My Home, Your Business - A Guide to Affordable Housing Solutions for Low-Income Communities
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My Home, Your Business
A Guide to Affordable Housing Solutions for Low-Income Communities
BOP
Published by In cooperation with LEARNING
LAB
ACKNOWLEDGEMENTS
The Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ)
GmbH commissioned this study on behalf of the German Federal Minis- My Home,
try for Economic Cooperation and Development (BMZ) and would like to
thank everyone who have contributed to the publication. Your Business
A Guide to Affordable Housing Solutions for Low-Income Communities
Authors Experts
BoP Learning Lab is based at the Confederation of Danish In- Experts from the housing sector, universities and NGOs con-
dustry. Since 2007 the Lab has worked to collect and dissemi- tributed to this publication by sharing their experience in in-
nate knowledge and experience related to BoP markets. The terviews and by providing feedback.
Learning Lab has developed practical tools for companies
working on low income markets and through workshops, John Aitken, Lendcor/RHLF
study trips and other activities, functioned as a platform for Henning Alts Schoutz, Cemex/Patrimonio Hoy
knowledge sharing among companies and other stakeholders. Jawad Aslam, Ansaar Management Company People at the BoP spend 700 billion USD
The Learning Lab has also worked directly with many compa- El-hadj Bah, African Development Bank on housing every year and the market will
nies across sectors and countries, including affordable housing Mehdi Bendimerad, SPS
ventures. Sara Ballan has been the lead author from the Lab, Hennie Botes, Moladi
increase to 1 trillion USD before 2020.
with support from Karen Panum Thisted. Elang Gumilang, Elang Group
Juan Ignacio Cerda, Elemental
Dalberg Research, a member of Dalberg Group, is a research Stefan Koch, Bayer MaterialScience
institution whose mission is to provide companies and pub- Stefanie Koch, Holcim
lic institutions with valuable insights and practical knowledge Manikandan KP, Ashoka
about frontier markets and global issues. Dalberg Research Alejandra Lamarca, Elemental
works with public and private sector development actors glob- Felix von Limburg, BT Innovation
ally and specializes in qualitative and quantitative research Eckardt M.P. Dauck, Strawtec
methodologies combined with an on the ground presence, pri- Alfredo Nava, Vinte
marily in Africa. Hans Uldall-Poulsen and Stig Tackmann, with Flemming Pedersen, DMS Africa
support from Julie Alsing have been lead authors from Dalberg François Perrot, Lafarge BoP customers spend on average 10%
Research. Michael Petzsche, BFW Bau Sachsen e.V. of their disposable income on housing.
Christian Prilhofer, Prilhofer Consulting
Sangeeth Ram, McKinsey & Company
Aditi Ramdorai, McKinsey & Company
Jack Renteria, 3XNielsen
Reviewers Cécilia Rinaudo, Association La Voûte Nubienne
Shuan SadreGhazi, UN University
Reviewers provided crucial feedback throughout the project, Ruban Selvanayagam, Fez Ta Pronto
giving their time and expertise. Peterson Siringoringo, Holcim Indonesia
Bagavathi Veeralakshmanan, Bayer MaterialScience
Barliana Amin, GIZ Gero von der Wense, O&L Group
Martin Dirr, GIZ In a few years the number of people in the
Andrea Donath, GIZ developing world living in urban slums will
Diana Hollmann, GIZ reach 1 billion.
Anne Jach-Kemps, GIZ
Claudia Johanna Raschke, GIZ
Alexandra Linden, GIZ
Jonas Naguib, GIZ
Isabel von Blomberg, BMZ
Claudia Knobloch, Endeva
Photos: Dirk Ostermeier/GIZ GmbH
P re f ace m y h o m e , y o u r busi n e ss
2|3 Preface
Dear Entrepreneurs
Every morning millions of people wake up having spent
another night in appalling living conditions. One third of the
developing world's urban population lives in slums. And
although access to decent housing and shelter is recognized as a
human right, providing affordable housing for the poor is a global
development challenge that remains unsolved. Global
housing markets for low-income communities at the base of
the pyramid (BoP) are under severe pressure. Innovative solu- Photo: Bundesregierung/Kugler
tions are urgently needed, but governments cannot meet that
challenge alone. The German Federal Ministry for Economic Cooperation and
Development (BMZ) recognizes that the private sector has a
This guide, ‘My Home, Your Business’, hopes to show that crucial role to play. It can help develop innovative solutions
the BoP housing market also offers business opportunities. that will offer people better access to adequate housing. You
Sustainable development and economic development are in- as entrepreneurs are important partners in promoting sustain-
extricably linked and the low-income housing sector lends it- able and inclusive growth. Your drive, investments and skills
self particularly well to inclusive business models. Integrating are crucial in increasing the supply of affordable homes. By
low-income communities, both as users and consumers and working together, we believe that we can make a major dif-
also as suppliers and workers, helps advance human develop- ference. With this guide, we aim to spark a new conversation
ment. At the same time, it can be an efficient and effective way on how to provide people with affordable housing that meets
of addressing market failures and unlocking market potential. their basic human needs.
Hans-Joachim Fuchtel
Parliamentary State Secretary
German Federal Ministry for Economic Cooperation and
Development
Photo: Harald Franzen/GIZ GmbH
CONTENTS m y h o m e , y o u r busi n e ss
4|5 Contents
The Business Opportunity
Preface �����������������������������������������������������������������������������������������������������������������3 CASE STUDIES
The Business Opportunity ������������������������������������������������ 6 Bayer MaterialScience page 29
Introduction �����������������������������������������������������������������������������������������������������8 Fez Ta Pronto page 32
Untangling terminology �����������������������������������������������������������������������������9 Elang Group page 33
6
A one trillion dollar market ������������������������������������������������������������������� 10 Holcim page 39
page The market today ���������������������������������������������������������������������������������������� 12 Cemex, Patrimonio Hoy page 43
Market dynamics ���������������������������������������������������������������������������������������� 14 Ansaar Management Company page 47
The opportunity space is expanding ������������������������������������������������� 18 Association la Voute Nubienne page 51
Meet the BoP�������������������������������������������������������������������������������������������������� 20
Business Model Generator Lafarge page 55
GIZ page 59
Business Model Generator ����������������������������������������������22
Housing solution ����������������������������������������������������������������������������������������� 26
CASE examples
Customer��������������������������������������������������������������������������������������������������������� 30
Value proposition ��������������������������������������������������������������������������������������� 34
Customer relation �������������������������������������������������������������������������������������� 40 3XN
Financing ������������������������������������������������������������������������������������������������������� 44 Ashoka
Resources �������������������������������������������������������������������������������������������������������� 48 DMS Africa
Organization ������������������������������������������������������������������������������������������������� 52 Elemental
Partners ����������������������������������������������������������������������������������������������������������� 56 Lendcor
20 Scale and Impact������������������������������������������������������������������������������������������ 60 Moladi
O&L Group
page
Support Directory ������������������������������������������������������������������������ 62 Saraman
End notes �������������������������������������������������������������������������������������������������������� 69 SPS
Case study sample ������������������������������������������������������������������������������������� 70 Strawtec
Support Directory Vinte
Publication information �������������������������������������������������������������������������� 71
page 56
Photos: African Development Bank/Flickr
UN Photo/JC McIlwaine/Flickr
Michał Huniewicz/Flickr/www.m1key.me
T h e b u s i ness opport u n i t y m y h o m e , y o u r busi n e ss
6|7
The Business Opportunity
Photo: African Development Bank/Flickr
T h e b u s i ness opport u n i t y m y h o m e , y o u r busi n e ss
8|9
Introduction Untangling terminology
Base of the Pyramid (BoP) Inclusive business
In 2014, people living at the economic Base of the Pyramid adequate building materials, services, financing, and housing The Base of the Pyramid (BoP) concept represents the idea that The ability to deliver affordable solutions is not sufficient to
(BoP) are expected to spend approximately 700 billion USD on solutions. the billions of people globally, living on only a few dollars a succeed at the BoP. Failed affordable housing ventures docu-
housing.1 At the same time population growth, rapid urbanisa- day, have unduly been ignored by companies.2 These low-in- ment that solutions not only need to be affordable, but also suit-
tion rates and economic progress are pushing the boundaries This is however, not the case everywhere. Despite significant come customers are defined by their limited purchasing power, able and desirable. An inclusive business approach can help you
of the market day-by-day. Over the next five years, the deve- challenges, a growing number of companies are making a but collectively represent a large and growing market. Besides achieve this and creates value for the BoP. Inclusive business
loping economies are expected to grow by almost 30%, while profitable business by building affordable homes or supply- being poor the BoP is characterized by vast internal differen- includes the BoP on the demand and/or supply side and enables
the number of urban slum dwellers will triple by 2050. The ing building materials. These companies have understood the ces. Some have recently moved from rural areas to urban slums companies to develop business models that leverage the resourc-
staggering numbers emphasize that regardless of flaws and in- market's potential as well as its pitfalls. They have designed and have nothing but the clothes they stand in, while others es of the BoP – in ways that establish mutually beneficial part-
formality, the BoP market for affordable housing solutions is solutions that meet the demand and desires of the BoP and have stable incomes and are slowly working towards middle- nerships. In the housing sector, inclusive business models target
there and is growing by the day. Families in low-income com- developed business models that compensate for market income status, and many others are in between. the BoP as customers, or integrate the BoP in the design process
munities across the globe are building, repairing and impro- failures – and sometimes even turned them into strategic to ensure needs are understood. The BoP can also be involved as
ving their homes. They are buying cement and tiles, renting advantages. This guide leverages the hard earned experiences Affordable housing sup-pliers of building materials or during the construction pro-
and selling. What is not there, are strong links between the for- of these companies and helps you translate the market poten- What is deemed “affordable” varies significantly across coun- cess, as workers or empowered home owners with the skills and
mal and informal markets. As a results poor families often lack tial into tangible ideas and business models. tries and income groups. “Affordable housing” is understood capacity to upgrade their homes.
broadly as housing solutions which are priced or financed in a
way that enables low-income households in developing coun-
More people More money More knowledge More opportunities tries and emerging markets to also be able to afford other basic
needs.
Almost 1 billion peo- Each year people liv- Many companies have The business case for
ple do not have ac- ing at the BoP spend already succeeded in affordable housing is The market for affordable housing represents a broad range of
cess to suitable homes + 700 billion USD on + unlocking the BoP = becoming even more market opportunities that differ considerably. Essentially there
and the demand for housing. Spending and market and new tools attractive for compa- are two broad categories of solutions: “new buildings” and
suitable housing is incomes are increa- and insights make it nies all over the world “building upgrades”
growing sing easier to succeed
About this guide Affordable housing – key market segments
This guide serves companies from all parts of the value chain
Customer re
who either already work in the BoP housing market or are on lati
siti on
considering entering the market. opo New Buildings include construction of new housing developments and can range from a few
pr
houses to full scale cities with thousands of units.
fi
e
lu
na
Va
Housing Solution
nc
The guide has been developed on the basis of an initial eval-
ing
uation of nearly 100 cases, interviews with 25 companies and New buildings can also include different types of temporary housing for example for refugee
Customer
Organization
experts, as well as detailed analysis. As such, the guide pro- camps (not considered in this publication).
vides an overview of experiences and lessons learned within
the BoP housing sector and offers hands-on guidance by
practitioners for practitioners.
Building upgrades include improvement of entire building structures, or more incremental up-
The first part of the guide provides an overview of the busi- Resources grades focusing on e.g. fixing a leaky roof or adding rooms or finishing to a home.
ness opportunity and key market dynamics. The second
part introduces a Business Model Generator, which pro- Business models primarily focus on supplying building materials or services for retail shops, self
vides insights and practical examples on how to develop or builders or local crafts men.
strengthen your affordable housing business model. Finally, Partners
the Support Directory lists stakeholders and references,
which can help you find additional inspiration.
T h e b u s i ness opport u n i t y m y h o m e , y o u r busi n e ss
10 | 11
A one trillion dollar market
2008 marked a true tipping point in the world’s histo- developing countries is growing towards a one trillion dol-
ry. For the first time, more people lived in cities than in lar market in 2020. For companies across the value chain the
rural areas. About one third of these – around 1 billion peo- housing sector offers many entry points to engage in this market.
ple - live in slums. Most of them do not have access to safe
housing that satisfy basic human needs such as clean water In terms of investment gap, there are estimates that sug-
and sanitation, or housing constructions which can with- gest that it would require an investment of 9-11 trillion USD
stand the pressure of climate change or natural disasters. in construction spending alone to replace the inadequate
housing of today and build additional housing units to meet
Each day, an additional 25,000 urban households across the demand in 2025. An estimated two-thirds would need to be
world are starting their search for affordable housing. In spent on replacement of existing substandard housing, while
India alone, more than 19 million housing units are needed about one-third would need to be spent on constructing new
per year in order to meet the demand for affordable housing, units.3 While an investment gap does not equal a market, the
while almost 100 million Indian slum dwellers constitute a figures illustrate a significant business potential waiting to be
solid market base for home upgrading solutions. In total the unlocked.
construction and upgrading market in India and many other
The sector offers many entry points
Finance
Design Develop innovative financing solu-
Design of attractive homes which meet the needs tions which enable the BoP to en-
and aspirations of the BoP gage in the market
Materials and construction
Innovation of new building ma- Partnerships
terials and construction methods Develop new housing models and part-
tailored to affordable housing nership concepts, e.g. by mobilizing local
communities
the One trillion USD
opportunity
Photo: Saraman
T h e b u s i ness opport u n i t y m y h o m e , y o u r busi n e ss
12 | 13 About 60 % of substandard housing globally is concentrated in 10 nations
China:
62 million
The market today
The global BoP housing market is growing fast. Asian coun- Russia:
tries by far represent the highest total BoP spending on 5 million
housing globally. This spending mirrors the level of substandard
housing. Today the top 10 nations – including all BRIC coun-
tries – account for 60% of substandard housing globally. Alone
in China 61 million people are living in substandard housing. Iran: Pakistan:
4 million 4 million
Today, BoP customers use about 10% of their income on
housing. Expenses include e.g. rental payments, home main-
tenance and repair, major home appliances and tools. Spen- Nigeria:
ding varies considerably by region from 8% in East Asia to 23 11 million Bangladesh:
% in Central America. 6 million Philippines:
4 million
Annual spending, 2014 USD bn values (2005 PPP prices)
55 India:
28 million Indonesia:
Brazil: 7 million
62 11 million
124
44
105
5 9
3 54
28 35 37
Western and South America Central America Africa Southern Asia eastern and South
Central Asia and Carribean -eastern Asia
Number of substandard housing units in urban areas (2009 estimate)
Lowest income segment (
T h e b u s i ness opport u n i t y m y h o m e , y o u r busi n e ss
14 | 15
Market dynamics
The BoP housing market shares a number of characteristics does not work in this way. Limited supply of suitable homes Lack of skilled workers Mixed financing for building upgrades
with traditional property markets, but also represents distinct for the growing middle class means this group is forced to stay Qualified workers are often a shortage, which means labour From high BoP segments to low - people at the BoP are cur-
differences that are important to understand and consider in put – sometimes in slum areas. As a consequence, affordable supply can be a bottleneck in the construction phase, especially rently buying simple building materials on commercial terms.
the design of your business model. homes developed for the poor regularly end up serving middle when scaling. Including investments in local skill development For companies related to building upgrades, this means it is
income residents. The middle class might access affordable as an operational cost can you help avoid this. possible to target a wide range of income segments. However,
homes through connections, but often times affordable homes the financial sustainability of the models are closely related
Macro dynamics are re-sold or sublet on the formal market by their original Low margins and low volatility to the ability to create scale - particularly for products and
beneficiary. To avoid this some companies include clauses on BoP housing markets are typically less prone to market fluc- ser-vices offered at low price points. For larger purchases the
Informal but structured markets when people are allowed to sell their homes to avoid specu- tuations and hence more stable than high-end markets. In ad- poorest tiers sometimes leverage grants or subsidies as part of
A large part of the BoP market for housing is currently served lation and ensure people live and investment in their homes. dition they constitute a strong basis for scale due to the num- government or donor-financed slum upgrading programs.
through informal markets. Informality does not imply lack of In general the affordable housing markets are often difficult ber of potential customers. The greater level of stability and the
structure. Informal markets can be very efficient and regulated to control and are closely linked to national property mar- potential upside in terms of volume can, if done right, com- Tiered financing for new buildings
by strictly enforced informal rules. Currently, informal markets kets. pensate for the normally lower margins in affordable housing For companies offering new housing solutions, the link between
are doing what formal markets are not able to do: handling ventures compared to high-end housing projects. market segments and financing models is clearer. The high-
large quantities of migrants and distributing homes to them. Inefficient regulation est income segments are typically served through commer-
As a company selling to the BoP the informal markets are an The housing sector is often heavily regulated and in many cial business models, while the medium tiers are traditionally
important competitor and sometimes partner that you need to countries property rights systems are inefficient and land
Company level dynamics reached through both commercial and mixed models (includes
understand. rights contentious. This means the cost of land and infrastruc- subsidies). The poorest tiers are very difficult to reach through
ture is high and regulation difficult to navigate. In addition, The BoP represents varying income, needs and aspirations. All commercial models and only access new housing solutions if
A stuck housing circle housing is often a heated political issue, implying that housing BoP tiers can be reached with affordable housing solutions, but governments or other organizations choose to subsidize them
Mobility is a fundamental part of a healthy housing market. policies may be used as a political tool. As a company you are require different approaches. heavily.
New houses are built, but most people move within the exis- exposed to political risks and need to find ways to understand
ting pool of homes. In many developing countries the market and navigate the political environment to succeed. See page 48.
BoP income Building
segment New
upgrades buildings
HIGH
Commercial models
Mixed models
Subsidized models
LOW
Photo: Elang Group Housing
T h e b u s i ness opport u n i t y m y h o m e , y o u r busi n e ss
16 | 17
BoP household dynamics
Size matters
People at the BoP live in a wide range of homes. From bamboo or lack of market information. In the slums in Mumbai for in-
houses on stilts, over mud huts to brick houses. From high- stance, people can pay as much as 20% per month in interest
rises to low urban sprawl. Housing units are often very small alone when buying a house. This means home acquisition can
– beginning with a few square meters. While few people find keep them in debt for the rest of their lives. In general the af-
very small homes ideal, it is often a problem that new develop- fordable housing market is hampered by very limited supply of
ments do not include small enough units, which enable lower financial products targeting low-income segments. This makes
affordability thresholds. it difficult for the BoP to access and obtain mortgage financing
due to uncertainties with credit worthiness. For your company
Do-It-Yourself this means your solution may not be accessible for the BoP, un-
The majority of BoP housing is self-made and built incremen- less it is combined with access to financing (see page 45).
tally. People recycle materials or buy building materials when
they can afford them and stock them until they have enough Housing as an enabler for development
to begin building or improving their home. A home is often Ideally, a home is much more than a roof and walls. A home
work-in-progress and might have a half floor or room wait- plays an important role for social status. It provides personal
ing for better times. In order to keep construction costs down, safety and can enable access to basic necessities such as wa-
neighbours, family and networks are often engaged in the con- ter, sanitation and energy. In addition, a home at the BoP is
struction process. As a result, construction at the BoP is based often used as a source of income generation through home-
on creative solutions rather than structural soundness and production, sub-letting, small shops or storage. Finally, people
compliance with buildings codes. Combining building materi- who live in formal settlements are typically better organized
als and training can be a way to add value to upgrading solu- and engaged in the broader society, e.g. in terms of education,
tions and avoid substandard construction. governance, tax payments and so forth. In other words, the
value proposition of your solution is linked to a wide range
It’s expensive to be poor of benefits which you can seek to strengthen – for example by
Across BoP tiers, housing is a large expense for low income making it easy to include productive purposes in the homes.
families. Many families rent their homes or land in the infor- Moreover, the societal benefits of housing can constitute an
mal housing market. A challenge in low-income markets is the incentive for organizations or governments to join forces with
poverty penalty. Often, people in poverty are forced to accept your company.
solutions that are far from optimal due to a lack of alternatives
Business model innovation calls for active integration of people and society
People perspective Business model innovation Society perspective
How does a house add value to How can you integrate How does adequate housing
the owners and users? individual and collective side add value to the broader society?
effects of housing in your
business model?
Photo: HolcimT h e b u s i ness opport u n i t y m y h o m e , y o u r busi n e ss
18 | 19
Distribution of expected increase
Global demand is to a
21% in economic activity in the world,
2014-2030
still larger extent being
driven by emerging
The opportunity space Developed countries
Developing countries
markets.
is expanding
For many companies the BoP housing sector has traditionally Trend 1: BoP customers will spend more money on housing
been viewed as a “development case” characterized by high Over the coming decades, the number of people living in 79%
involvement of governments, civil society organizations and developing countries will grow rapidly, reaching 8.2 billion
donors. The market has simply been deemed “too compli- people in 2050. The urban population is expected to double
cated” or “too risky”. Such an assessment might indeed be true within the same time period. This rapid growth will create a
Source: IMF and Dalberg Research
for some companies: engagement requires a long-term per- significant increase in the demand for housing solutions. In Population living in urban agglomerations (billions)
spective and a willingness to move beyond business as usual. addition, many people at the BoP are slowly crawling up in- billions
However, for companies that hold the right combination of come tiers and increasing average, as well as total spending, on
6,0
- Es mates - Population living in urban More than 90 % of the
mind-set and solutions, the housing market represents a unique housing. As a result, solutions that are currently out of reach agglomerations increase in the number
opportunity. The fact that a number of international players are will become affordable for more people day-by-day. In other 5,0 of urban resident can
already active in the market for affordable housing and are in- words investments today help secure market position in the Developed countries be attributed to the
vesting significant resources in the sector, accentuates that there future. Developing countries urbanization process in
is a market for affordable housing that is open for business. In 4,0
addition, the market is likely to expand at a rapid pace in Trend 2: The range of attractive housing solutions will expand
developing countries.
coming years due to two mutually re-enforcing trends related It is becoming increasingly clear for many companies opera- 3,0
to the BoP segment and the housing sector respectively. ting within the housing sector that future demand will to an
even larger extent be driven by developing markets. Conse-
quently, many companies are making significant investments 2,0
in innovation of new housing solutions targeting low-income
communities. The incentive to investment is further stimu- 1,0
lated by a growing awareness of the housing sector’s instru-
mental role in terms of enabling human development among
governments, civil society organizations, and development 0,0
1950 1975 2000 2025 2050
institutions. This enables a good platform for creating innova-
tive partnerships across sectors. Source: UN and Dalberg Research
bn USD (2011 prices)
30.000
Forecast based on historical trends Total investments
Trend 1: Trend 2:
BoP customers will The range of 25.000 China
spend more money attractive housing Developing countries (ex. China)
on housing due to BoP housing market Formal housing market solutions will ex- 20.000
economic, social pand in accordance
and technological with Innovation,
15.000
progress learning and know-
ledge sharing Economic progress will
10.000
free up resources for new
investments in housing
Formal housing available for
people living at the BoP
5.000
and infrastructure.
0
1990 2000 2010 2020 2030
Source: IMF and Dalberg ResearchT h e b u s i ness opport u n i t y m y h o m e , y o u r busi n e ss
20 | 21
Meet the BoP
Bienvenido a mi casa Enkuan denah metachew
- Welcome to my home - Welcome to my home
Inés Flamenco Castro, a 61 year old woman, lives in Mexico Rebika is 22 years old and lives in Addis Adaba, Ethiopia with
City with her three daughters. Ines arrived in Mexico City from her husband and two children. She and her family live in a slum
Salvadore when she was 18 and began to work as a labourer area. Rebika moved to Addis three years ago from the Southern
in a doll factory. In 1984 Inés acquired a land slot in Valle de part of Ethiopia. Her husband’s plot of land was too small to
Chalco for 55,000 pesos (3,230 EUR). Inés paid the debt through sustain the family so he moved to Addis to work. Rebika joined
monthly instalments over a period of two years and says: "I with her two children when he was settled.
came here when there was still no electricity or drinking water.
No one wanted to live here because of the distance to the Federal Rebika’s home is a single small, dark room with dirt walls and Photo: Sara Ballan/BoP Learning Lab
District (the city centre). It was so ugly, there were floodings, pure is often very muddy in the rainy season. The slum area is full
dirt roads, and we had no water and light - there was nothing. of small houses, which have been divided into even smaller Rebika says: “I rent my home and it is very expensive for us. I pay
Now the public services and the neighbourhood has improved. " Photo: Makeba Gil units. Rebika lives in a medium size unit, which is about 15 more for a slum room, than some do for a nice place. I am paying
m2. The family uses the public toilet and fetch water close-by. towards a down payment every month for an affordable home,
Inés initially built a small house with the help of friends. The Currently, Inés is employed as a maid and has three different which is being built. This month I have to skip my payment – I
house slowly deteriorated due to poor construction. Two jobs. Inés works Monday to Saturday and has five hours of had to buy a school uniform instead for my son. The houses are
months ago there was heavy rain and the roof fell off. With transportation every day, but says: "Of course I don’t feel sorry being built now and if God allows I will be able to move to a new
the help of Inés' brother in law, who is a mason, they are con- for myself - I feel proud because I have given my daughters all condominium with my family. I am very excited about moving
structing a new home piece by piece at the bottom of her that I have been able to and I have raised them and pushed them there. It is a real home!”
land. The house has a room with four beds, a dining room forward on my own." Inés' daughters are also part of the plan for
and kitchen, all in the same space. But it’s not finished – Inés the house. They have agreed to tear down the first house and Rebika and her husband have a small street shop where they
has left a hole in the roof so she can construct a staircase and construct a new little house for them: "My dream is to secure a fix and clean shoes and sell small items. According to Rebika
add a second floor later. Inés explains: “I imagine the house. home for my daughters and grandchildren, so they can be inde- the street stall constitutes her actual home at the moment:
The dining hall will be here, my kitchenette there. I continue to pendent and move ahead in life." “We work here all day, seven days a week. The kids play here. Our
save money to be able to keep building. I would have built more, house is just somewhere we sleep at night. I am dreaming of ha-
but because my grandchild Riky is deaf we have other expenses." ving a real home. My son is named Freedom. This is what I hope
for, when we get our house.”
Photo: Sara Ballan/BoP Learning Lab
Key observations Key observations
• People build despite lack of construction skills. Often solutions end up being expensive because they are not durable. • Urban slum areas are expanding at a rapid pace. This puts pressure on land and creates a poverty penalty. People
• Incremental home building can make a solution accessible and ensures a home can adapt to changing life circum- might already be paying a lot for very little.
stances. • Incomes are very low and volatile, which impose a challenge in terms of access to finance.
• Location and access to adequate transport and infrastructure has a high impact on the value of a house. • Even though the family is part of the lower BoP tier they are able to put aside small amounts towards a down payment.b u s i ness model generator m y h o m e , y o u r busi n e ss
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Business Model Generator
Photo: UN Photo/JC McIlwaine/Flickrb u s i ness model generator m y h o m e , y o u r busi n e ss
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Business Model Generator
The Business Model Generator helps you develop a solid strategy for your company, by helping you ask the right questions through- How does the generator work?
out your go-to-market process. The model is based on eight elements that are relevant to consider when developing affordable
housing business models. The Business Model Generator illustrates business model To whom and how are you selling your product or service? And
elements which are particularly important for affordable how do you organize your business?
How do you connect with housing ventures.
customers? The foundation of the model represents all the external fac-
How do you develop an
At the core of the model, the housing solution represents what tors that influence the success of your business model - for
attractive solution?
you are selling. It can be a house design, a construction method, example access to land, labour and building materials.
How do you enable customers
to buy your solution? a special type of building material or a range of other products
or services. Finally, partnerships encircle the model as they are instru-
mental for how the internal dynamics of your business model
The surrounding elements depict the internal dyna- are linked to the external factors that influence your business
Who will use your solution and mics in your business model. For example: What is your value model. The business environment for affordable housing can
who will you sell to?
proposition? be very complex to navigate. Access to the right partners is
Customer re therefore often a prerequisite for your success.
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Where to start?
Your vantage point might be to develop a new housing
Customer
Organization
solution for a particular target group. Or instead you segment
might identify which target segments fits your solution
and investigate how to adjust to their needs. However, the
generator does not prescribe one particular process to
follow or tell you where exactly you should start. Often
business development will be an iterative process with SOLUTION
What to consider many feedback loops. Each time you adjust one part of
when developing your the model, it impacts the rest.
product or service?
Resources
Generator elements
Partners The Business Model Generator walks you through each
What to consider when business model element and presents:
designing your product
or service? • typical challenges your company might face
How do you ensure a reliable • key business model questions to consider
access to necessary resources? • inspiration for business model strategies and tools
• practical case examples from other companies
How do you collaborate with and
manage partners?Customer re
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Resources
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Housing Solution Traditional
Building techniques have often developed locally
NEW
Standardizing housing elements such as finishing or
over hundreds of years, combining available materials structural design brings down costs through econo-
The Housing Solution is the physical home, building material or service you are selling. The first question to answer is what type with the demands of climate and culture. Identifying mies of scale. Prefabrication of entire modules using
of service or product you want to offer. And which need or demand your solution is addressing. Designing affordable and desirable traditional techniques can help you understand what industrial production methods is a more radical so-
solutions is full of choices, dilemmas and trade-offs between different considerations. For example, innovation vs. tradition. Qua- people are used to and inspire new solutions. lution for standardisation. Prefab was traditionally
lity, safety or sustainability vs. price. In order to develop a business model that is financially viable you need to find the right balance used to produce high volume homes, with a short life
between these trade-offs and make a well informed choice with respect to building materials, building methods, and the safety and In the Sahel region of Sub-Saharan Africa, La Voûte span and little thought dedicated to design and envi-
environmental profile of your solution. Nubienne has developed a social entrepreneurship ronmental concerns. This is quickly changing: many
model focusing on Nubian styled homes. The units companies are using full scale prefab solutions or ele-
are built with ancient building techniques, which pro- ments to create quality solutions.
Methods
Business model questions vide low-cost and durable solutions. Read more on
page 51. In Uganda, DMS Africa is introducing locally pro-
What service or product will you sell and how can building materials and methods bring down the costs of your offering? duced prefabricated houses, while Saraman in Iran
Traditional techniques can also be a challenge. People prefabricates the most complicated structures, and
How do you deliver safe housing solutions at low costs? migrating from the countryside to urban slums often then supplements these with local components and
bring their traditional building methods. Combining materials. The prefab method enables uniform pro-
How can you assess the environmental impact of your solution and ensure sustainability? these with urban building materials can result in dan- ducts and quick construction, which is less depen-
gerous constructions. For companies working with dent on skilled labour. This brings down cost levels.
slum upgrading, it is important to recognize these tra- The prefabrication method often also enables compa-
ditions and encourage suitable techniques. nies to focus on the core value of a housing solution
Choosing the right building mate- and remove non-essential features which increase
costs.
rials and methods
Housing is a conservative industry where traditional design unattractive and unsafe, when they start to fall apart and po-
and building techniques still dominate. To reduce costs, new tentially leave your company with a bad reference project. Import of materials is often a cost driver and can be a High-tech doesn’t always mean high cost. Econo-
approaches and materials are often needed. A key question Companies come up with very diverging solutions to find the logistical headache. Many locally available resources, mies of scale means that advanced materials can be
is how to balance cost against quality. Aiming for the high- right balance. Solutions range from traditional techniques to such as earth and stone based building materials are a cost-efficient option. Mobile phones are an example
est standards can bring houses out of reach for low-income high-tech solutions or combinations which integrate the posi- cheap, recyclable, energy efficient to produce and where high-tech has become available for the masses.
buyers. While low quality homes quickly become expensive, tive attributes of both. have good heat and health attributes. Use of local ma- A number of companies are testing whether the same
terials can also reduce execution risks, such as inef- can be done for building materials.
fecient storage, inflation and import barriers.
Bayer MaterialScience has developed state-of-the-art
In Rwanda, German company, Strawtec, is using tra- composite building materials which are lighter than
Materials
ditional raw materials in new ways. Strawtec uses wood, but as strong as concrete. The materials are easy
straw to produce modern housing panels, which are to use, which brings down costs considerably. Read
used as the primary building material for mass hous- more on page 29.
ing. Read about the develoPPP.de partnership be-
tween GIZ and Strawtec on page 62.
Photo: ElementalB u s i ness model generator - Ho u s i ng sol u t i on m y h o m e , y o u r busi n e ss
28 | 29 Planning and building design Construction
Construction Operation and maintenance
Operation
• How will your house impact • How can the environmental • How energy efficient is your
the local environment? Urban performance of the building solution? Housing layout can
sprawl requires more land, materials you are using be optimize passive heating,
resources, and infrastruc- evaluated over their life cycle? lighting and active shading.
Balancing safety and costs ture. Compact, mixed-used
residential areas have a lower • How does waste and waste • What is the durability of your
Stories of buildings collapsing can be found regularly in safety features is often a tough sell. Customer education is one environmental foot print. water from the construction house? Can materials be
newspapers in developing countries. Poor construction and way to inform about the value and necessity of safe housing phase impact local environ- recycled at the End of Life for
implementation of safety regulations are among many rea- solutions. Alternatively, it is important to promote your solu- • How can you leverage existing ment? your solution.
sons for these often fatal accidents. Accidents also happen in tions on other parameters. Your house might be flood resistant, resources ?
luxury developments, but safety issues are especially critical in but maybe other attributes rank higher in perceived value. La • See the Support Directory for • Have you considered how
affordable housing projects, where margins are low and safety Voûte Nubienne for example, builds houses which reduce fire • Consider embodied energy, guides which can help you insulation, ventilation and
not always a high priority. Design, building materials and con- risk and are insect resistant, but promote these features among integrating district utilities and asses the sustainability of efficient utilities can lead to
struction all impact your safety profile, when developing your many other attributes. micro generation, developing building materials. higher energy efficiency?
solution. If you are aware of risks from the outset, many safety sustainable waste manage-
features are low cost to integrate or a question of good con- ment, designing green roofs.
struction management. Three issues are worth considering: When is green enough?
Construction flaws: Safety issues are often caused by construc- Scaling affordable housing to meet the vast demand will pres-
tion flaws, rather than technical design. Many good projects fail sure natural resources and likely increase the price of build- Inspiration from UN Habitat4
because too little attention is paid to the implementing part- ing materials. This encourages smart thinking with respect to
ner. Often, pressure to meet deadlines and budgets combined waste reduction and use of recyclable materials. Other choices
with inadequate skills and corruption result in substandard are less straight forward: Is it better to ship sustainable building
construction. To avoid this, you need to make sure materials materials than to use locally available materials? Is wood bet-
are not compromised and assess which local skills are available ter than bricks or vice versa? Is it better to build a few very su-
in the initial design phase, to be able to accommodate for any stainable houses or scale an environmentally acceptable - but C as e 1
shortcomings. not perfect – solution? The answer often is: it depends. The only
way to make qualified choices is to map and understand your High-tech – low cost, Bayer MaterialScience, Philipinnes
Natural hazards: Climate change and extreme weather increa- environmental impact and then decide what is feasible and ac-
singly create devastating destruction in low-income commu- ceptable. The questions to the right are a good place to start, but Bayer MaterialScience is bringing down housing costs
nities. To build appropriately, you need to understand weather can easily be expanded. through high-tech building materials and local adapta-
patterns and risks of natural disasters in the area in which tions. The development of high-tech solutions is a large, sunk
you are working and plan accordingly. Solutions range from Risk reduction is, however, only one side of the equation. If you cost that can only be compensated for through scale. Con-
flexible construction methods, over housing layout which open the eyes of governments or end-users about the value Bayer MaterialScience focuses on high-tech polymer ap- tributing to one million homes in Malaysia and other large
mitigates flooding risk, to flame resistant materials. A com- of environmentally friendly solutions, these issues can be an plications and has set up a business initiative which seeks scale projects means that Bayer MaterialScience is used to
pany that has specialised in this area is Saraman, based in Iran. important differentiating factor. In Mexico VINTE is showing to establish new business models to improve lives at the thinking about scale: “To really achieve scalable solutions
The company was established as a response to the devasta- that affordable housing can be combined with high environ- base of the pyramid. The housing projects in Asia, the on inclusive business it is essential to collaborate. As our
ting earthquake in Bam in 2003. Saraman designs, fabricates mental standards and profitable business. VINTE spans the Middle East and Africa show potential for scale, but also company primarily operates in Business to Business or Busi-
and erects affordable, earthquake-proof steel structures for value chain including, design, development and construction imply challenges. Taste, preferences, needs and legislation ness to Goverment markets, we are very dependent on good
houses, schools and hospitals. To do this, a new technology of housing communities. To ensure a strong environmental vary substantially from market-to-market and from pro- partners along the value chain, ranging from local building
from a German academic spin-off was adapted to reduce cost profile VINTE has developed an environmental management ject-to-project. As a result Bayer MaterialScience always developers, financial institutions, governments and civil so-
and construction time using locally available material. See the system on the basis of its shared value approach. As a result needs to focus on adapting solutions to local conditions. ciety organizations” says Veeralakshmanan Bagavathi.
Support Directory for guides on designing and constructing VINTE has for example designed and implemented wells and Veeralakshmanan Bagavathi, who heads up the com-
resilient homes. lagoons that recover 80% of pluvial water and installed solid pany’s Inclusive Business operations, explains: “Our chal- For Bayer MaterialScience, the focus on affordable
waste management systems. VINTE has also participated in lenge is balancing standardized technologies with local housing is both a sound business choice, but also about
Willingness to pay for safety: Local perceptions of safety and green housing initiatives such as the Ecocasa Program, which adaptation, while still ensuring economies of scale.” Bayer leveraging corporate strongholds for social benefit. In the
quality often surprise companies. A house in a low-income develops homes that reduce greenhouse gases emissions by MaterialScience is doing this by developing affordable Philippines, Bayer has launched a partnership with Habi-
community might have a very nice façade, while little priority at least 20%, compared to conventional homes. Technologies housing solutions based on composite panels, which are tat for Humanity and Wyndham homes. Veeralakshman-
is given to indoor finishing and safety features, e.g. fire exits. include insulation in ceilings and walls, the use of reflective lighter than wood but as strong as concrete. These can be an Bagavathi explains: “By working with local housing
While people are often aware of the hypothetical risks, they paint, efficient gas heaters, or energy-saving windows. These assembled within five days with a minimum of workers developers as well as Habitat for Humanity, we can both
tend to focus more on the immediate value and visible qualities energy saving features increase the value of the home, since and technical support. The insulation properties of the contribute and learn more about the needs and challenges
of a home or building material. In other words, paying extra for operational costs are reduced for inhabitants. material allow the houses to be energy efficient and com- of affordable housing.“
fortable to live in.Customer re
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Resources
Partners
finding was the start of a long business development process to enables a combination of small individual customers and vol-
Customer understand and refine how to develop business models for and
with the BoP directly through the subsidiary Patrimonio Hoy.
Read more on page 43.
ume sales which diversifies risks. At the moment, individual
sales are slow and corporate sales are the largest source of in-
come, which keeps the business running.
Customers and end-users are not always the same for affordable housing ventures. When designing your business model you need
to consider which BoP segment your solution is designed for, but also who your direct customer will be. You can sell directly to
different tiers of BoP segments, or target users indirectly by offering your solution to either public or private entities. Dealing with Financial assessments of informal
multi-billion dollar institutions and low-income populations naturally represents very different business opportunities and opens
up different possibilities to develop inclusive business models.
households
BoP customers often do not have a credit history, pay slips or
bank records. This makes financial evaluation hard – but not
Business model questions CEMENT impossible.
Which segments will you target and what characterizes your end-user?
Examples of channels: Cement value chain through retailers or
Who will be your direct customer and how are your customer and end-user linked? direct sales. New housing value chain through government or Example - financial realities across the slum
direct sales. Priya lives in a slum in Mumbai. She has a tailo-
How do you assess BoP customers with no financial records?
ring shop and her children are on their way to col-
For companies working with new housing solutions direct lege. Even though she has some financial resources,
sale can also be a viable option. In Indonesia, Elang Group has she has no access to a suitable and affordable home.
developed a profitable business model selling homes to the Devika lives in the same slum, but has a low fluctuat-
Choosing the right market Identifying your direct BoP and sees no reason to add an extra layer of distribution ing income from her job as a day labourer working at
costs (see page 33). For other companies, direct sales are not construction sites. If homes were available, Priya would
segment(s) customer the most obvious approach. Engaging directly with the BoP as be able to use her savings for the mortgage, while
customers bundles different challenges, for example dealing Devika has little chance of doing this. She might in-
As noted in the first part of the publication, different solutions Selling directly to the BoP enables a high degree of con- with many entry points and low individual purchasing power. stead be interested in an improvement loan for her
and business models are relevant for different tiers of BoP cu- trol without middle men increasing the costs. It also enables Supplying affordable homes through public entities, civil soci- current slum dwelling. From the outside Priya and
stomers. For the lowest tiers upgrading solutions or subsidized a unique understanding of your end-users. For companies ety organizations (CSOs) or corporate customers can be a valid Devika are defined as slum dwellers, irrespective of
models are most relevant, while the range of solutions and working with housing upgrades direct sales or sales through alternative or means to diversify. them ha-ving very different resources and requirements
models is wider for the higher tiers. retail partners is often easiest. Mexican cement manufacturer, for a suitable housing solution that meets their needs.
CEMEX, for example values this relation. In the mid-nineties, Public or CSO customers
For companies entering the affordable housing sector it is of- economic crisis in Mexico caused traditional customers such as Government and civil society organizatons invest large sums
ten a struggle to develop financially viable models if the lowest major companies and institutional buyers to scale down. At the of money in affordable housing. For some companies, these
tiers are targeted from the outset. To avoid this, you can con- same time, CEMEX noticed that 30-40% of bagged cement used organizations are the direct customer, while others cooperate Civil society organization Ashoka works closely with local
sider different approaches. in Mexico was bought by low-income families. For CEMEX, this with government programs to provide financing. In Brazil, Fez partners to develop new ways of assessing credit worthiness of
Ta Pronto for example could see a clear need for affordable so- the BoP. A taxi driver for example has a quite stable income,
lutions, but little possibility to deal directly with low-income which can be evaluated surprisingly accurately by combining
DIP strategy Multi-tier strategy communities from the outset. Instead the government has been knowledge of the taxi business with interviews and calcula-
Instead of initially targeting the The multi-tier approach targets different income tiers as parallel seg- their initial customer. See case page 32. tions of expenses and average monthly income.
bottom tiers, some companies use ments or combined. Building material company Lafarge has four dif-
a deeper into the pyramid strategy ferent business models for different segments and applies a mix of To encourage developers to focus on affordable housing,
(DIP). The vantage point is moving relevant models in each country. This ensures flexibility and risk diver- Corporate housing Ashoka is also developing hybrid models, which make it easier
from traditional high or mid-in- sification. For Architects 3XN, mixing segments is also part of the deal. In Large companies can also be a customer group for affordable to identify the right customers. Ashoka recruits citizen sec-
come segments to the top BoP seg- Mumbai, housing developments can be built in slum areas if a minimum housing solutions. For companies providing access to afford- tor organizations to help identify and screen customers and
ments and slowly bringing down of 70% of slum dwellers are relocated to the new development. To this able housing for workers can enhance their value as employ- combine these with mortgage institutions, who assess the
the affordability threshold while in- end, 3XN has designed a high rise where the lower floors include units ers and solve practical problems. In Algeria, prefab compa- creditworthiness of the customers. Housing companies or de-
creasing market understanding and for low-income inhabitants and spaces for small shops, while the floors ny SPS combines direct sales with sales to companies. This velopers are then presented with a qualified group of potential
adjusting business models gradually. above target middle and high-income inhabitants. customers.You can also read
