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UNITED NATIONS CAPITAL DEVELOPMENT FUND Microfinance |
Issue 3 / May - June 2004 |
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News | Microfinance Initiatives for Housing By Regina Galang, MBA candidate at the Kellogg School of Management
In addition to food and clothing, housing is a basic human need. While the objective of microfinance institutions (MFIs) is to provide low-income households with financial assistance to meet their core requirements and subsequently to build and expand businesses, MFIs are also challenged to satisfy shelter needs given the large capital base necessary to build or rent a house. Consequently, between 1980 and 1993, less than 3% of development assistance went to finance housing and other housing programs (Satterthwaite, 1995). However, as MFIs evolve and expand their product and services base, they are more actively seeking ways to offer housing finance to their customers. Microfinance for housing is defined as the provision of small loans to low-to-moderate income households typically for self-help home improvements and expansion, but also for new construction of basic core units (Ferguson, 1999). “Housing Microfinance Initiatives: Synthesis and Regional Summary: Asia, Latin America and Sub-Saharan Africa with Selected Case Studies”, released by the Center for Urban Development Studies at the Harvard University Graduate School of Design, reports that such programs have followed two distinct approaches that differ with respect to their evolution, vision, objectives, focus, service package, and loan terms and conditions. TWO APPROACHES The first approach, microcredit to housing finance (MCHF) programs, initially began as microcredit initiatives for small and micro-enterprises (SMEs). Their aim was to expand economic development opportunities for socio-economically and politically marginalized groups, particularly women. The second approach, shelter advocacy to housing finance programs (SAHF), arose out of an advocacy agenda to defend poor and low-income people’s right to equitable access to resources, particularly land and shelter, as well as the right to adequate infrastructure and services. The following is a comparison of both approaches (MCHF and SAHF) adapted from a table titled, “Classification and Differences of Housing Microfinance Programs” found on pgs. 8 – 9 of the report.
Origin: Microcredit
programs for small and micro-enterprises 2. From Shelter Advocacy
to Housing Finance (SAHF) Blockage: Constraint
of inequity in access to resources HOUSING MICROFINANCE PRODUCTS Adapted from “Table 3: Comparative Housing Loan Products” found on pgs. 19 – 20 of the report, the following section highlights the differences between the two programs in 5 products. Those products are: 1) flexible loan product, 2) housing improvement/repair loan, 3) new housing construction loan, 4) land acquisition loan and 5) infrastructure provision loan. The collateral requirement for all types is based on group liability, except for new constructions loans where co-guarantees are accepted. The flexible loan product fits in predominantly with the MCHF approach and, though used originally for SME loans, individual households now use it for other purposes such as conducting home improvements and repairs. The average loan term is only a few weeks; savings is not always a requirement. The housing improvement/repair loan also fits in the MCHF model and is mostly used for housing improvements and repairs for individual households. The average loan term is six months (with a maximum term of one year) and a specified sum is often required in the form of savings. The new housing construction loan fits in with both the MCHF and SAHF approaches and finances the construction of a new house by Individual households (Grameen and SAHPF) or by community groups (Payatas Scavengers Association’s housing cluster of 425 families). With a savings requirement, the average loan term is one to three years (except for Grameen Bank and SAHPF, which have exceptionally long terms). The interest rate, relative to SME microloans, is the same for MCHF programs (except for Grameen Bank), and less for SAHF programs. The land acquisition loan predominantly fulfills SAHF programs for both serviced and unserviced land parcels for individual households (Grameen and SAHPF), and community groups (Payatas Scavengers Association). On average, there is a savings requirement of one to one and a half years though the average term of the loans depends on land cost and on the terms of the capital source. The infrastructure provision loan is used predominantly in SAHF programs, and increasingly in MCHF programs, for the delivery of infrastructure and services for individual households (SEWA Bank’s Parivartan scheme) as well as communities and settlements (Genesis’ CILP Program). With a savings requirement, the average loan term is two to four years and the interest rate is in line with SME microloans. SUMMARIES AND CONCLUSION The Harvard paper delineates two major challenges that microfinance housing initiatives must tackle. Firstly, they must determine ways to serve a larger portion of those who need this product including the “poorest of the poor.” Secondly, “strategies for financing land acquisition and infrastructure provision remain inadequately developed in relation to need.” The second section of the report consists of regional summaries and case studies for South and Southeast Asia, Latin America, and Sub-Saharan Africa. Each summary introduces the critical land, shelter, and infrastructure problems and challenges in the region, and describes innovative housing microfinance initiatives in operation. The summaries are followed by detailed case studies selected to illustrate specific aspects of the housing microfinance industry in each region. Six cases are covered in detail: Grameen Bank in Bangladesh; SEWA Bank in India; the Center for Agricultural Development (CARD) and Payatas Scavengers’ Association in the Philippines; the South African Homeless People Association; and Genesis in Guatemala. The final section provides a thorough bibliography, list of references, and a table documenting similarities and differences among the regional case studies. It also includes a synopsis describing other examples of microfinance initiatives throughout the world. The work was supported by the U.S. Agency for International Development, Bureau for Global Programs, Center for Economic Growth and Agricultural Development, Office of Microenterprise Development, through funding to the Microenterprise Best Practices (MBP) Project and implemented by Development Alternatives, Inc. The full document can be obtained through the Microfinance Gateway at: http://www.mip.org/pdfs/mbp/housing_microfinance_initiatives.pdf
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