Urban Poverty, Social Exclusion and Social Housing Finance: The Case of PRODEL in Nicaragua

The Foundation for the Promotion of Local Development (PRODEL) operated from 1994 to 2008 following Nicaragua’s civil war, and it created an integrated poverty reduction programme that sought to reach the poorest and overcome social exclusion. Almost 35,000 households improved their housing with microloans; another 20,000 microenterprise loans were disbursed and 659 infrastructure projects were completed using a co-financing mechanism drawing in community and municipal contributions. While acknowledging these achievements, Stein uses PRODEL as a critical case to analyze why housing microfinance does not always enhance inclusion of the urban poor. A former adviser to PRODEL, Stein identifies key constraints to improving the poor’s housing and collective assets, and explores the tension between achieving financial sustainability and increasing financial inclusion. Environment and Urbanization readers may already be familiar with PRODEL, as papers about its work were published in 1997 (by Sida) and 2001 (by Alfredo Stein), but this PhD thesis provides additional insights into its history, achievements and challenges in establishing pro-poor forms of social housing finance. As an innovative programme co-financed by local governments, the urban poor and Sida (Swedish International Development Cooperation Agency), PRODEL also illuminates how complex aid partnerships and strategies evolve over time.

Chapter 1 introduces PRODEL, followed by a discussion of the conceptual framework and research methodology in Chapters 2 and 3, respectively. Stein’s framework combines urban poverty, social exclusion and asset accumulation, focusing on the multiple dimensions of housing as an asset. By promoting inclusion in several social and financial schemes, PRODEL sought to reduce poverty and strengthen low-income households’ opportunities for accumulating assets. The thesis uses longitudinal data and interviews with residents, local officials and Sida staff. Stein’s fieldwork centred on three cities where PRODEL was most extensively implemented (the small and medium-sized cities of Somoto, Ocotal and Estelí). Chapter 4 traces PRODEL’s context and origins and Chapter 5 examines its institutional evolution (including Sida’s internal debates, political obstacles, an organizational crisis and PRODEL’s transformation in 2003 from a governmental programme to non-governmental foundation). With Swedish support totalling US$ 22 million, PRODEL operated successfully in a complex socioeconomic context and overcame significant political and internal challenges (page 126).

Chapter 6 discusses outcomes across Nicaragua, and these aggregate results are complemented by Chapter 7’s detailed findings from Somoto, Ocotal and Estelí. Alongside microfinance for enterprises and shelter improvements, PRODEL offered technical assistance. Meanwhile, a co-financing mechanism generated US$ 18 million of investment in infrastructure, with 50 per cent coming from PRODEL, 34 per cent from local government and 13.7 per cent from the urban poor. The author concludes that co-financing improved local revenue collection, as municipalities were incentivized by PRODEL’s matching funds, while bolstering governmental accountability to poor residents. In Chapter 8, Stein discusses the programme’s limits. Housing and enterprise loans often went to less-poor households and the poor’s financial exclusion “…probably deepened, although not as a consequence of mission drift by PRODEL” (page 215). Rather, political manipulation hampered the programme, and donors’ insistence on financial sustainability led to targeting of wealthier households who could afford higher interest rates. In the final chapter, Stein notes that Sida’s support still enabled PRODEL to produce effective long-term outcomes, and additional longitudinal research could help evaluate its results.