By Somik Lall, Ajay Surr and Uwe Deichmann (May, 2005)
http://www-wds.worldbank.org/servlet/WDS_IBank_Servlet?pcont=details&eid=000090341_20050515143752
Abstract
Lall, Surr and Deichmann analyze the factors that allow slum dwellers to move out of informal settlements, concentrating on the role of household savings. Based on a household survey from Bhopal, India, the authors present evidence that those households that save are more likely to move out of slums.
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Only one in five residents in informal settlements or slums is able to move out to better housing.
- In the absence of housing finance options, households rely on their ability to accumulate savings to improve their chances to move out.
- According to the econometrics analysis, households who save regularly are 11.4% more likely to move out of the slum.
- Finding ways to support slum household’s savings is a public policy challenge and a business opportunity for financial institutions.
Summary
Strategies to improve slum dwellers’ conditions usually include improving sites and service programs, resettlements to new housing development and land titling. However, few focus on strategies that enable slum dwellers to leave informal settlements.
Only one in five of slum dwellers are able to move out. According to data from the survey, for the majority, slums are poverty traps. The average length of stay in a slum is 21 years.
Only 20% are able to move out, of which: 20% moved to a private house, 35% to public housing development, 18% to resettlement areas and 11% to unauthorized colonies
The majority (68%) of those who moved out relied on their own savings to finance their homes. Only 14.5% borrowed from informal, non-commercial institutions and 6.4% received formal housing loans. From all slum dwellers in the sample, 30% are able to save regularly.
In order to have a better understanding of the factors that allow a transition out of informal settlements, the authors performed an econometrics analysis and found:
- Savings increases the probability of moving out by 17%, when not controlling for other variables.
- Households whose head is an unskilled worker are less likely to move out.
- Non-Hindi speakers (proxy for migrants) are more likely to move out.
- Dependency ratio does not seem to have an impact
- Owning a dwelling unit reduces the probability of moving out since they usually cannot capitalize on it. They cannot prove their ownership, since they have no papers.
The authors test the robustness of these results and find that households who save regularly are 11.4% more likely to move out.
Based on these findings, the authors conclude by highlighting that finding ways to support slum households is a public challenge and a business opportunity for financial institutions.