Leveraging Investment for Low-Income Housing: Housing Microfinance Business Case

Housing microfinance, micro- insurance and micro-mortgages as contributors to financial inclusion and equitable and inclusive housing markets

D3
Lab debate
Wednesday, June 19, 2019
13:00 to 14:15

Housing shortages and poor housing afflict developing countries at large. Rapid urbanisation is stretching the limited supply of adequate housing and urban land, which is reflected in the fastest growth in developing economies. Investors are showing increased interest in housing opportunities among the lower-middle income sectors. In developing countries, mortgage markets tend to be shallow and frail, hampered by political and economic instability and weak legal regimes. This hinders families from being able to afford decent homes. Alternative and blended finance offer solutions. Housing microfinance, micro-insurance and micro-mortgages are innovative products that aim to achieve profit, strengthen the business environment and help low-income households access often-elusive housing finance.

Key points

  • 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.

Synopsis

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.

Insight

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.

Organised by

Speakers

Moderator
Zoe Tabary
Property rights editor
Thomson Foundation
Werner Wallner
Chief Executive Officer
Hilti Foundation
Daniel Rozas
Senior Microfinance Expert
European Microfinance Platform
Christophe Bochatay
ESG & Impact Manager
Triple Jump
Heather Alner
Resource Development Director
Habitat for Humanity International