OPINION: Microfinance - best bet to improve access to stable low-income housing

Langtone and Joy Kafuuma live in Wakisu, 30 km from Kampala. They took out a housing microfinance loan from a project implemented by Habitat for Humanity, completing their home by adding a roof, windows and doors. Handout/Habitat for Humanity International

* Any views expressed in this article are those of the author and not of Thomson Reuters Foundation.

Encouraging signs are emerging that the free market can be part of a housing solution for low-income communities

East Africa, like the rest of the continent, is in the grip of rapid urbanization. Populations are growing and the numbers moving into cities are rising even faster.

As a consequence, the amount of inadequate housing is increasing significantly. Poor housing affects every aspect of life. It is bad for health. It limits people’s ability to earn a living and their children’s capacity to learn. Housing low income households is a momentous challenge for everyone, whether in government, finance or the non-profit sector.

According to the Centre for Affordable Housing Finance Africa, Kenya has a shortfall of 2 million adequate houses, and Uganda a shortfall of 1.6 million. How will this gap be filled? The provision of public housing is virtually non-existent and the mortgage market simply doesn’t work for the vast majority.

Most families are simply not viewed as reliable prospects by the banks. Even if they were, they might find it difficult to produce the required title deeds for a property. Strict building codes and requirements make even the cheapest houses purchasable with mortgages difficult for low-income borrowers to access.

Research commissioned by the FinMark Trust found some staggeringly low penetration rates for mortgage markets: 4 percent of households in Ethiopia, 2 percent in Angola, 1 percent in Uganda, and a mere 0.02 percent of households in Rwanda.


However, if the free market has been part of the housing problem, there are encouraging signs that it can form part of the solution. The answer, Habitat for Humanity believes, is to take existing microfinance methods and apply them to housing.

An initiative undertaken in Kenya and Uganda by Habitat’s Terwilliger Center for Innovation in Shelter and the Mastercard Foundation has shown that families or individuals earning as little as $50 per month can successfully borrow money to build, extend or renovate their home.

Ordinarily, they would be excluded from banking and financial services. The Building Assets Unlocking Access project however opens the door, by offering incremental loans for incremental improvements. 

Unable to borrow a large amount up front, a family can for example borrow $1,500 over 18 months to lay the foundations of a home. Once that is paid off, they might borrow a similar amount to complete the walls. Within two to three years, they would have moved from a shack or cramped single room to a properly constructed house.

It is all about being small scale, affordable and lending responsibly, and it is working. The six local financial institutions that participated in the project report that their housing microfinance portfolios are often performing better than their general loan portfolios. In other words, they are making money. Indeed, there is a business case for housing microfinance.

Since 2015, these six institutions have lent $33 million to more than 42,000 households, benefitting 210,000 individuals. Among them is Jane, a single mother of three. Forced to leave her father’s compound when he remarried, she began renting rooms at a crowded shopping area in Machakos, 40 miles from Nairobi.

A businesswoman, she operated a school canteen and sold seeds, but was desperate for her own place. She applied for a 200,000 shilling (US $1,940) from the Kenya Women Microfinance Bank Ltd to start building her own home. The house was ready to occupy by May 2016, though not completely finished. She plans to continue developing her business, so she can repay the loan. Jane says the biggest benefit of her home is that she now feels like a “strong woman”.

More than 35,000 clients have taken up the Nyumba Smart loan from the same bank in the last two years. In the past decade, just 23,000 have taken out conventional mortgages with the bank.

The six institutions have previously specialised in microfinance, typically offering home improvement loans for solar panels or water tanks. But they were failing the basic need of enabling the construction or expansion of homes. As Jane and other beneficiaries testify, happiness and health begin with a proper home.

Perhaps the best thing about the project is that Habitat for Humanity and the Mastercard Foundation haven’t lent a single dollar. The Mastercard Foundation contributed $6.6 million to research, devise and market the loan products, with Habitat providing the technical knowledge and expertise in housing and finance. The $33 million lent to consumers all came from the local institutions.

The leverage has been great value. The project’s success gives us real conviction that it can be replicated elsewhere, with self-financing versions taking over before too long.

When I spoke at the European Microfinance conference in Luxembourg in December I encouraged all stakeholders concerned, but particularly microfinance institutions, to embrace the concept of housing microfinance. We believe it is the world’s best bet to improve access to stable housing for low income people in the developing world on a meaningful scale.

Kevin Chetty is Director Europe, Middle East and Africa at Terwilliger Center for Innovation in Shelter, Habitat for Humanity International

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