Larry English explains how the social franchise model is helping affordable housing grow into a highly investable market
For over 25 years as Homeless International, we have worked to address the market failure in the provision of housing and basic services to people who struggle to afford them.
In the last four years alone, we’ve increased the number of households we help annually from 1,000 to 20,000 - helped enormously by a surge in our funds: since 2010 our budget has increased tenfold to approximately £20m.
Today, we operate partnerships with 26 existing organisations that provide land, secure tenure, housing and basic services for the urban poor in slum communities across 20 countries in Africa and Asia. We provide these enterprises with organisational, technical and financial support to help them to grow from start-ups to financially sustainable, and eventually profitable, organisations.
As our funding has grown, so too have our aspirations. Last year, it became apparent that ‘Homeless International‘ no longer adequately expressed the enterprising work of the organisation, nor the sphere in which we are operating. And so, in September 2014, Homeless International rebranded as reall – or Real Equity for All - to reflect the changing nature of our organisation.
We wanted our brand to encapsulate the solutions we provide, rather than just the problems we aim to tackle. We also wanted to kickstart our goal of creating a social franchise model of development.
Looking for a new solution
The global slum settlements problem continues to grow at an alarming rate. More than 200,000 people arrive in cities every day, and more than 90 per cent of them are forced to settle in slums. That means that unless significant action is taken, by 2020, 1.4 billion urban dwellers will be living in informal settlements.
Given the scale of the problem, we felt that a model relying solely on donations by charitable and governmental bodies was not a sustainable solution to the challenges ahead. At the same time, we recognised that the projected growth in the numbers of slum dwellers also gave rise to an opportunity for the growing number of private funds and individuals interested in impact investing.
We wanted to design a new way of operating that would take advantage of this opportunity, while also providing a scalable solution to the problems faced by slum dwellers. This is when we started to look to the social franchise model as a possible solution.
Why social franchise?
Social franchising is akin to commercial franchising, but it aims to deliver a social benefit by enabling people to work together and share ideas, skills and experience - not just maximise profits.
Our past work has shown that one self-sustaining community organisation can finance and build up to 5,000 houses per year. That’s a fantastic figure, but in terms of addressing the burgeoning demand for safe, long-term housing, it’s only a start. We realised that by implementing the social franchise model, we could help our existing partnerships to scale up their work to levels that would meet projected need.
With the social franchise model, we can build enterprises, not just houses, allowing us to seed networks of community organisations in dozens of cities worldwide, and enabling rapid innovation as a number of semi-independent, highly motivated franchisees share practices around how to tackle the same issues.
A more powerful voice
Over the next year, all the organisations we support will be invited to adopt the reall brand as a mark of assurance; a stamp of quality and integrity that demonstrates our network’s shared values, standards and systems. Every community organisation, whatever its size or location, has a chance to become a partner in this global network.
reall community organisations will have a more powerful voice to gain access to local governments, local financial institutions, and the global network of institutional investors that we’re developing to provide long-term recoverable debt or equity investments.
Playing the long game
We recognise that the process we have embarked on will be a transition, not a quick switch. In the short-term we will continue relying on charitable funding; but we’re confident that as the network of reall enterprises gains traction and motivates local communities to collaborate with one another, housing for the urban poor will become an attractive investment class. This eventually will enable us to shift our funding base from a donation model to an enterprise one.
Ultimately, our aim is to gain access to commercial sources of finance that, by generating surpluses, profits and returns for funders, will provide a lasting source of funding for community development entities for years to come. As the global housing deficit will take generations to alleviate, we expect the community development enterprises that we support to be around for at least another 50 years.
We believe that reall will have the most meaningful, long-term and far-reaching impact on slums to have ever been initiated, and we are excited and invigorated at the opportunities ahead of us. We want the reall brand to become ubiquitous, leaving in its wake a global awareness of the need to better support and provide long-term finance to the poorest parts of the world’s urban population.
Find out more about the social franchising model here.
Larry English is CEO of reall