This article in Forbes magazine makes a very important statement about cities as the future of the world and slums as the future of cities. It quotes a lot from the book Planet of Slums by Mike Davis, citing important aspects of rapid urbanization, such as:

• By 2030, 5 billion of 8.1 billion people in the world will live in cities, of which 2 billion will be living in slums, mainly in Africa and Asia.
• Slums do function, complete with social hierarchies, commerce, mini and micro enterprises and a form of home government
• There is no free land available to urban squatters, and there is a price to be paid either to previous residents or corrupt politicians or local police.
• Ignoring the massive urban influx, as governments have been doing for decades, keeps slum dwellers out of the legal systems and tax systems and gives them tenuous rights to land on which they live. This could spawn influential groups fighting for squatter rights, but it could and does spawn criminal gangs and militant movements as well.
• The article mentions how Turkey has given legal and political rights to squatters that encourage them to invest in their homes and neighborhoods. This is a lone example but worth emulating.

The UN definition of a slum is one whose residents are missing at least some of the following: durable walls, a secure lease or title, adequate living space, access to safe drinking water and toilets. 20% of slums miss at least three of these requirements today.

Acumen Fund’s work toward funding enterprises that use market-based approaches to address critical needs of the poor is aligned with these needs of slum dwellers. For example, Acumen Fund has invested in urban squatter resettlement through loans for title to land and home improvement loans for incremental housing in Karachi. Acumen Fund is also exploring similar options for low-income housing finance in cities in India and Kenya, as well as business models for bringing sanitation services to slums. But the growing levels of poverty in cities demonstrate the need for more sustainable, scalable solutions that address the lack of critical goods and services among the poor.

A recent paper titled “Fortune at the Bottom of the Pyramid: A Mirage” stirs up debate around the business opportunity around the poor – and garnered a response from C.K Prahalad. The paper argues that the only way to alleviate poverty is to focus on the poor as producers – not as consumers – to raise their income. We, like Prahalad, believe that these are not mutually exclusive. Given the right access to choices, the poor can make consumer decisions that increase their ability to generate income and improve their overall quality of life. The fact that there is ongoing debate around this idea reinforces the need for Acumen Fund, and others in this space, to continue to find and support examples of enterprises that are successfully serving the poor.

This report focuses on how small-scale, decentralized, affordable and environmentally sustainable projects in water can reduce poverty more effectively than huge spending on large-scale irrigation systems, dams and canals. The report also showcases the success of Acumen Fund investee IDE India with drip irrigation systems, highlighting it as a good example of a low-tech, low-cost and high-reward solution.

Arguing that poverty in developing countries is neither due to low levels of water storage capacity in large reservoirs, nor to under-exploitation of their potential for large hydropower, the report condemns a resurgence of major “multipurpose” hydropower and water diversion projects as having unacceptable environmental and social impacts, not least because they will divert funds away from investments that would significantly reduce poverty. It is exciting to see reports that champion the widespread implementation of small-scale infrastructure for delivering basic services.

Water Portfolio manager Yasmina Zaidman and I recently attended the World Bank Development Marketplace conference in Washington DC. Development Marketplace is a competitive grant program of the World Bank that funds innovative, small-scale development projects that deliver results and show potential to be expanded or replicated. The theme for this year was Water, Sanitation and Energy. 118 finalists (out of 2500 applicants) attended, and a final 30 were announced as winners.

This was interesting from an Acumen Fund perspective on a number of levels. First, there is a growing focus on not just great technical ideas, but models for getting those ideas to market in a sustainable way. This was clear in the additional criteria in assessing the applicants, which emphasized business models as much as technical innovation. Second, while the projects varied in terms of their potential to achieve scale and sustainability, they showed a clear trend towards seeing beneficiaries as customers, a critical piece of the Acumen Fund philosophy. (more…)