Housing Microfinance

HMF

Access to housing and access to housing finance by low income earners is a critical development issue facing most countries around the globe. UN Habitat notes the predominance of “two extreme outcomes of current shelter systems that are being witnessed today: affordable shelter that is inadequate, and adequate shelter that is unaffordable.” That report goes on to state that within the next 20 years it is unlikely that conventional sources of finance will be available in many developing countries for investment on the scale needed to meet projected demand for infrastructure and housing. With deficits in public budgets and the persistence of weak financial sectors, the situation seems untenable. In sub-Saharan Africa, this reality is especially dramatic.

The problem is quite simple: throughout sub-Saharan Africa, income levels are such that the majority of households cannot afford to buy the least expensive house, even if mortgage finance were available. Research commissioned recently by the FinMark Trust in four countries has found that at best, 17% of the population in Zambia, Botswana, Namibia and Kenya might be eligible for mortgage finance – but

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Access to housing and access to housing finance by low income earners is a critical development issue facing most countries around the globe. UN Habitat notes the predominance of “two extreme outcomes of current shelter systems that are being witnessed today: affordable shelter that is inadequate, and adequate shelter that is unaffordable.” That report goes on to state that within the next 20 years it is unlikely that conventional sources of finance will be available in many developing countries for investment on the scale needed to meet projected demand for infrastructure and housing. With deficits in public budgets and the persistence of weak financial sectors, the situation seems untenable. In sub-Saharan Africa, this reality is especially dramatic.

The problem is quite simple: throughout sub-Saharan Africa, income levels are such that the majority of households cannot afford to buy the least expensive house, even if mortgage finance were available. Research commissioned recently by the FinMark Trust in four countries has found that at best, 17% of the population in Zambia, Botswana, Namibia and Kenya might be eligible for mortgage finance – but even here, the cost of housing has meant that such solutions are still unrealistic.

It is within this environment that housing micro lenders have emerged as an important source of housing finance for low income earners whose access to more traditional forms of credit is constrained both by their affordability, and the housing circumstances in which they live. Growing either from NGO movements supporting housing delivery for the poor, or micro enterprise lenders seeking to diversify their product range – or any other number of institutional models – “housing micro finance has emerged over the past decade as a crucial component in facilitating housing in slums and for low income groups.” (SINA Newsletter, Special Edition, February 2007)

Housing microfinance, otherwise known as microfinance for housing or as incremental financing, is regarded as the application of a microfinance based approach to housing finance (Daphnis and Ferguson, 2004). While the concept ‘housing microfinance’ is relatively new in development circles, the practice is not.  Many households in Africa are unable to access mortgage finance either because it does not exist or because it is inaccessible.  Housing microfinance makes it possible to address housing needs progressively, step-by-step, towards a larger housing vision. Tomlinson (2007) highlights that even today, throughout Africa, while high income earners generally use their own resources to house themselves, buying formal housing outright; the middle class and low income earners finance their own construction over time, often in unplanned areas. The innovation is that this practice is finally being noticed and is now being supported with more formal mechanisms.

CAHF has undertaken various research initiatives to explore the state of housing microfinance in South Africa and across sub-Saharan Africa, highlighting innovation and providing recommendations for attention by financial institutions and governments.  Our work is focused on supporting the growth of a housing microlending sector in Africa, with more players supported by more investors, reaching more clients.  Towards greater cooperation and development in the sector we’ve also co-hosted two workshops, both with Rooftops Canada and Habitat for Humanity.

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