“Microfinance for Housing: Is it Built to Last?”
When it comes to microfinance, people may automatically think of loans going towards businesses, yet, microfinance can also be used to support housing. Globally, people at the bottom spend around US $700 billion on housing. Lending in this sector is a relatively new area, starting out five years ago, and currently over 20 percent of micro-loans are used on housing. Although there has been an increase in demand for loans in this sector, it remains a niche.
On May 9 the Financial Inclusion Forum (FIF) teamed up with the European Microfinance Platform (e-MFP) to host a panel discussion focused on finance for affordable housing. This focus was based on the 2017 European Microfinance Awards, an annual award co-ordinated by e-MFP, the Luxembourg Ministry of Foreign and European Affairs and the Inclusive Finance Network Luxembourg, which evaluates organisations offering innovative ways to support the low-income housing sector.
The panellists for the event were Sandra Prieto from Habitat for Humanity’s Terwilliger Center for Innovation in Shelter; Daniel Rozas of e-MFP; and Trushna Patel from Aga Khan Agency for Microfinance.
The session was moderated by FIF Director and e-MFP specialist Sam Mendelson, who is also the lead author of the recently published European Dialogue on the subject, entitled Building New Foundations in Housing Microfinance.
The key challenges that were discussed included long-term funding for housing projects, inability for clients to provide collateral and difficulties in assessing payments. Why is lending in this sector a niche? Essentially, it is not viewed as a growth opportunity or income generating area, with issues of funding being a major constraint. To date, there is only one specialised fund for housing that was set up in 2012, with US $100 million. The panel agreed that this sector will continue to remain niche until it’s able to access funding and facilitate inclusive market systems.
Financial institutions have therefore been looking at ways to overcome these challenges in a few different ways, including tailoring loans to home improvement, involving village assemblies to provide collateral and designing training for masons and construction workers. Other solutions include designing renewable energy products and also showcasing the social impact of housing, not only for an individual, but their families and communities. Adequate housing goes beyond the physical element of space, but it also includes health and safety of individuals.
These were some ideas incorporated by the companies short-listed for the awards. To provide more context, these awards provide the opportunity to highlight the best and diverse housing finance practices around the world. Many combine financial and non-financial elements, helping households to build and improve their own homes through housing microfinance; some offer micro-mortgages, others provide dedicated savings or insurance products, facilitate access to government housing subsidies for the poor, and offer a range of other support mechanisms.
Where should institutions start when tailoring products to this sector? It’s vital for institutions to know the clients and draw from their needs in order to develop trust and accountability. It’s also important to find innovative ways to interact with different stakeholders, from government entities, to private companies and individuals accessing finance. There should also be some flexibility on ways to disperse loans, perhaps a holistic approach, taking advantage of community support.
The concept of a micro-mortgage was introduced, as people living on US $5 to $10 a day have limited access to banking solutions due to a lack of a regular income, and a micro-mortgage is one way that they can purchase homes. The panellists agreed that institutions need to do more on addressing the gap in products for those living on less than a dollar a day and those earning more.
The European Microfinance Award of €100,000 granted by the Luxembourg Ministry of Foreign and European Affairs – Development Cooperation and Humanitarian Affairs was won by Cooperative Tosepantomin - a Mexican cooperative that offers housing savings and loans combined with technical assistance to rural clients living in marginalised areas. Notable for its holistic approach to technical support, involving architecture planning, budgetary support and ongoing oversight of building processes, Tosepantomin was also recognised for its outstanding promotion of environmental responsibility through eco-friendly building techniques, recycling, renewable energy and energy efficiency. The panellists were also able to profile some of the other semi-finalists and finalists for the Award, all of which are profiled in the European Dialogue too.
Overall, it was good to hear about the variety of innovative solutions offered by the companies short-listed for the award, the impact of rural to urban migration on low-cost housing in major cities and the opportunity to reach new segments of clients in this sector with new products.