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©2003 Philippine Urban Forum

Home > Programs > DPUCSP

Development of Poor Urban Communities Sector Project

Project Rationale

Statistics show that the Philippines is one of the most highly urbanized countries in the developing world, with almost 60 percent of the population living in urban areas. Affordable shelter and land markets have not kept pace with the demands of rapid urban growth, resulting in approximately 40 percent of urban families residing in makeshift dwellings in slum settlements. Many of these urban poor families suffer from lack of access to basic services and infrastructure, poor quality housing, insecure tenure, and high risks to public health. Complicated processes for obtaining legal title and the scarcity of urban land further constrain the urban poor dwellers from mobilizing the capital they require to rise above the poverty line. Moreover, the housing finance system mostly benefits the formal sector employees, while only a few public housing programs are effectively targeted towards the poor urban communities. The Development of Poor Urban Communities Sector Project (DPUCSP) was envisioned to contribute to the Government’s overarching goal of poverty alleviation. It addresses the underlying deficiencies in the shelter sector that contribute to the prevalence of urban poverty, and to the vulnerability of the poor, causing their exclusion from mainstream society. The Project was designed under a technical assistance grant funded by the Asian Development Bank (ADB).

Project Objectives

The ultimate goal of DPUCSP is to reduce income poverty and to improve the urban poor’s quality of life. More specifically, DPUCSP aims:

  • To improve access of the poor urban households to secure land tenure, affordable shelter, basic municipal infrastructure services, and community facilities
  • To enable the urban poor to avail of financial services for microenterprise development, home improvements, and housing
  • To assist in the decentralization of shelter sector activities and strengthen the role and capacity of local governments to meet their shelter sector responsibilities, as provided for in the Local Government Code.

Project Approach

Poor communities in the 73 cities and 103 first class municipalities outside Metro Manila are eligible to participate in DPUCSP. Demand for shelter among the urban poor in these localities has been found to be substantial. The proposed Project targets the participation of about 100 communities in approximately 20 LGUs (or about 10% of the estimated backlog in the geographically targeted areas). Six pilot communities from four participating LGUs (i.e., Angeles City, Bacolod City, Mandaue City, and Cagayan de Oro City) will constitute the pilot areas or first batch of subprojects to be financed by DPUCSP. The second batch and third batch of subprojects will be developed from an initial list of eligible and interested LGUs. DPUCSP will be implemented over a six-year period.

Project Scope

To attain the objectives of DPUCSP, the proposed Project has been designed to consist of three parts:

  • Part A—Site Development and Tenurial Security: Under this component, existing slums and new sites will be developed to provide affordable basic infrastructure services and secure land tenure to poor urban families belonging to the lowest five deciles of the Philippine income distribution.
  • Part B—Shelter Finance Provision: Under Part B, delivery mechanisms will be established, using microfinance institutions (MFIs), to enable poor urban families to access financing for the following:
    1. plots serviced with basic urban infrastructure services, particularly those developed under Part A
    2. housing improvements
    3. new housing units
    4. microenterprise development
  • Part C—Capacity Building and Implementation Support: In Part C, capacity building and project management support programs will be implemented to improve decentralized shelter delivery. Technical assistance for project management, support for community-driven planning and implementation, and capacity building for LGUs and MFIs will be provided under this component.

    • Cost Estimates

    DPUCSP is expected to cost about $83.4 million equivalent, comprising about $57.6 million equivalent (70 percent) in local currency and $25.8 million equivalent (30 percent) in foreign currency.

    ComponentEstimated Amount (in US$ Million)
    A. Site Development & Tenurial Security27.50
    B. Shelter Finance Provision39.40
    C. Capacity Building & Implementation Support14.90
    Total Project Costs81.80
    Interest During Construction1.60
    Total Project Financing Required83.40
    *Estimates at Loan Fact Finding, August 2001.

    ADB Loan Amount and Terms

    An Asian Development Bank (ADB) loan of $33.7 million, denominated in Japanese yen from a LIBOR-based lending facility, is proposed to primarily cover the foreign exchange cost of $9.3 million (including interest during construction) and $24.4 million of the local currency costs of Part B.

    The proposed ADB loan will have a 30-year term, including a grace period of six years; an interest rate determined in accordance with ADB’s LIBOR-based lending facility; an annual commitment charge of 0.75 percent yearly; and a front-end fee of 1.0 percent. To minimize payments on commitment charges and to incorporate lessons learned from the first batch of subprojects, a Clustered Lending Approach (i.e., an adjustable program lending or APL modality) has been requested for the Project. The ADB has agreed to consider the switch to a Clustered Lending Approach during the Project Loan Appraisal.

    The Development Bank of the Philippines (DBP) will be the Borrower, and the Republic of the Philippines will guarantee the ADB loan to DBP at a 1.0 percent annual fee. The foreign exchange risk will also be covered by the Republic of the Philippines at a 4.0 percent annual fee by DBP on the amounts withdrawn from the ADB loan.

    Cofinancing

    Interest to cofinance DPUCSP has been expressed by bilateral donors including the Organization of Petroleum Exporting Countries (OPEC) for Part A, in the amount of approximately $20 million equivalent. The Republic of the Philippines will also guarantee and provide foreign exchange cover for the proposed loan from the cofinancier. Grant cofinanciers, possibly the UNCHS, CIDA, and AusAid, or lender of highly concessional credit, possibly Finland, will fund Part C for a total amount of $8.0 million equivalent.

    To facilitate project implementation, DBP who is the Borrower of the ADB Loan for Part B will also be the Borrower from the OPEC Fund for Part A. The National Housing Authority (NHA) will be the grants recipient or borrower of highly concessional credit from the Government of Finland and other co-financiers for Part C. The OPEC Fund carries a 2-3 percent interest rate plus a service charge of 1.0 percent yearly, and has a 20-year maturity, including a five-year grace period.

    Financing Plan

    Fund Source Foreign Exchange Local Currency Total Percent
    Asian Development Bank 9.3 24.4 33.7 40.0
    Official Co-financiers 16.5 11.7 28.2 34.0
    National Government 0.0 3.3 3.3 4.0
    DBP/MFIs 0.0 10.2 10.2 13.0
    LGUs 0.0 5.4 5.4 6.0
    Beneficiaries 0.0 2.6 2.6 3.0
    Total 25.8 57.6 83.4 100.0
    (in US$ Million Equivalent)

    DBP and participating MFIs—both banks and nonbanks with established track records—will provide $10.2 million equivalent in counterpart contributions.

    Relending and Cost Recovery Mechanisms

    Part A—Site Development and Tenurial Security

    The proceeds of the loan from the OPEC Fund will be relent by DBP to participating LGUs or private sector groups, NGOs and cooperatives in joint venture with the LGUs, based on their borrowing capacity. These sub-loans will be secured by the LGU’s IRA, receivables from income-generating assets, or real properties determined to be free and unencumbered. The relending rate to the LGUs or joint ventures with the LGUs, estimated at 10-12 percent, will be based on the sum of the prevailing interest rate of the OPEC Fund, the loan’s foreign exchange risk premium and guarantee fee, plus the DBP’s spread. In accordance with the prevailing relending terms for LGU finance, the subloans to LGUs will have a maximum maturity of 10 years, including a three-year grace period.

    The LGUs or private sector groups, NGOs, and cooperatives in joint venture with the LGUs will repay their sub-loans to DBP from proceeds generated from the outright sale of serviced plots developed under Part A (for which the urban poor families can avail of financing under Part B of DPUCSP). For subproject expenditure items not directly recoverable from the beneficiaries and benefiting other communities (i.e., off-site infrastructure such as access roads), the LGUs will repay DBP through agreed periodic amortizations from their locally generated revenues.

    Part B—Shelter Finance Provision

    The proceeds of ADB's loan to DBP will be relent to participating MFIs at market rates estimated to range from 8-13 percent but which will in no way be lower than the prevailing 91-day T-bill rate to comply with Executive Order 138.

    Eligible and prequalified MFIs will on-lend to end-beneficiaries

    1. at market rates, estimated at 18 percent yearly with a repayment term of not more than five years including a six-month grace period, in the case of microfinance for home improvements;
    2. at prevailing interest rates, currently ranging from 24-36 percent yearly, in the case of the short-term microfinance for small enterprises; or
    3. at market rates, estimated at 12-16 percent yearly with a maximum repayment term of 15 years including a three-year grace period in the case of housing loans (which can include financing solely for the serviced plots developed under Part A). Thrift banks which are eligible to participate under the Project as an MFI can also avail of subloans from the GFI to on-lend housing loans to qualified urban poor families with the capacity to pay.

      The DPUCSP housing loans and/or home improvements loans will be secured by individualized titles or in the absence of such titles due to delays in the necessary legal processes, by interim titles that are backed by government guaranty. The Home Guaranty Corporation (HGC), as mandated by Republic Act 8763, will provide the guaranty coverage for the housing and home improvement loans to be on-lent to the urban poor families under the Project. Targeted, upfront subsidies, channeled through a Shelter Finance Fund that will be established, will also be provided by the Government to eligible ultra poor families who cannot afford to pay for their serviced plots. In the pilot stage which will primarily involve public lands, these upfront subsidies will be in the form of land price discounts.

      The microfinancing for small enterprises will be short-term and will not require collateral for security purposes. These loans will be repaid from daily or weekly amortizations by the urban poor beneficiaries to the MFIs from their income-generating microenterprise activities.

      Summary Project Financing

      Fund Source Project Component IDC Total
      Part A Part B Part C
      Asian Development Bank 0.0 32.1 0.0 1.6 33.7
      Official Co-financiers 16.1 0.0 12.1 0.0 28.2
      National Government 2.7 0.0 0.6 0.0 3.3
      DBP/MFIs 3.0 5.2 2.0 0.0 10.2
      LGUs 5.2 0.0 0.2 0.0 5.4
      Beneficiaries 0.5 2.1 0.0 0.0 2.6
      Total 27.5 39.4 14.9 1.6 83.4
      (in US$ Million Equivalent)
      IDC = Interest During Construction

      DBP and participating MFIs—both banks and nonbanks with established track records—will provide $10.2 million equivalent in counterpart contributions.

      Summary Project Costs, By Year

      Project Component 2003 2004 2005 2006 2007 Total
      A. Site Development and Tenurial Security 3.00 6.90 8.50 6.10 3.00 27.50
      B. Shelter Finance Provision 39.40
      1. Microfinance for Home Improvements 0.00 0.20 1.30 2.10 1.90 5.50
      2. Microfinance for Small Enterprises 0.00 1.70 3.20 4.30 4.20 13.40
      3. Housing Loans for Shelter 0.00 0.00 2.90 10.10 7.50 20.50
      C. Capacity Building and Implementation Support 2.80 5.60 4.90 1.60 0.00 14.90
      Interest During Construction 0.4 0.08 0.20 0.37 0.55 1.60
      Total Cost For Financing 6.20 14.48 21.0 24.57 17.15 83.40
      *Estimates at Loan Fact Finding, August 2001.

      Implementation Arrangements

      DPUCSP will be implemented over a six-year period from 2003-2008. DBP and the NHA will be the Project co-Executing Agencies. The Housing and Urban Development Council (HUDCC) will chair the Project Supervisory Committee and will have prime responsibility for overall sector policy actions and coordination. Each participating LGU will organize a Project Advisory Committee (PAC) to ensure that the priorities of local communities are incorporated in the Project design and implementation. The membership of the PAC will include MFIs, NGOs, and community representatives to ensure proper implementation of Community Action Plans (CAPs) and resettlement guidelines. Involuntary resettlement will be minimal as existing sites will be upgraded or new vacant sites will be developed.

      Project Benefits and Beneficiaries

      DPUCSP was designed to contribute to the poverty reduction goals of the Philippine Government and to improve the quality of life of its targeted urban poor communities. In the envisaged site development and tenurial security subprojects, land ownership issues will be resolved and individual titles will be distributed directly benefiting about 30,000 poor urban households. A total of about 100 poor urban communities, previously unable to access secure tenure, basic urban services, and housing finance, will also directly benefit from Part A, while an estimated 100 to 200 nearby communities will indirectly benefit from theprovision of off-site infrastructure including flood protection facilities, main roads, and main drainage systems. Similar cases of site improvement in the past have been shown to increase the market value of land from 200 to 700 percent. In addition, significant gains will accrue to the Executing Agencies and implementing agencies (in the form of increased revenues and capacity for shelter sector planning and implementation), as well as the end-beneficiaries (in the form of improved social, financial, and economic status).

      The shelter finance provision component of the Project or Part B will benefit about 123,000 poor urban households. Microfinance for small enterprises will not only augment the income of beneficiaries who will receive the estimated 20,000 loans, but will also generate additional employment for approximately 80,000 families while benefiting as many as 165,000 poor urban residents. Under Part B, private sector resources, primarily those of the participating financial institutions (PFIS) and NGOs, will also be mobilized, thus contributing to more sustainable housing finance for the urban poor.

      Project Status

      Under the Project Preparation Technical Assistance (PPTA) to design DPUCSP, a four-volume Final Report which summarized the feasibility study conducted on the proposed Project was submitted, in May 2001, to the ADB and the Project Steering Committee consisting of HUDCC, NEDA, and DOF, among others.

      Project Loan Fact Finding was held from May 15-August 10, 2001. DPUCSP is currently targeted for presentation to the ICC-Technical Board in June 2002. For this purpose, endorsements from the Regional Development Councils and Sangguniang Panglungsod of the proposed pilot areas have been secured.

      The National Housing Authority’s Board of Directors, as well as HUDCC, have also submitted their Project endorsement to NEDA. The National Credit Council, after reviewing the proposed relending and on-lending rates of DPUCSP, has also cleared the Project for loan appraisal.

      DPUCSP has been discussed with LGUs, microNGOs, thrift banks, rural banks, and cooperatives that have expressed their interest to participate in the Project. Project Loan Appraisal is currently programmed for July 2002. Project approval is expected by the end of 2002.