Sustainable Financing Models for Property Registration in Developing Countries

Scarce land and property documentation plagues the developing world: over 1 billion people have insecure property rights. The inability to demonstrate secure property rights, particularly among low-income households, remains at the core of the world’s most pressing challenges: conflict, gender-based violence, hunger, poverty, and vulnerability to disaster. Put another way, secure property rights—both formal and informal—are a foundational asset upon which livelihoods and stability are built.

The Future of Land and Housing Program at New America, in collaboration with Suyo, a social enterprise that provides tech-enabled property rights services to low-income households in Colombia, has produced a series of briefs to explore innovative approaches for demand-driven property registration. This is the second brief in the three-part series addressing how to remove barriers to scaling fee-based, demand-driven property registration.

Following the introductory brief, this brief focuses on financing models for property registration services where customers contribute some portion of the cost.[1] We attempt to advance the ever-present challenge of financing property registration at scale, drawing lessons learned from experimentation and pilots, even when not ultimately deemed successful.

Who Currently Pays for Property Registration Services (and Why It’s Not Financially Sustainable)

From multilateral governmental organizations like the World Bank to bilateral aid agencies like USAID to NGOs embedded in local communities, a billion dollar donor industry has sprung up to help host country governments finance and deliver property registration. Despite these large investments, financing property registration remains an ever-present challenge for developing countries (see brief #1 for more).

To navigate these complex challenges and address this global need, a number of for-profit social enterprises have developed innovative—often tech-enabled—approaches to formalize land and property ownership for low-income households. They have refined a solution and are seeing results: companies like Suyo and Meridia have collectively provided thousands of property registration documents to low-income households, from smallholder farmers in the cocoa-growing regions of Ghana to flower farmworkers in Colombia.

Despite a billion dollar donor industry, financing property registration at scale remains an ever-present challenge.

In order to scale property registration services, these companies need to be financially viable, and are experimenting with cost recovery models that rely on contributions from customers. Also referred to as fee-for-service, beneficiary financing and self-financing, customer contribution models are a form of cost recovery in which those benefiting from land formalization services pay a portion of the cost. Regardless of the term used, the concept remains the same and can serve as an important piece of the larger financing puzzle that land registration companies can rely on to scale their services.

Models of customer contribution financing can range from fully commercial sales, where a customer pays the full cost of registration, to partial subsidization, where customers pay some portion of the cost based on factors such as the size of the parcel or the income level. The design of the customer contribution model and the level of subsidization depends on two interrelated factors: a customer’s capacity to pay (CTP) and their willingness to pay (WTP) (see brief #1 for definitions). Since many of the lowest-income households necessarily prioritize short-term, daily basic needs over property rights registration, some level of subsidization through donors will remain critical.

The rest of this brief explores customer contribution financing models piloted by Suyo, Meridia and the Land Tenure Assistance (LTA) project. While both the services themselves and the geographic, sociodemographic and cultural contexts in which these companies operate differ completely, insights from experimentation around cost recovery can yield valuable lessons about the commercial potential and viability of property rights financing. The insights in this brief are gathered largely from publicly available reports, and discussions with property rights registration implementers.

Property Registration as an Employee Benefit: Suyo’s Loan and Guarantee Facilities in Colombia

Suyo is a social enterprise that provides a range of property registration services to low-income households through a streamlined “one-stop shop”, primarily in Colombia. Suyo has experimented with different financing models to test the commercial viability of its services since its inception. In this brief we focus on its pilot to scale property registration services through customer financing and as an employee benefit. Referred to as the loan and guarantee facilities (facility for short), the design of this pilot was informed by extensive customer-centric research examining the CTP and WTP of the Suyo customer base.

The design of the loan and guarantee facilities. To test the level of subsidization needed for Suyo’s services to be commercially viable, Suyo developed a dual loan and guarantee facility in partnership with Omidyar Network (ON) and Mercy Corps Ventures (MCV). Based on its solid track record, commitment to social impact, and willingness to innovate, the partner selected to finance property titles loans was Crediorbe, a Colombian consumer finance company that specializes in motorcycle financing, also for low-income customers.

The facility was intended to work like this: low-income households employed by Suyo’s corporate partners (mostly agriculture and manufacturing companies) could enter into payroll deduction agreements (known in Colombia as libranzas) for property title loans. The loan facility increased affordability of property registration for Suyo customers by enabling lower interest rates, low monthly payments, and longer tenors then previous property registration loans.[2] The guarantee facility mitigated the risk of financing property registration services to Crediorbe for an unproven financial product (property title loans). In order to gain access to the facility, employers first had to structure a libranza agreement with Crediorbe. The loan and guarantee facility was designed to benefit all partners involved:

• Crediorbe would receive loan payments deducted from the paycheck of employees, and could mitigate its risk through backing from ON and MCV;
• Suyo would receive full, upfront payment from Crediorbe for each employee that took out a loan, improving its business cash flow; and
• The employers partnering with Suyo could offer subsidized loans for property formalization as an employee benefit, which has been shown to increase employee motivation, stability, productivity and sense of belonging, and may also contribute to increased retention.

Ultimately, the loan facility was not successful as a viable financial model as it largely failed to convert employees' initial interest in property registration into purchased and financed property titles. Despite a 172 percent increase of Suyo customers taking on debt for property registration during the facility, the vast majority of these loans were not from the facility. Indeed, there was an 82 percent decrease in the takeup of the Crediorbe property registration loans after the facility launched.

Why was there a decrease in the uptake of loans through the facility, but an overall increase in loans for property registration?

Low takeup of the facility loans. Around the same time the facility launched, Suyo was transitioning from a B2C model (or business-to-customer) to a B2B2C model (or business-to-business-to-customer), and shifted its strategy from working directly with low-income households to working with low-income households employed by private companies. And as early success with smaller companies led to partnering with larger companies, this transition led to unanticipated changes in the portfolio of customers and their financing options that contributed to the low takeup of the facility.

One unanticipated impact of the shift to partnering with larger companies was that many more Suyo customers now had access to employee financing funds, through which they could access subsidized loans for a range of services, including home improvement and education services. Indeed, access to employee funds among Suyo customers increased from 2 percent to 60 percent after the launch of the facility.

The existence of employee funds impacted loan takeup in a few ways, but primarily it impeded companies’ willingness to set up libranzas and enter into payroll deductions agreements with Crediorbe. Because most companies already had the employee financing funds, they instead opted to promote financing for property registration loans directly through these funds. Companies also make revenue off the interest of the loans through employee funds, and thus had little incentive to promote another option to their employees. Small and midsize companies partnering with Suyo also failed to set up libranza agreements with Crediorbe, but in this case, it was not because of a preference for employee funds, but because they felt they lacked the administrative capacity to set up and maintain them.

The low overall uptake of loans was not sufficient to scale property registration with debt financing and credit products alone.

Since companies by and large did not set up libranzas, employees had two options: purchase property registration through an employee fund or through the non-libranza loan facility. Without the libranza loan option, interest rates through the employee fund were much more attractive,[3] as libranzas would have allowed loan payments to be automatically deducted from employees’ payrolls, lowering the risk and thus interest rates. Employee funds also had the advantage of brand recognition as they were tied to their existing employer.

But even when Suyo customers (both the individual employee and a company partner) were not influenced by the presence of employee funds, Suyo still had a hard time attracting interest in the facility’s loan product. This is in part because Suyo had anticipated that the shift to working with companies under the B2B2C model would have increased the income and improved the risk profiles of its customers, but this shift did not occur to the extent that Suyo had anticipated. Short of a higher CTP, many customers were still unable to assume credit, despite the significant de-risking from ON and MCV.

Ultimately, the number of Suyo customers taking on debt for property registration services increased over time, but the uptake was through employee funds, not through the facility. Regardless, the low uptake overall (through both the fund and the facility) was not sufficient to scale registration services with debt financing and credit products alone. The lack of an immediate financial benefit from property registration to support future payments as with productive (or income-generating) loan products makes this a unique challenge with property registration.

A Flexible, Sliding Fee Schedule for Land Ownership: Meridia’s Pilot in Four Ghanaian Cocoa-Farming Communities

Meridia is a for-profit social venture that delivers land registration services directly to smallholder farmers, primarily in Ghana, as well as in Cote d’Ivoire, Malawi, and Indonesia. Over its six years of delivering land documents in Ghana, Meridia has experimented with different business models to various degrees of success, including providing loan payment schedules tied to seasonal harvests.

One specific experiment was the Integrated Land and Resource Governance (ILRG) pilot, in which USAID contracted with Meridia to offer certificates of ownership (FarmSeal documents) to farmers rehabilitating aging cocoa farms in four Ghanain communities. To test and refine cost recovery options for land documentation, ILRG piloted a flexible sliding fee schedule, where farmers paid a portion of the cost of land documentation while USAID subsidized the rest.

Seventy-five percent of Ghana’s cocoa-growing communities will likely need subsidies to cover the cost of land documentation over the next decade.

Sliding fee cost schedule. The FarmSeal services consisted of community outreach to introduce the service, “wall-to-wall” mapping of farm parcels, and registering rights with customary authorities. The level of subsidy ranged from 20 to 70 percent of the cost, and was based on land size, with smaller farmers receiving more subsidies.[4] Given the low crop yield and relative vulnerability of the communities in ILRG, Meridia did not require farmers to put a large amount of money down and allowed ongoing payments over time. The average cost of land documentation per parcel is about $82, and the sliding fee scale paid by farmers ranged from $26 to $103 per parcel. To encourage interest in purchasing the FarmSeal documentation, USAID covered the cost of wall-to-wall mapping.

Low uptake of land documentation services. Ultimately, there was low uptake of farm documentation services in the four communities: only 70 FarmSeal documents, or 8 percent of mapped farms, were sold and fully paid for. By the end of the pilot, USAID had adopted a full subsidization model, providing all FarmSeal documents at a token fee of $6.

While there were many factors contributing to low uptake—most of which are based on factors external to farmer’s CTP or WTP—Meridia’s experimentation with subsidization offers valuable lessons on factors that can impact pricing schemes. Meridia’s experience suggests that:

• Full subsidization is required when the combination of factors like those present in the four focus communities exist: previously free documentation services, conflicts over tenure terms and farmer rights, and low cocoa productivity. Meridia estimates that this is likely needed for 20 to 30 percent of Ghana’s cocoa-growing communities.
• Partial subsidization applies to communities where one or more undermining factors are at play and can be addressed effectively soon after launching a land documentation campaign. Meridia estimates that 40 to 60 percent of cocoa growing communities in Ghana will require partial subsidies.
• Fully commercial sales or no subsidization can work with farmers who have reasonably good cocoa profitability and are not facing factors identified above. Meridia estimates that 20 to 30 percent of Ghana’s cocoa-growing communities can fully subsidies documentation.

Meridia estimates that at least 75 percent of Ghana’s cocoa-growing communities will need some sort of subsidization to cover the cost of land documentation over the next decade. While it is highly unlikely that the Ghanaian government can cover these costs, a blended financing model or pooled funding specific to land tenure in West Africa, financed by donors and chocolate companies could have potential for scaling documentation of commercially viable land. Additionally, profits from the sale of fully-commercial and partially-subsidized property registration services could potentially be used to help cross-subsidize households that have the lowest CTP.

From Donor-Funded to Sustainable NGO: Scaling a Customer Contribution Model for Land Documentation in Tanzania

The Feed the Future Land Tenure Assistance Activity (LTA) was a USAID project that partnered with the Tanzanian Government to provide village land use plans and customary land documents (called CCROs) in the country’s Iringa and Mbeya Regions. Over the course of six years, the project delivered nearly 100,000 CCROs—a significant achievement in a country where less than 5 percent of village land is registered.

In 2020 and 2021, LTA implemented a “beneficiary contribution” model in over 50 villages, through which CCRO recipients paid some or all of the cost of their CCRO. The customer contribution is based on actual costs of adjudicating, demarcating, registering, and printing CCROs, which is, on average, less than $10. Customers are asked to contribute $13 to cover not only the cost of the CCRO, but also the cost of implementation on a village level, including the preparation of Village Land Use Plans and rehabilitation of Village Land Registries. The contributions are deposited in a local bank and administered by a specially elected village committee to cover the cost of both individual registration and village-level land expenditures.

The customer contribution model has had varying results. According to the LTA sustainability plan, “some villages have shown willingness to make relatively significant contributions, the majority of beneficiaries have yet to make their contribution.” Similar to Meridia’s ILRG pilot, one factor that LTA believes is causing a lower uptake than expected is the belief from some villages that the cost of CCROs would be or should be free of charge. Moving forward, LTA plans to invest in public information campaigns and building influential village champions to encourage CCRO recipients to make timely contributions.

As the LTA project comes to its end, USAID has stood up a non-profit organization called the LTA-NGO to transition from a USAID-funded land registration model to a more sustainable customer contribution model. LTA-NGO will provide training and support for systematic village land registration that depends “on cost recovery model from land claimants”, as codified in their mission statement.

Lessons Learned from Customer Contribution Models for Land Registration

Testing customer contribution financing models for property registration is still nascent. Despite the differences in the registration and documentation services offered and the contexts that they operate in, the experiences of innovative companies like Suyo, Meridia, LTA NGO and others, even when not entirely successful, provide important insights for future testing and innovation.

Customer contribution is necessary, but still may not be sufficient for property registration services. Even with significant price discounts or flexible financing terms (which have been shown to be necessary for low-income households to pursue registration altogether), some customers cannot or will not make a financial contribution. As shown through Suyo’s loan facility pilot and Meridia’s ILRG pilot, a large percent of low-income households may always need partial to full subsidization to pursue property registration services.

Customer pricing schemes should be carefully designed with the end user and other environmental and contextual factors in mind. As evidenced in the pilots discussed in this brief, demand for property registration is highly complex, and impacted by both WTP and CTP, as well as a host of other factors. Assessments of WTP and CTP require in-depth situational investigations prior to designing customer pricing schemes. This means structuring payments based on the cash flow of a household and incorporating it into low monthly payments and longer tenor loans, as well as taking into account seasonal cash flows, and also building in some degree of flexibility in terms of payment plans, given external circumstances such as low crop yields.

Pay attention to the unintended, positive consequences of financing pilots. Ultimately, the goal of companies like Suyo and Meridia is to sustain their business by scaling property registration services. While the financing pilots by Suyo and Meridia discussed in this brief did not ultimately generate a sustainable model for the uptake of services, that does not mean they were wholly unsuccessful. In Suyo’s case, there was an increase in uptake of property registration loans, just not in ways that would ultimately increase Suyo’s ability to scale its services. But socializing the importance of property rights registration through outreach, awareness and education to potential customers may be just important. And while it did not translate into immediate purchase of property registration through the pilots, it could help towards this goal in the future. The lessons learned from these pilots also informed important adjustments to Suyo and Meridia’s business models, and both companies have experienced significant growth in their capacity to deliver property registration services since.

When financing schemes are unproven and high risk, there is a need for innovative funders to de-risk the models and incentivize participation from key stakeholders. Omidyar Network and Mercy Corps Ventures were intentional in taking on risk in the loan facility, and Omidyar Network in the guarantee facility, while also trying to provide as much risk mitigation as possible for those involved. While debt financing alone ultimately may not be sufficient for large-scale land registration, there are blended financing models that have yet to be explored that could combine out-of-pocket customer payments, loans, guarantees, and subsidies for property registration, in an effort to maximize affordability and minimize and mitigate risk. The success of these models will depend in part on the willingness of investors to take on a similar role to that of ON and MCV in de-risking and stimulating innovation.

Communication around property registration is a massive investment of time and resources. This will be a challenge inherent to property registration services regardless of the context or the financing model: there is not always an immediate financial benefit from property registration, which makes it difficult to communicate around as an urgent need. Independent from WTP, CTP and other economic factors, uptake is shown to be greater when customers understand the service and benefits, but these communication efforts are complex and require a huge amount of resources and time.

Financing property formalization services at scale should be achievable: there are billions of potential customers, the value to the customer is validated, and emerging technologies and innovations have succeeded at lowering the cost to the consumer. Yet, there is a lack of testing and innovation for the wide range of customer financing models. The scale of the issue clearly requires a suite of solutions tailored to the needs of different customers in different contexts that address the unique characteristics of property formalization. As such, it is critical that innovative financing mechanisms continue to be tested and developed to scale property formalization to those most in need.

Learn More

The purpose of this brief is to document early financing models that rely on customer contributions for property registration throughout the developing world and elevate relevant insights. As part of this briefer series, we examine two other critical questions:

1. What challenges exist with property registration services throughout the developing world and what innovative models exist to overcome such challenges (Access brief #1 here).
2. How can companies like Suyo increase uptake for property registration? (Access brief #3 here.)

Insights to these questions can also be found in Suyo’s recent report, Learning for systems change in property rights formalization.

Contact

Thoughts or questions? Contact Yuliya Panfil (New America) at panfil@newamerica.org.

Endnotes:

[1] Development experts variously, and sometimes interchangeably, use the terms “documentation,” “formalization,” and “registration.” For the purposes of this briefer series, “documentation” refers to basic data collection on property rights and the issuance of some document, whether official or unofficial, based on that data. “Formalization” involves official recognition of rights by national land agencies and/or other government actors. Increasingly, however, customary land rights are being formally recognized, and a gray area exists in the discourse as to whether this is considered “formalization.” For sake of simplicity and inclusivity, we will use the term “registration,” which captures both “documentation” and “formalization,” recognizing that certain services, such as Suyo’s offerings, may be significantly more expensive or difficult to provide precisely because they offer formalization in addition to documentation. Where appropriate we make this distinction.

[2] Before the facility, Suyo worked with Crediorbe to offer property registration loans directly to Suyo customers in the B2C model. These loans used the same terms as their traditional microfinance product, and had much higher interest rates and less flexible terms than the loan designed for the facility.

[3] The employee funds had an interest rate that ranged from 11 to 16 percent while the facility loans through Crediorbe had interest rates ranging from 15 to 25 percent. See the evaluation of Suyo here for more details.

[4] Vulnerability is found to coincide with parcel size: migrants, women-headed households, youth farmers, and farmers with secondary interest tenure types were commonly cultivating the smallest farms. See pg. 17 of the Viability of A Cost Recovery Model Report here.