As I travel through Orangi Town, a district in northwestern Karachi of approximately 720,000 inhabitants, about an hour away from the city center, the landscape of Karachi shifts. A microcosm of the city, it is inhabited by mohajirs (Indian Muslim refugees), Biharis (Bangladeshi Muslim refugees), Sindhis, Pathans, Punjabis and Balochis. It was known as one of the largest slums in Asia until renowned social scientist and development activist Dr. Akhtar Hameed Khan pioneered the incremental development and bottom-up community development model with the Orangi Pilot Project in the 80’s.

Citi-Acumen Affordable Housing Research Project

Acumen Fund’s housing portfolio has been the most active in Pakistan, where we’ve been investing in housing since 2002.  In 2002, Acumen made its initial housing investment in Saiban’s Khuda ki Basti (God’s Settlement) low-cost housing project, the brainchild of Tasneem Siddiqui, incremental housing development expert extraordinaire. We’ve been committed ever since and are currently supporting its expansion in Lahore that is also underway. (Ann McDougall and Sasha Dichter from the team each wrote about the Khuda Ki Basti model following their respective visits).

Realizing that investment itself might not be enough, Acumen Fund also partnered with Citi Foundation to undertake a research study into low-income housing and housing finance to understand customer demand for housing and housing finance and the current supply. The end goal is to get a grasp of the market for affordable housing, different types of affordable housing models, and current mechanisms the poor utilize to fund housing purchase. Essentially, what is the BoP’s willingness to pay for low-cost housing?

To that end, the Citi-Acumen project comprises primary market research, including demand-side surveys of the major cities across Pakistan, focus group discussions and stakeholder interviews to assess the current market for housing and finance capabilities. Recently, I accompanied one of the surveyors as he went house to house to speak with individuals living in Orangi Town. As I was to learn, quantitative data gathering is often subjective and a matter of judgment and many human variables factor into this ‘quantitative’ exercise.

Pride

Pride plays a big role in influencing and skewing responses, especially when it comes to answering questions on matters of personal finance, savings and expenses. The nature of our survey was such that respondents will often mistake us for loan officers from banks, leading them to sometimes exaggerate and inflate savings in the hope that they qualify for a loan. Indeed as I was to experience, we were met with a mix of high optimism from some and deep suspicion from others who thought we were bank officers offering loans or government officials on inspection checks. Munir Ahmed (Lead Surveyor) was careful to have coached his enumerators in advance about instigating false hopes within respondents and indeed their ensuing explanation that we were here only to seek the community’s “rai” (opinion) and “mushvara” (advice) so that we may educate those who are in a position to help them – brought about a change in attitude towards us.

Still, there were others who remained suspicious of our work, an attitude exacerbated by the fact that work like this tends to get collective attention by neighbors and others around. One gentleman who was increasingly agitated by the personal nature of questions asked us to “close the interview” once we approached the topic of household expenditures and savings.

Personal pride can also manifest itself in less hostile ways. One respondent, Mahmood-ul-Hasan Qadir, a madarassah (Islamic school) school teacher briefly engaged a perturbed enumerator in a game of tug of war when he tried to pry the questionnaire out of the enumerators hand so he could write down his own answers. The question posed at the time was about his income, and the respondent’s constant self-conscious glances towards me made me realize that he did not want me (the only female in the room) to hear his income. I immediately busied myself with my tea (he was the only respondent who invited us into his home) to save him any embarrassment he might be feeling. At some point in the interview, he was asked how he had financed the construction of a new room that cost Rs.30,000 (USD 360) to which his son interjected, “Through the BC” (Bank committee, see below). After some moments, his father reprimanded him quietly, “Don’t say BC, tell them it was through the help of friends and family,” indicating to one of the options on the survey. Upon further probing, we found out the father had received money from an uncle’s wife to expedite his family’s home construction. He commented later, “I realized that we should be assisting you honestly in this endeavor,” his conscience overcoming any embarrassment he might have felt at receiving help or charity from friends/family.

Unfortunately, there were many others who failed ultimately to understand our role or intention of the exercise. The mindset of those who believed that we would be making some monetary profit out of the exercise tended to echo their own prejudice – and it was often these people who were not willing to participate until we told them what “faida” (benefit) it held for them. As in every community, there were some who were satisfied with the fact that they would not see any monetary or any other immediate benefit, but that in the long term this research could possibly improve the chances of organizations better understanding and meeting the needs of their future generations. And then there were those who couldn’t care less and just walked away.

The BoP’s Savings and Loan Profile: Savings, Lump Sums and BC committees

The most common method of financing big purchases was through savings with BC committees. This reinforces the idea that, given the absence of formal credit or perhaps the undesirability of its institutional stipulations, members of a community will find a way to meet their needs internally. In the case of the residents of the communities I visited, they needed:

• Access to lump sums of money in the anticipation of big events or expenses, and
• The discipline to save this lump sum of money.

This discipline component is related purely to the social aspect of BC committees. Once a party has committed to contributing to a BC, they will push themselves not to renege on installments for fear of breaking the social contract. Once again pride has a big part to play, and as many families told me, they will go a long way to avoid “looking bad” or being scorned for non-payment. Though Microfinance Institutions have incorporated the aspect of “social collateral” into their operations, as one respondent we interviewed told us, an institutional loan is still viewed as foreign and does not warrant the same discipline as a community-managed BC committee does.

The most common amounts of the total BC were Rs.50, 000 (US$600) or Rs.100, 000 (US$1,200) and the average monthly installment was Rs. 2000 (US$ 24). Depending on the size, the total duration of the BC’s ranged from 1 to 4 years. This indicates a preference for short-term credit.

Housing Finance and Borrowing on Credit

Most of the respondents who indicated interest in procuring a loan for home construction or home improvement – and indeed, anybody who had knowledge of financing and interest – were of a certain demographic. By and large, this group consisted of micro entrepreneurs such as tailors and shop owners. A majority of them indicated first a preference for loans to expand their business and then for home construction or improvement loans.

Most families who had taken out a loan in the past from moneylenders or purchased home construction materials on credit from thallawallas (building-parts manufacturers/suppliers) had done it at high interest rates and were caught in a cycle of perpetual debt, usually only able to pay back the monthly interest and never the principal. In fact, most respondents did not exhibit enough of an understanding of principal and interest to realize how they were trapping themselves further in a vicious cycle of debt. As I reflected on this, I realized what a crucial role MFIs must play in educating and empowering their customers to make responsible financial decisions.

Other sources of loans were also mostly informal, such as loans from friends or family and credit from neighborhood stores. This was in small amounts and frequently to cover cash shortfalls experienced on a month-by-month basis.

As I discovered, there is so much to be learned from these surveys — and not just from the questions that we asked. Next week, I’ll share some true-life experiences of the surveyors that demonstrate the challenges and insights that arise from this work.