By Irene Gaitirira
Published August 16, 2018
Housing microfinance should become a mainstream offering for financial institutions across sub-Saharan Africa.
A new study from an organisation known as Habitat for Humanity says that housing microfinance respond to growing housing needs in the region, particularly from poor people.
The study entitled Building the Business Case for Housing Microfinance in Sub-Saharan Africa and that builds on a project carried out over six years in Kenya and Uganda, says that small non-mortgage backed loans for short terms can help address growing housing needs in the region, incremental building patterns, and the land tenure realities of low-income households
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As many as 99 percent of people in sub-Saharan Africa do not have access to formal financing such as credit, savings, mortgages that could enable them to build or improve their homes. Here, developer-built, bank-financed homes are rare, serving fewer than five percent of households in most countries.
“Solving the housing challenges in Africa will require a massive amount of capital investment and most of that will need to come from the private sector,” Patrick Kelley, Vice President of Habitat’s Terwilliger Center for Innovation in Shelter, says. “Financial institutions of all kinds have a role to play, especially those already deeply embedded in communities and who understand people with informal sector livelihoods.”
Building the Business Case for Housing Microfinance in Sub-Saharan Africa is realised through the partnership of Habitat’s Terwilliger Center for Innovation in Shelter and Mastercard Foundation who say they are seeking to motivate local financial service providers to develop housing microfinance loans to fund the incremental building process common among low-income households.
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The partners say the results of the study prove that there is demand for housing microfinance among families or individuals earning as little as US$5 a day who are seeking to build, extend, or renovate their home. So far, they report, the project has reached more than 47 000 households and mobilised more than US$43 million in capital to benefit more than 237 000 individuals.
The business case study argues that housing microfinance, small non-mortgage backed loans for short terms, can become a mainstream offering in the market to address growing housing needs in the region, incremental building patterns, and the land tenure realities of low-income households.
“At the Mastercard Foundation, our focus is on helping economically disadvantaged people, especially young people in Africa, to find opportunities to move themselves, their families and their communities out of poverty,” Ruth Dueck-Mbeba, Senior Programme Manager at the Foundation, says. “This project has provided access to appropriate finance for decent housing. We believe that decent housing can provide more than four walls and a roof over one’s head. It offers people hope, dignity, and a place in their communities. This report should help financial service providers to scale these products, which would benefit their enterprises as well as the lives of many poor people in Africa.”
The study says that financial institutions like Kenya Women Microfinance Bank and Centenary Bank of Uganda that have ventured into housing microfinance have often reported it to be a popular product with their clients.
Through the lenses of these two institutions, the study argues that success and profitability of a housing microfinance product relies on connection with the financial service provider’s mission, good marketing, a clear pricing structure, understanding of land tenure realities, an opportunity to attract new clients, and secure long-term capital to fund the expansion of such portfolios.
“Financing incremental housing solutions is a natural step in the progress of greater financial inclusion. Centenary and KWFT are providing a great example of how financial institutions will benefit from understanding their clients and developing products that serve them well,” Patrick Kelley says.