What are the main challenges and opportunities for financing slum upgrading initiatives?

1 Challenge: Lack of funds

One of the most obvious and persistent challenges for financing slum upgrading is the lack of funds. Slum upgrading requires substantial and sustained investments from various sources, such as public budgets, private sector, international donors, civil society, and slum dwellers themselves. However, many of these sources are either insufficient, unreliable, or inaccessible for slum upgrading projects. For example, public budgets may be constrained by fiscal deficits, competing priorities, or corruption; private sector may be reluctant to invest in slums due to low returns, high risks, or legal uncertainties; international donors may have limited resources, stringent conditions, or short-term agendas; civil society may face capacity, accountability, or coordination issues; and slum dwellers may have low incomes, savings, or access to formal credit.

2 Opportunity: Innovative financing mechanisms

To address the lack of funds for slum upgrading, innovative financing mechanisms can be employed to mobilize and allocate resources more efficiently. Land value capture is a method of capturing the increase in land value that results from public investments or policy changes, and using it to finance slum upgrading. Microfinance offers small loans, savings, insurance, or other products to low-income individuals or groups, enabling them to finance their own housing improvements. Additionally, public-private partnerships can facilitate slum upgrading by leveraging the expertise, resources, and incentives of both sectors. This form of collaboration creates synergies and efficiencies in the delivery of infrastructure, services, or social programs.

3 Challenge: Lack of coordination

Another major challenge for financing slum upgrading is the lack of coordination among the various stakeholders involved in the process. Slum upgrading is a complex and multidimensional undertaking that requires the participation and collaboration of different actors, such as national and local governments, private sector, international donors, civil society, and slum dwellers. However, these actors may have different interests, agendas, capacities, or perspectives on slum upgrading, which can lead to conflicts, duplication, fragmentation, or inefficiencies in the allocation and use of funds. For example, national and local governments may have different priorities, policies, or regulations on slum upgrading; private sector and international donors may have different expectations, standards, or conditions on their investments; civil society and slum dwellers may have different needs, preferences, or voices on their participation and representation.

4 Opportunity: Integrated and participatory approaches

To overcome the challenge of lack of coordination, slum upgrading can adopt integrated and participatory approaches that foster the alignment and engagement of all stakeholders in the process. Citywide slum upgrading is a holistic and strategic approach that addresses slum upgrading at the city level, rather than at the project or neighborhood level, which can create economies of scale and scope in the mobilization and allocation of funds. Community-led slum upgrading is a bottom-up and inclusive approach that empowers slum dwellers to take the lead in identifying, planning, implementing, and monitoring slum upgrading initiatives. Additionally, multi-stakeholder partnerships involve the establishment and management of formal or informal partnerships among different stakeholders in slum upgrading to enhance communication and trust among them, as well as create shared values and objectives that guide the financing and implementation of slum upgrading.

5 Challenge: Lack of impact

A final challenge for financing slum upgrading is the lack of impact. Slum upgrading aims to improve the living conditions and opportunities of slum dwellers, as well as the environmental and social sustainability of cities. However, measuring and demonstrating the impact of slum upgrading is not easy or straightforward. Slum upgrading involves multiple dimensions, indicators, and outcomes that may vary across time, space, and context. Moreover, slum upgrading faces various external factors, such as market forces, political dynamics, or natural disasters, that may affect or undermine its impact. For example, slum upgrading may improve the housing quality, service access, or income level of slum dwellers, but it may also increase the land value, rent pressure, or gentrification risk in slum areas.

6 Opportunity: Evidence-based and adaptive practices

To effectively address the challenge of lack of impact, slum upgrading initiatives should embrace evidence-based and adaptive practices. Monitoring and evaluation is a systematic process to track and assess the progress, results, and challenges of slum upgrading initiatives. Learning and innovation is a creative process to generate, test, and scale new ideas for slum upgrading. Knowledge sharing and dissemination is a strategic process to communicate the lessons learned from slum upgrading initiatives and increase awareness and understanding among stakeholders. These practices can help inform decision-making, optimize the design and delivery of slum upgrading initiatives, and replicate successful models across different contexts.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?