Housing is generally considered the most important family asset, and low-income housing (LIH) solutions are deemed decisive in reducing poverty and vulnerability of the poor. The Asian Development Bank (ADB) started providing low-income housing (LIH) finance in 1977. Since then, 40 loans and grants with LIH components were provided, accounting for 1.07% of the total value of ADB’s loans and grants. Through the 1980s and 1990s, the ADB’s approach to LIH operations evolved from traditional forms of slum upgrading to integrated urban development projects that included housing finance components.  This report presents an impact evaluation study (IES) of the housing finance component of the Urban Development and Low-Income Housing Project in Sri Lanka (Loan 1632). The IES empirically assessed the socioeconomic impacts of the project’s housing loans and, on that basis, provides lessons and recommendations to help enhance the development effectiveness of ADB’s future LIH finance projects.

Housing problems are among the most visible indicators of poverty. Estimates for 2010 show that there are 505 million slum dwellers in Asia and 827 million worldwide. 2According to the United Nations Human Settlements Programme (UN-Habitat), a “do-nothing” approach will permit further increases in slum populations, with numbers reaching nearly 900 million worldwide by 2020.

LIH finance projects provide housing loans to low-income households to improve their housing conditions and thus their quality of life. The literature on LIH finance indicates that better housing conditions provide the family with a more peaceful atmosphere, increase household labor force participation, increase household income, lower absenteeism from school, and reduce the risk of disease in the family, among other things.