Part 6 - Financing Upgrading

The most important financial instrument to understand in this programme is the UISP. Its objective is to finance  (with at least 10% co-financing from the municipality) the entire upgrading process, particularly with regard to partnership building, land purchase and rehabilitation, planning, design and the installation of infrastructure up to the point where a township is proclaimed. UISP funding takes the form of a grant to municipalities, not a housing subsidy to individuals.

There is not yet much experience in South Africa of how to administer the financing of incremental and unconventional projects, so it is essential that officials within provinces and municipalities work out appropriate procedures together that take into account the spirit of the UISP programme, accounting requirements and the real needs on the ground.

The success of the UISP rests very much on the willingness and ability of officials to make it work financially, which means being flexible and adaptable without being irresponsible. The maximum funding amounts for UISP projects are included in an annual circular sent to municipalities by their provincial Human Settlement Departments. The relevant sections in the UISP programme are:

Other possible sources of state funds are the Urban Settlements Development Grant (USDG), the Municipal Infrastructure Grant (MIG); the municipal budget; the Neighbourhood Partnership Grant administered by the Treasury; provincial budgets for social services, education & health; and the Department of Human Settlements’ Integrated Residential Development Programme and policy for the Provision of Social & Economic Facilities.

A brief analysis of the grant instruments by the Project Preparation Trust can be found here and here

In most successful projects the informal settlement residents have made meaningful contributions, either in cash or in labour. This should be encouraged, to maximise shared ownership and responsibility. Furthermore, every effort should be made to encourage local businesses, NGOs and other civil society and faith-based organisations to be involved in and contribute financially to aspects of the upgrading.

When it comes to financing the building of houses, only if the upgrading produces a proclaimed township will there be any chance of accessing money from the state to build houses. The award of housing subsidies follows the creation of registered serviced sites. In complicated cases where in situ upgrading programmes are unable to deliver serviced sites residents will have to relying on their savings and borrowing to improve their dwellings.

This is the main source of housing finance for the poor in most developing countries.