Case Examples


Example of:

    • Large scale private sector involvement
    • Prevention of slums by creating alternatives
    • Sustainable model for promoting access to land and basic services
    • The benefits of progressive land development and urbanization

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San Salvador, El Salvador
Private sector land development

During the past 30 years, El Salvador has experienced rapid urban growth as a result of population growth, and migration. The problem was further complicated by a civil war and several natural disasters that affected the country during the mid-70 to early 90’s. Unprecedented urban growth disrupted social and economic programs and severely taxed the institutional capacity of both central and local governments which were unable to facilitate access to land, basic services, and housing to the majority of the population. As a result, most low-income families are faced with limited options. Some families deal with their problems by participating in NGO and/or government sponsored programs of self-construction. Methodologies and solutions provided by these public and NGO programs are interesting but lack the necessary scale. For most poor families, the most realistic choice has been moving into existing central city slums or squatting on government or privately owned land.

In this context, one of the most promising approaches for preventing growth of slums is that of ARGOZ, a private commercial firm created in 1977. ARGOZ has developed a unique, high impact, and accessible model that allows poor families to gain legal access to a plot of land. ARGOZ works as a private land developer, with a simple business model that includes subdividing privately owned urban plots of land located in the outskirts of San Salvador and other urban centers, leasing with an option to buy individual lots to low income families, providing long term financing, and providing limited advise to families and the new settlements on how to gain access to basic services. ARGOZ’s model is best known in El Salvador as “colonias ilegales”, that is, “extra legal” subdivisions that, up to 1992, were tolerated by government even though they were in non-compliance of existing urban development by-laws and ordinances. As of 1992, new legislation was adopted that allows for the progressive urbanization of land in the outskirts of urban centers.

In its 23 years of operation ARGOZ has allowed approximately 300,000 families, close to 2 million people, to gain legal access to a piece of urban land. As in many other countries, in El Salvador land ownership sets in motion a process of self-construction and progressive development. Available evidence indicates that most clients of ARGOZ have incomes between 1 and 2 minimum salaries, precisely the same group that is difficult to reach through government and NGO sponsored programs. Working with the poor has not prevented ARGOZ from becoming a highly profitable business venture, with assets growing from less than $50,000 in 1977 to $141 million at the end of 1999.

For further information:

“Participacion Privade en el Mejoramiento Urbano: Sondeo de Cuatro Casos en el Salvador”. SACDEL. Sistema de Asesoria y Capacitacion para el Desarrollo Local. SanSalvador, Mayo de 2000.

Manuel Sevilla -

ARGOZ was conceived as a profit making business venture. However, behind its business model one can identify the following implicit objectives:
  • Preventing the growth of slums by making land accessible to low income families.
  • Increasing accessibility by adapting standards and cost of solutions to existing capacity to pay.
  • Initiating a process of progressive improvement of housing and basic services in low-income neighborhoods.
  • Making a profit by responding to unsatisfied basic need of low income families.
Components and Process
ARGOZ experience has evolved over the years but in general the system operates in the following way:
  • ARGOZ identifies private landowners in areas where demand and growth are expected, signing a contract.
  • Land subdivision is done by ARGOZ who provides landowners with the subdivision engineering designs, and also assumes responsibility for advertisement, relating to potential customers, analyzing creditworthiness of interested families, contracting and collecting payments.
  • ARGOZ relates and deals with customers through local offices and staff, using procedures that are simple and adapted to potential customers. Paper work and information is made accessible to low-income and, on many occasions, illiterate customers by a team of social workers hired by the company.
  • Some 40% of the resulting plot sales price is kept by ARGOZ as processing and management fee, including design, subdivision and advertising.
  • Lots are offered for sale on a 5-year monthly payment plan, which is equivalent to a lease with a purchase option.
  • Individual lots provided by ARGOZ are 200 square meters, larger than lots provided by publicly or NGO sponsored programs.
  • Lots are sold to families that present evidence of capacity to pay, no down payment is required, and the remaining debt is spread over a 5-year period, charging a 20 percent rate of interest, 4 points above existing commercial bank rates.
  • Criteria to evaluate capacity to pay are adequate since less than 20% of applicants are turned down, and both formal and informal sources of income are accepted.
  • Families are not required to place any additional collateral since the lot itself guarantees the loan.
  • Payments fluctuate between $5 and $20 per month, depending on the amortization period. With the last payment the lot becomes the "property" of the client family. Beneficiaries also enjoy the benefits of an insurance policy covering any outstanding debt in case of death of the titleholder, at no additional cost to them.
  • These urban plot developments, usually located on the outskirts of larger cities tolerated by both local and central government but are “illegal” since they do not meet the urban development by-laws and/or zoning ordinances that require developers to install infrastructure with city standards. The subdivisions however meet the requirements of rural land apportionment by-laws, adopted in 1992, that allow for progressive urbanization.
  • Once the lot holders occupy the land, they build provisional roofs and walls, which they replace, little by little with longer lasting and better quality materials. Other families wait until they made some savings or get a loan to build their houses.
  • In case of late payments, customers are encourage to negotiate a plan to return to payment compliance. However, if a family is unable to pay ARGOZ will repossess the plot, and 50% of paid monthly installments are returned to the lessee. Families also have the option of negotiating directly the sale of the lot and recovering the value of any improvements made over the years.
  • When the subdivision acquires a minimum “development profile” and the community gets sufficiently organized they begin the process searching for ways to gain access to basic municipal services. Typically families will save and self-financed some services, lobby for support from local and central government, contact NGO, and seek support from ARGOZ itself. Services are obtained gradually, through protracted pressure on public entities and self-effort, over a period that can last up to 15 years. Perhaps the single most important ingredient in this process of progressive community improvement is the community strength and its cohesion.
  • Electric power, for example, is rather easy to obtain since in most of the cases the subdivisions are located near power distribution systems. Neither schools nor clinics pose a major problem; in general they are close to the subdivision. Technically more difficult to procure are wastewater (plus storm water) and sewerage systems, as well as drinking water. Waste collection is practically non-existent because of widespread poor municipal performance. The cost for these basic services is quite high for the residents, and they have to wait many years before they get them.
  • ARGOZ channels approximately 18% of its profits in support of the newly formed urban developments to finance housing, and infrastructure improvements. Loans to finance housing improvements are available to families with a good repayment record.
The operation of ARGOZ during almost 23 years has clearly shown that:
  • Working with the poor to improve their access to land, basic services and housing can be a profitable business;
  • It is possible to design a sustainable and high impact model of slum prevention and upgrading through private participation;
  • Improving the situation of low income families requires not only additional resources but, more importantly, adapting standards to local and national realities;
  • Providing security of land tenure is key for setting in motion a process of urban upgrading;
  • Private participation in the process of urban upgrading can ease financial pressures over both local and central governments.
What worked and why?
ARGOZ provides a viable, private sector alternative to the problem of accessing land and services by low-income families on a scale unmatched by any other public or NGO sponsored program in El Salvador.

Main benefits of ARGOZ operations include:

  • the number of families gaining access to land,
  • its contribution to preventing squatting in San Salvador and other urban centers.

Key elements in explaining success are:

  • initial government tolerance and subsequent changes in legislation to accommodate the experience, appropriate standards and low unit cost of solutions provided,
  • a system of financing designed in accordance with the intended market,
  • and finally operating with an informal client-friendly procedures.
What didn't work and why?

The process of upgrading could be more rapid if there was more coordination between private sector initiatives and government programs. Other limitations affecting ARGOZ experience are:

  • capacity of communities to lobby for better services is limited by weak organization,
  • the system remains largely unregulated,
  • formal financial systems remain inaccessible to ARGOZ’s clients,
  • most NGO’s remain distant and unwilling to work with ARGOZ communities.
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