We need to encourage market solutions such as microfinance for housing to support incremental high quality construction. By leveraging the incremental construction practices of the developing world, housing microfinance is an economical and efficient tool to address substandard housing, as well as a viable opportunity for financial institutions serving low-income populations.”
The cost of land and building materials throughout Africa, Asia and Latin America and the Caribbean is too high to make it profitable for developers and. In Africa, the prices of housing inputs such as land and housing finance are far too high to make affordable housing an attractive market segment for developers and builders. A shortage of safe and buildable land for new housing makes the cost of land extremely high.
The high costs are compounded by the lack of utilities and services outside urban centers. An interested developer often not only has to buy the land to be built on, but also pay for an access road and expansion of utility facilities.
UNHABITAT's “Strategic Plan for Safer Cities” explicitly mentions slum improvements as an integral element in promoting urban security.7 The main security issue in slums stems from the lack of physical access to communities. The immediate need for housing and the lack of resources to achieve it sustainably (both financially and environmentally) can lead to ecological destruction. The affordable housing sector is particularly complex due to the many actors involved.
Major roadblocks fall into three categories: lack of a supportive regulatory environment, lack of affordable units, and lack of access to diverse housing finance options. Without a sufficiently stable economy, potential home finance lenders are unsure of the currency's stability and may be reluctant to lend to either borrowers or other market participants for fear that their investments will not retain value.
Such complexity poses a challenge to planning social housing support schemes, as there are many different interests that need to be aligned (see box below). A successful housing sector needs land-use measures, sufficient supply of affordable housing units to meet demand, government involvement in community planning and development, and adequate access to adequate housing finance products. There are four main market conditions that provide a successful and supportive environment for the development of the housing sector: a stable economy, liens, a legal and regulatory regime, and a legal and institutional infrastructure that facilitates titles.
Without a regulatory system that sets safety and sound standards, borrowers have no assurance of protection through the transparency of financial product terms and construction standards. Without the legal and institutional infrastructure that allows titles, low-income individuals cannot use their home or land as collateral to secure a loan.
Without lien laws that allow financial institutions to enter into a contractual agreement with borrowers that establishes the right to place a lien on collateral, financial institutions would take on too much risk to make the transaction attractive. These arrangements should be put in place to support private ownership of individual homes and to establish a system for recording property ownership through a publicly accessible property register. The wider the scope of an informal settlement, the more difficult it is for policymakers to collect.
Development actors
The supply of residential units in most markets is concentrated in the upper, middle and upper income segments due to high land and construction costs. Due to the lack of formality, financial institutions view these borrowers as much higher risks, and thus charge them higher interest. And taking small steps to formalize parts of the incremental process creates potential.
Many of the Bulgarians in that category are forced to spend more than 40 percent of their disposable income on housing. Housing microfinance should boost customer savings, and savings made before the home loan disbursement should simulate post-loan cash flow.
Maximizing housing microfinance through
Housing microfinance is a subset of microfinance services designed to address the housing needs of low-income families, particularly those with little or no access to banking and formal mortgages. Housing microfinance differs from formal mortgage loans in that the loans are smaller and have shorter periods. As mentioned in Chapter 1, the informal nature of housing microfinance clients' income or lack of property rights makes alternative forms of collateral necessary in most cases.
Housing microfinance helps accelerate the construction of adequate housing, adapting to the growing population. Mortgages are usually not suitable for housing microfinance because laws may be non-existent or weak in developing countries, fees are too high and liens do not mitigate risk because foreclosure procedures are long and difficult.
Housing
Finance Construction
Other support services
Mitigating risk
Well-designed and targeted housing microfinance products can help mitigate the negative effects of a volatile economy. Where microfinance markets and institutions are relatively mature, regulations may constrain or assist housing microfinance. When housing microfinance is bundled with higher-risk consumer loans, fixed-asset loans, or a broader housing loan portfolio (possibly including mortgages), a number of challenges can arise.
Housing microfinance loans analyzed as consumer loans can lead to excessive provisioning requirements given the higher risk profile of consumer loans. For residential microfinance loans analyzed with mortgages, specific regulations, such as legal land tenure requirements or overly restrictive interest rate ceilings, may hinder the potential for residential microfinance.
Housing microfinance loans are better equipped to meet the financial needs and repayment capacity of low-income borrowers. The main challenge to creating successful housing microfinance products is developing a set of underwriting and underwriting criteria that suit the population for which the product is designed. To ensure that housing microfinance is properly designed and meets the housing and financial needs, preferences and capabilities of low-income borrowers, it is necessary.
For example, Habitat for Humanity International, through its Center for Innovation in Shelter and Finance, supports lending institutions interested in entering the housing microfinance market by providing them with technical assistance in the design and testing of housing microfinance products and services. The Center also considers the capacity of the financial institution to design, pilot and scale up housing microfinance products.
Housing microfinance product profiles 31
Some institutions have experience in product development but little or no experience in housing finance products. This is done through a systematic methodological approach that emphasizes the needs, preferences and financial and housing capacities of low-income borrowers. Many commercial banks viewed microfinance as a profitable means of enhancing their corporate social responsibility credentials, but failed to adopt the responsible lending practices necessary for sustainability and growth.
Creating specific products for housing finance is one way to increase the responsible lending practices of financial institutions. By reducing the misuse of loan funds, financial institutions can better determine the rates, terms and amounts that are suitable for buyers.
Women and housing microfinance
Given that many men work away from home, women are often in charge of household chores, including repairs and renovations. Land tenure refers to the right of an individual or group to occupy or use a piece of land without fear of eviction. The formalization of land tenure should be linked to efforts to increase the collection and reporting of information in a functional registration system.
In La Guardia, Bolivia, Habitat is helping 45 families buy land, providing two- or four-year loans that cover the cost of the plot and the necessary paperwork to prove ownership. Once families have paid 70 percent of the land loan, they can begin building their Habitat homes.
OpeNINg DOOrs WIth MICrOBUIlD
Impact investing and housing microfinance
AVAILABLE CAPITAL
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Increase access to housing finance by linking financial institutions with mobile network operators to help provide new types of financial behavior records. Packages of financial and non-financial services connecting various players in the progressive housing process.
Community-led solutions
Local computer kiosks have been installed and operated in remote areas, improving access to land registry services for low-income populations in Karnataka who would normally be excluded.41. In Kenya, the establishment of Community Land Trusts has reduced speculation and ambiguity over land demarcation. A group retains ownership of the land through the trust and distributes individual leases among group members.
This reduces the cost of land acquisition by eliminating the need for surveys of individual plots, and Kenya's Lands Department has agreed to waive the initial land premium. This arrangement also encourages the population to improve and develop the land while giving them a key element in accessing the finance to do so. 42.
Incremental housing and housing microfinance should be approached as sources of development and financial returns. Government aid accounts for less than 20 percent of the developed world's economic transactions with developing countries. Housing microfinance shows promise as a product that offers financial service providers both social impact and financial returns.
Similarly, housing microfinance has the potential to unlock the potential of progressive informal housing practices to improve access to safer, healthier and less impoverished living conditions for the world's poor. We need to encourage market solutions such as housing microfinance for high quality incremental construction.
Governments can nurture the growth of the housing microfinance sector by ensuring that housing is not restricted or restricted by being classified as consumer credit. 21 Demirguc-Kunt and Klapper, “Measuring Financial Inclusion”, World Bank Development Research Group, April 2012. 24 Bill Drayton and Ashoka, “Transforming Urban Markets for the Poor Through Collective Entrepreneurship”, Global Urban Development Journal, 200.
34 homeless-international.org/About-Slums/impacts-of-slums 35 pdf.usaid.gov/pdf_docs/PNADB892.pdf. He previously served as an urban development and housing project officer at the Inter-American Development Bank and has published widely on housing and urban development in developing countries and the US.
