GuarantCo provides $20m facility for Kumar Urban Development’s slum redevelopment project
March 2011


In March 2011, GuarantCo joined FMO and Deutsche Bank in a $55m equivalent facility in rupees for Kumar Urban Development Ltd (KUDL), to rehouse up to 5,000 families currently living in slums in Pune, India. The facility is split in two tranches of $32.5m and $22.5m.


In common with most urban areas in India, a large proportion of the population in Maharashtra’s cities live in slums with no security of tenure and limited access to basic amenities like clean water and sanitation. To tackle this, in the 1990s, the Maharashtra state government began a pioneering slum redevelopment scheme in the city of Mumbai, where local housing associations of slum dwellers partner with a private developer of their choice to resettle families into modern flats in high rise buildings on the same site. The flats are on average double the size of the slum dwellings they replace, and include basic amenities like clean drinking water, safe electricity and sanitation. Despite the larger size, the process results in freeing up of land previously occupied by single or double storey slum dwellings.


The slum redevelopment scheme involved the provision of flats free of cost by the private developer, together with an endowment to maintain common facilities such as lifts,, in return for the right to develop a part of the land freed up, in proportion to the free housing provided. The freed up land not used for social housing or commercial development is used for building urban infrastructure such as roads, schools, parks etc. Tenants are helped to set up housing societies to take over the running and maintenance of their new buildings with an endowment from the private developer.

 

The slum redevelopment scheme proved a success in Mumbai, and the state government decided to extend the scheme to other cities in the state, including Pune, a neighbouring city of Mumbai. KUDL’s project is the first large scale slum redevelopment project under the scheme in Pune.


Commercial slum redevelopment projects typically require only initial seed funding, after which they are self financing from the stage payments made by buyers of the commercial property element. However, local banks avoid this seed funding i) discouraged by central bank regulators from lending for property development and ii) put off by the complex social and environmental issues involved with slum re-housing. The absence of a track record of successfully implemented projects in Pune made it even tougher for the pioneering KUDL project to raise financing.


Given the lack of funding, KUDL began implementation of the project from their own resources, completing only 10% of the project in the first 3 years. The 5 year project financing facility provided by GuarantCo, DB & FMO will allow KUDL to complete the balance rehabilitation in the next 3 years.


Slum redevelopment is a complex issue and it is essential not only that it is community led but also that assistance is provided to help families successfully adapt to new ways of living. Extensive and detailed social due diligence was carried out by FMO to ensure best practice is followed, and that the interests of slum dwellers are protected.

 

More details on Kumar ca be found by clicking the following link: Kumar Website