The recent experience of UN-Habitat’s Urban Finance Branch shows that urban and peri-urban upgrading projects and funding programs can be successfully designed and implemented with community, government and private financial institution sector involvement to benefit low-income populations in emerging and frontier economies. This paper analyzes 66 pilot urban upgrading projects and programs selected from 120 total potential projects and programs reviewed by UN-Habitat’s Urban Finance Branch in 2009-2010 which make use of co-lending or credit enhancement structures to stimulate low-income housing investment. Thirty-four of the projects examined in our review have been or will be fully funded by June 2011 (“successful projects”), while 32 have not progressed. The paper analyzes the economics of both the successful and non-progressing projects and makes recommendations for ways to scale the successful approaches in the future.

All projects were initiated with the concept of leveraging government support with private investment and community savings to reach a greater number of beneficiaries than could be reached with government-donated housing alone. Urban Finance Branch intended to test whether credit enhancement concepts previously proven to be effective in more highly developed markets and in larger ticket infrastructure development could be successfully applied to attract private sector finance to smaller scale urban upgrading and low-income housing finance in emerging economies. The usefulness of private sector investment is confirmed by numerous recent policy analyses. Housing finance and economic development analyses of The World Bank supports the potential significance of well-regulated private sector housing finance in emerging markets, and as a tool in promoting successful densification leading to economic development. 2 In Housing Finance Policy in Emerging Markets, for instance, coeditors Loci Chiquier and Michael Lea offer data for ten emerging markets 3demonstrating the inverse correlation of the percentage of urban residents living in slums with the size of housing finance markets (measured as a percentage of overall GDP): the larger the amount of available housing finance, the fewer slum dwellers.