Transforming Kigali’s Informal Settlements: A Pathway to Affordable Housing and Sustainable Development

Kigali, the vibrant capital of Rwanda, is home to numerous informal settlements. These make up approximately 60% of its built environment and face significant challenges, including poor housing conditions, limited accessibility, and inadequate public facilities. ​ One such area is the Mpazi neighbourhood, located in the Akabahizi cell of Gitega Sector, Nyarugenge District, near Kigali’s Central Business District. ​

To address these issues, a comprehensive redevelopment plan has been proposed, focusing on providing quality, affordable housing for vulnerable households. ​ This initiative, spearheaded by the Swiss Agency for Development Cooperation (SDC), the City of Kigali (CoK) municipal authority, Access to Finance Rwanda (AFR) in collaboration with various stakeholders, aims to transform Mpazi into a model of sustainable urban development.

Project Context

Mpazi’s informal settlements are characterised by substandard housing, poor infrastructure, and a lack of essential services which negatively impact the residents’ health, safety, and overall quality of life. ​ The redevelopment project seeks to rehouse residents from poor-quality informal housing into high-quality, affordable units while also improving infrastructure, creating commercial spaces, and enhancing public services. ​

The project owners appointed Altair with the following specific objectives:

• Establish a scalable scenario builder tool based on the rehousing approach currently being proposed by the PROECCO program. The potential applicability of the scenario in CoK, satellite cities, secondary cities, and other urbanising areas in Rwanda will be evaluated. Greenfield affordable housing developments should also be considered.
• Suggest possible public-private people’s partnership (PPPP) models, possibly anchored to a special purpose vehicle (SPV) or similar structures, to coordinate the design, implementation, and monitoring of the relevant affordable housing initiatives (including rehousing initiatives)
• Assess and propose the legal, economic, and financial factors necessary to operate, sustain, and scale-up SPV models (or similar structures) that support the provision of affordable rental and ownership housing).
• Suggest viable financial tools to engage local financial institutions (e.g., banks, microfinance institutions) as well as local, regional, and international investors.

Starting from a conceptual development layout, designed in partnership with the communities and focused on mixed, green, inclusive and compact development principles, the intended outcomes of the consultancy were to:

• Rehouse all landowners in new, improved and compact development, completely avoiding expropriation and forced relocation.
• Accommodate a significant majority of residents in both ownership and rental opportunities.
• Assess the modalities of establishment, operationalisation, sustainability, and risk management and mitigation of SPV models based on public–private and people partnership (PPPP) mechanisms.
• Design a replicable business model that can be adapted to other unplanned neighbourhoods in major cities of Rwanda.
• Evaluate the impact on the local economy in terms of engagement of local workers and residents, small and medium contractors, and developers.
• Elaborate attractive investment packages to be presented to private stakeholders nationally and internationally and propose appropriate investment instruments for various actors.
• Assess gaps in the existing laws and regulations related to housing development and re-development and SPV operationalisation and provide recommendations.

Proposed Solutions

To address these challenges, the creation of a special purpose vehicle (SPV) to oversee the redevelopment and execution of the mixed-use development is being considered. ​ The SPV will be structured as a Community Benefit Company (CBC) to ensure a mission-driven focus on social impact and long-term sustainability as well as financial returns. ​The CBC role and responsibilities would range from being a master developer to facilitate land assembly and infrastructure development, to the promotion of joint venture with private sector developers and become a vehicle to raise blended finance and community engagement.

The project as currently proposed:

• Total development costs: $84million
• Site area: 19.8 hectares (19,800 square metres [sqm])
• Developable area: 16.8 hectares (16,800 sqm)
• Gross Floor Area (GFA) required for site: 159,304 sqm
• Mixture of residential, commercial units, community facilities
• Residential units are mix of studios, 1-beds, 2-beds, and 3-beds
• Average of 22 units per block
• Mixture of rent, rent to own and for-sale
• Depending on the scenario finally adopted number of residential units would range from 2000-4000 units.

The key characteristics of the CBC as a non-for-profit making company are as follows:

• Structured Financing and Risk Management: The SPV will raise funds independently, attracting diverse sources of capital, including grants, equity, and debt. ​ This approach will mitigate financial risks and enhance creditworthiness. ​
• Enhanced Governance and Accountability: A dedicated governance structure will ensure transparency, accountability, and efficient decision-making, fostering trust among stakeholders. ​
• Operational Flexibility: The SPV will operate with greater agility and efficiency, streamlining procurement, staffing, and operational procedures. ​
• Sustainable Development Practices: The project will prioritise sustainable building practices, incorporating green infrastructure and energy-efficient designs. ​
• Community Involvement and Empowerment: Residents will be engaged in the planning process, ensuring the final designs meet their needs and preferences. ​ Additional support services, such as vocational training and financial literacy programs, will empower residents economically and socially. ​

Leveraging the SPV

The SPV can be leveraged to attract additional capital through:

• Blended Finance: Combining concessional finance with commercial capital to improve project bankability on both supply and demand perspectives.
• Revenue-Generating Assets: Including commercial spaces, rental housing, and service fees to create steady income streams, enhancing investor confidence.
• Land Value Capture: Utilising increased land values post-development to finance part of the project, through mechanisms like betterment levies or property taxes.
• Asset Securitisation: Bundling future income streams (e.g., rents, service charges) into securities to attract institutional investors.

Mobilising Private Capital

To attract private investment, the following strategies are being considered:

• Public-Private Partnerships (PPPs): Offering clear revenue-sharing models and risk allocation to incentivise private sector participation.
• Credit Enhancements: Using instruments such as guarantees to reduce default risks, making the project more attractive to commercial lenders.
• Equity Participation: Allowing private investors to hold equity stakes in joint venture projects, with potential for returns from property sales, rentals, and commercial activities.
• Green/Social Bonds: Issuing bonds aligned with ESG criteria, targeting impact investors focused on sustainable urban development.

The Mpazi redevelopment project is a transformative initiative that addresses the pressing issues faced by Kigali’s informal settlements. ​By leveraging the SPV model and attracting diverse funding sources, the project aims to create a sustainable, inclusive, and vibrant community. ​Impact investors have a unique opportunity to contribute to this vision, supporting affordable housing, infrastructure development, and social impact while achieving financial returns. Together, we can build a brighter future for Mpazi and set a precedent for sustainable urban development across Rwanda. ​

For more information on this project or the services that Altair International provide, get in touch via our expression of interest form here.