Housing plays an important role in household asset building – providing both a place of protection from vulnerabilities as well as a base from which to be economically productive. Even low-income people prioritize investment in improving their living conditions. The base of the pyramid is estimated to spend over $330bn annually on shelter. The question is why we lack financing for housing? In Sub-Saharan Africa, the shortage of financing for housing is even more acute. As a result, poor and even middle-class households in pursuit of better shelter are often driven into the informal financial sector. Banks generally fail or ignore the financing of low-cost shelter, as the perceived risks and costs outweigh benefits. This problem is further accentuated by ambiguous property rights and legal precedents that constrain conventional ways of financing shelter. Thus, mortgage markets in the region remain small, providing access to only a small, elite segment of the population.
The second e-MFP ‘Offsite Session’ of the year took place in London on Monday 10th April, in partnership with the UK’s Financial Inclusion Forum – the leading British financial inclusion network. The session was entitled "The Role of MFIs in improving access to and quality of education: Perspectives on the 7th European Microfinance Award and the European Dialogue" and was timed to coincide both with the launch of "Investing in Tomorrow" (e-MFP’s latest Dialogue) and last week’s launch of the call for applications for the upcoming Award on Housing. The event brought together a panel including Arc Finance’s Sam Mendelson (who was the lead author of the paper, as well as a member of the Award Selection Committee), Kaspar Wansleben from Luxembourg Microfinance and Development Fund (a supporter of two of the 2016 Award finalists and key investor in education finance) and Nathan Byrd from Opportunity International’s Education Finance team, along with e-MFP’s Daniel Rozas. Katy Jones from Big Issue Invest and the Financial Inclusion Forum chaired the packed out event, generously hosted by Allen & Overy. Daniel opened the session by outlining the importance of education – its primary importance to households at all income levels and in all places, and the obstacles to universal access in low-income countries. The failure or inability of governments to provide free or affordable quality education to its people is a key reason for the emergence of low-cost private schools in many countries (and the channel for several of the Award semi-finalists’ initiatives).
We are delighted to announce the launch of the European Microfinance Award 2017 with its €100,000 prize, this year on Microfinance for Housing, all details of which can be found on the Award website. Each year, e-MFP launches the European Microfinance Award, in conjunction with the Luxembourg Ministry of Foreign and European Affairs and the Inclusive Finance Network Luxembourg (InFiNe.lu). And like previous years with their focus on agriculture, social performance management, the environment, post-disaster and crisis contexts, or last year’s edition on Education, this year’s Award is looking for applications from financial institutions that are innovating, exploring and testing new ideas, that go beyond their core financial services, and exemplify the evolution of the microfinance sector beyond boilerplate microenterprise credit. Housing is a great example of how to do this. After the health and safety of children, there’s probably nothing more important to people everywhere than adequate housing. It is a core human need and a top investment priority for families anywhere. But 1.6 billion people live without adequate shelter. By 2030 this will have doubled and the need will be mostly in urban areas, where more than half of the world population lives today and where it is estimated that 2 billion people will be living in slums, where, almost by definition, substandard and unsafe housing is the norm.
The European Microfinance Award 2016 addressed how the microfinance sector can increase access to education among children and young adults in low-income communities. Won by Kashf Foundation of Pakistan and presented at a ceremony in November during European Microfinance Week, the Award received applications from 19 countries, showing a broad range of interventions by MFIs to help increase access to education. As in previous years, all the semi-finalists’ outstanding interventions have been profiled in a European Dialogue publication, entitled "Investing in Tomorrow", written by Sam Mendelson, with support from Micol Guarneri, Francesca Agnello – the consultants who oversaw the Award application and analysis – and Gabriela Erice and Daniel Rozas from e-MFP. The European Microfinance Award is one of e-MFP’s most prominent activities. A prestigious annual €100,000 Award which attracts applications from financial institutions around the world, it serves two parallel goals: rewarding excellence, and collecting and disseminating the most relevant practices for replication by others. This second goal is where "Investing in Tomorrow" comes in – describing the challenges facing MFIs, the types of interventions that can increase access to education, practical case study examples of the finalists and semi-finalists – organisations which put these models into practice – and what these excellent initiatives have in common.
I could not have been happier when I heard that this year the European Microfinance Platform is focusing on housing microfinance. As a microfinance specialist for the last 21 years—and the last 9 exclusively dedicated to microfinance products for housing—I have witnessed the growth potential of this sub-sector of microfinance, as well as the constraints and limitations to the expansion of housing finance portfolios, amongst which the most important include lack of adequate capital and insufficient knowledge on how to develop differentiated housing finance products. When we hear that: at least 1.6 billion of the global population lives in substandard housing; at least half of the global population—3.5 billion people—currently lives in cities; and 828 million people live in slums (according to the United Nations’ Sustainable Development Goals), both funders and financial institutions alike should take note and pay close attention. Within these concerning figures, which only seem to move upward, an opportunity is evidenced. A good portion of the individuals denoted by these statistics have been or are served by traditional microfinance loans, which are frequently diverted towards efforts to improve housing conditions.
Financial Inclusion. Housing.
How often have you seen the two concepts appear together? If you think rarely – you’re not alone. Housing finance is that mysterious niche that crops up from time to time, but rarely makes headlines in our sector. And that’s both a conundrum and a shame. Housing is a core human need and a top investment priority for families anywhere. Whether rich or poor, housing is often the single largest capital investment these families will ever make, that is to say, it cries out for effective products to help finance it. Unsurprisingly, housing finance is a core of financial services in wealthy nations. Indeed, if you’re over 40, chances are that a home mortgage is the single largest loan that you, dear reader, ever held. And yet in the financial inclusion and microfinance sector, housing gets notoriously short shrift. Habitat for Humanity, the world’s leading NGO dedicated to housing, estimates that while 1.2 billion people need improved shelter, just 2% of microfinance portfolios are dedicated to housing.
Microfinance, a lead sector within the larger impact investing spectrum, has gained prominence from development-minded investors over the past decades. Initially, international funding into microfinance was generated largely from donor organizations, including public development agencies and private foundations. As the market gained traction, the role of private capital grew in importance as not only a means for microfinance institutions (MFIs) to reach scale, but also to increase their social outreach beyond what was possible with donor money. Private investors and donor agencies thus joined efforts in creating microfinance investment vehicles, better known in the industry jargon as “MIVs” or more simply “microfinance funds”. MIVs act as the main link between MFIs and the capital markets and usually provide debt financing, equity financing or a combination of both to MFIs located in emerging and frontier markets.
European Microfinance Week is the highlight of the European Microfinance Platform (e-MFP) calendar and a major annual event of the microfinance industry, hosting high-level discussions by all sectors of the European microfinance community working in developing countries.The conference each year welcomes among the 400 participants much of the Platform’s membership, now over 120 organisations and individuals. This year’s conference was particularly special, being the tenth anniversary of e-MFP, and a perfect opportunity to reflect on how much has changed in the past decade, and how much there is to expect in the decade ahead.The conference, held over 16th-18th November provided focus to six main streams: green microfinance; investors, donors and funders; rural finance; social performance; and digital innovations and the 2016 European Microfinance Award topic of Access to Education.
This week marks Financial Inclusion Week. In support of this effort to highlight what Financial Inclusion means for the Platform, e-MFP would like to highlight the work being done in Cambodia by its members and partners, including ADA, BIO, FMO, Incofin, and Proparco, as well as by the MIMOSA Project.
From its beginnings as a hotbed of NGO activity to one of the world’s most active microfinance markets today, Cambodia has always traced its own path in the sector. A decade ago, access to finance in Cambodia was minimal. Today, the Cambodia Microfinance Association counts 2 million loans outstanding for a population of 15 million, along with a growing number of deposit accounts, remittances, and other financial products. The Symbiotics MIV 2016 survey reports Cambodia receiving nearly 10% of microfinance investments in the world, second only to India – a country whose population is nearly 100 times larger.
In the framework of the 9th Convergences Forum, e-MFP organised a session on housing microfinance, a topic that, though not new (there are more than 20 years of practice in the sector), it is still rarely addressed within the financial inclusion community and the numbers are quite small, it only accounts for just 2% of MFI portfolios!
This little attention together with the fact that finance is strongly needed to support housing needs in developing countries, were the two very first things highlighted by the moderator, Daniel Rozas, e-MFP Senior Microfinance Expert, before giving the floor to the three panellists: Patrick McAllister, Senior Consultant at Habitat for Humanity & Representative of Habitat for Humanity's Center for Innovation in Shelter and Finance; Malkhaz Dzadzua, Chief Executive Officer, JSC MFO Crystal Georgia; and Sothany Chun, Chief Executive Officer, First Finance Cambodia.