Targeted microfinance schemes have great potential for providing housing to low-income families.
Some 1,6 billion people across the globe lack adequate housing.
Housing is a basic need but must remain affordable.
Affordable housing should also be disaster-resilient.
Low-income households should have access to funding for affordable homes. The financial sector should continue to adapt for this market. Already innovative financial products are being developed, particularly small loans for construction. Any further improvement would help meet the objective of financial inclusion as part of the 2030 Agenda on Sustainable Development.
In many countries, households wishing to build a home need to rent land that is often undocumented or unregistered. For many low-income families, lack of access to funding is a reason to forgo building a home. Housing programmes need to pick up on the need for credit, with the private sector developing new approaches for funding basic housing. So far, this has been considered more of a social issue that is the responsibility of government. But there is a case for business to fund this sector, since risk has proven manageable. The loan portfolio on micro-financed housing schemes has expanded, but the risk is still diversified and repayment rates remain high.
Successful schemes have combined funding with technical assistance provided by trained teams of local advisors. The financial institutions providing the loans locally have also been tasked with advising both on the construction and on ensuring that the building materials are up to standard. Sometimes the financial institutions also pay the supplier directly against the credit, which allows them to oversee the quality of the material being used. Experience shows that traditional materials can be applied in new ways. Bamboo is used to reinforce concrete in order to withstand storms and even earthquakes.
There are three regions in the world most in need of microfinancing for housing: Africa, Asia and South America. Such schemes have in proven viable in most cases, except for those in Africa, where so far they have not worked out. The challenge is that the target households are located in vulnerable areas, with the result that the borrowers risk losing their homes and having to repay their loans. As Africa clearly need to benefit from this model of new home ownership, thought must be given as to how this can be achieved.
Another important issue is the quality of housing. Poverty index assessments often have no indicators on housing standards, even though the quality of homes has a great impact on a person’s wellbeing and quality of life. In terms of household expenditure, housing remains a major concern for families across the world, and surveys show that the fear of losing one’s home is a big concern in West Africa.
The involvement of commercial actors is crucial for financial inclusion under the Sustainable Development Goals. Microfinanced housing schemes blend funding with technical assistance, and the approach has great potential once scaled up.