Building an enabling environment for low-income housing finance

  • Eugen DOCE, Frankfurt School of Finance and Management
  • Adedeji J. ADESEMOYE, Central Bank of Nigeria
  • Hayk VOSKANYAN, Inecobank
  • R V VERMA, Former Chairman National Housing Bank (India), Consultant for the World Bank


Eugen DOCE opened the session by stating that regulators have a crucial role within the housing microfinance sector. He reminded the audience that, even though microfinance has been around for decades, housing microfinance remained mostly in the shadows and only recently has it been treated as a product. Doce emphasised, however, that housing micro­finance serves its social purpose by creating assets for vulnerable groups, which act as a safety net for the bottom of the pyramid. He elaborated that regulators' actions are not only related to regulating and controlling institutions, but also to creating a conducive environment in the housing microfinance sector.

Doce then invited the panellists to speak about the markets where they operate, as well as the problems and solutions they have encountered as regulators in housing microfinance.


R V VERMA revealed his passionate involvement with the housing sector in India as the former Chairman of National Housing Bank (NHB). He explained that, despite being an institution of the financial sector, the NHB combines housing and finance in its form. Verma proceeded to make a few statements on housing and finance derived from his work: 1) We must push the boundaries of the formal financial sector so that it reaches out to the informal market; 2) Housing microfinance is integrated into the larger financial inclusion initiative; and 3) Housing is a very important asset to lower segments of the population not served by the formal system. He further noted that, unless we have a system which is functioning with stability, scalability and sustainability, we are not serving the informal sector properly. Verma emphasised that this is not charity but a sustainable, viable and profitable business model. The role of the regulator herewith is to provide a stable and credible housing finance environment, promoting housing finance among the lower segments of the population and developing market infrastructure such as credit bureaus for the informal sector. Verma also highlighted a project developed together with the World Bank, which focused on creating the ecosystem for MFIs to lend to population segments with informal property and an informal income.

Hayk VOSKANYAN introduced the work of the National Mortgage Company (NMC) as a regulator in Armenia. Having started operations in 2009, the institution has had an important role in developing the Armenian mortgage market. Its main activity has been to extend mortgage loans to banks and credit institutions, increasingly offering more local-currency refinancing to reduce foreign exchange risk. This has been essential for segments of the population located in Armenia's rural areas. Voskanyan elaborated that transaction costs in Armenia are very high, and liquidity is very low, which gives NCM's re-financing activities an important social meaning. It was also in the social sphere that NCM introduced housing microfinance products, with a special focus on housing renovation. Energy-efficiency has also become an important subject in housing microfinance, due to the country's harsh winters. Voskanyan also revealed NCM's wish to benefit from more government policies promoting the use of solar energy, which has diminished utility expenses.

Adedeji J. ADESEMOYE, of the Central Bank of Nigeria, began his presentation by highlighting that Nigeria is the largest economy in Africa, with a steadily growing population. Given this trend, the Central Bank launched the Microfinance Policy Framework in 2005, allowing MFIs to offer home improvement products. This was done in a scenario where Nigeria had a housing deficit of around 17 million houses. He further emphasised that this challenge was turned into an opportunity by the Central Bank to catalyse the economy and create employment. In 2012, the institution deployed a loan package of USD 300 million awarded by the World Bank's International Development Association (IDA). One of the main elements in the fund was the creation of a liquidity facility company to inject liquidity into the mortgage system. Adesemoye explained that the Central Bank also saw huge growth potential for housing microfinance, and created a specific housing microfinance regulatory framework for MFIs to offer products such as home improvement and short-term construction. As a result, USD 15 million of the loan package was allocated for housing microfinance. The Central Bank also extended the duration of loans to 24 months, and is considering boosting it to 36 months.


Doce asked Verma whether housing microfinance in India follows a self-built approach or whether it is part of the country's urbanisation process. Verma affirmed that the growth of the informal housing market is clearly a by-product of urbanisation. He clarified that the government's overall approach, which marks a change of philosophy on their side, is to develop informal housing areas into cluster arrangements - towards real projects. Around 30% of India consists of urban areas, of which 40% consists of informal housing and slums; as such, an ecosystem approach to housing is inevitable. Verma also sees an increasing effort on the side of the MFIs to assess their markets more deeply, and to develop their capacities and skills.

Doce also addressed a further question to Voskanyan, asking whether it would be possible to see the same ratio of foreign/national currency on the Armenian market without the NMC. Voskanyan clarified that, in addition to the NMC, the Central Bank plays an important role in increasing local currency lending. He argued that, without this intervention, the mortgage market would be simply too risky. He highlighted that, before housing micro­finance, activities such as home renovation used to be financed through business or consumer loans. A regular business loan for agriculture or a consumer loan used to have staggering interest rates of over 24% (with an effective rate of up to 30-35%); in comparison, interests currently reach a maximum rate of 14% for housing microfinance (with a bonus for energy efficiency).

In a question to Adesemoye, Doce tackled the issue of standardised loans, which allow for a unified approach for housing microfinance. Adesemoye clarified that the Central Bank is beginning to implement standardised loans in order to address the sustainable quality of the asset. In the current pilot, eight MFIs with interest in housing microfinance were selected and are being supported with technical assistance on construction finance, product development and IT. This will lead to a standard in housing microfinance which will then be scaled up, and promoted to consumers and donors. Adesemoye argued that these standards will result in further stability of the sector and will allow for households to plan their futures better. Doce added that standardisation also contributes to reducing operational costs.

Doce closed the session by reminding the audience that, beyond the effect of producing shelter, housing microfinance has a large impact on the economy and is a catalyst for growth. This aspect should motivate public institutions to get involved in this sector and give it a push. He also argued that governments need to step into housing microfinance, and enable the private sector to operate in the sector. This involvement can happen in different areas: regulating through standardisation, engaging in local currency lending in order to prevent households in rural areas to embark in risks, and creating confidence among private sector actors to generate scale.