or private real estate developers target where to build or what kinds of housing would fit families’ needs.

Without such planning tools, HFA developed its own surveys of BoP consumers to more clearly understand affordable housing demand. As I accompanied the HFA

survey takers trained to do interviews with

slum dwellers, I saw a striking common thread among diverse families: Their total financial exclusion from the formal market opportunities in housing. Lack of income statements means no access to banking services, let alone credit. Without credit, there was little chance they could ever improve their living conditions.

It was of great importance to work with a trusted, grassroots community sector organization to reach these potential

housing clients, and getting honest answers to our survey questions, such as: Where do they currently live? Why do they want to move? How many are in their family? How many could earn an income? What is the ability of the household to pay for a home?