Promoting Inclusive Markets and Financial Systems
Inclusive Finance for Housing: Exploring Viable Business Models
As much as 70 percent of the world’s population accesses shelter through “incremental building,” a process of slowly improving shelter by adding components of a house. This process of incremental building leads many clients of microfinance institutions to divert business loans for this purpose. In response to global trends of inadequate shelter and demand for improved housing from microfinance clients, USAID established the Implementation Grant Program (IGP) Learning Network to better understand the challenges and solutions involved in introducing housing microfinance (HMF) and complementary services at scale. USAID elected to issue grants to three global networks—Opportunity International (OI), Habitat for Humanity (HFH), and the Aga Khan Foundation (AKF)—to develop and deliver housing microfinance products in three countries. Each institution participating in the IGP Learning Network partnered with a local MFI to implement the product and conducted learning sessions on the process. The local partners were Sinapi Aba Trust in Ghana, The First MicroFinance Bank (FMFB), and Growing Opportunity Finance (GO Finance) and Capstone India.
Each partner tested innovations to add to the body of existing knowledge of housing-related microfinance—with OI testing how to link housing loans to property land folios, HFH attempting to connect housing loans to a third-party housing support service provider, and AKF seeking to scale housing microfinance in a conflict-prone environment. The partners were able to share lessons learned and discuss challenges throughout the implementation of the grant. These lessons are discussed further in this paper in order to inform the housing and microfinance industry moving forward. This paper reviews the supply and demand constraints of HMF, considers each of the three cases, and the overarching lessons learned in order to provide guidance to MFIs, donors, and policymakers that may seek to implement housing microfinance.
The partners found the capacity of average households to undertake necessary upgrades was severely constrained by lack of access to finance and to skilled construction advisory services. The local partners needed to collaborate with external actors to better design client-centric products and have an impact. This finding from the IGP Learning Network concluded with a recommendation to donors and policymakers to consider the housing market ecosystem when designing housing microfinance programming. Without addressing systemic issues such as land rights, disaster readiness, and access to support services, the benefits of an HMF product will be limited to a household.
Readers interested in learning more about land rights should review Opportunity International’s project that focused on designing a property folio in Ghana. Those interested in disaster readiness and achieving scale with an HMF product should review the Aga Khan Foundation’s case of introducing a housing loan product in Afghanistan. For implementers of housing microfinance and support services, the lessons learned by Habitat for Humanity International in India demonstrate the value of marketing and partnerships. The IGP Learning Network welcomes comments and thoughts from readers as we continue to learn from this process and encourages feedback to be sent to the SEEP Network.