Housing finance today: a view from the field

  • Sandra PRIETO, Habitat for Humanity's Terwilliger Center for Innovation in Shelter
  • Mona KACHHWAHA, Caspian Impact Investment Advisers 
  • Ewa BANKOWSKA, Microfinance Centre (MFC)
  • Paul KATENDE, Stromme Microfinance East Africa Limited


Sandra PRIETO opened the session by introducing the four panellists, and shedding light on their different origins and experiences implementing housing finance programs from India, Central and Eastern Europe / Central Asia, Latin America and East Africa. She pointed out that the contextual diversity is very important to consider when looking at the opportunities and challenges to expand housing finance portfolios.

Mona KACHHWAHA, from Caspian Impact Investment Advisers, revealed that housing microfinance in India is part of a broader category: affordable housing. Caspian began conceptualising affordable housing around 2008-2009, as an essential part of financial inclusion. It also touched upon some fundamentals: housing shortage, a strong market focus on high-end market segments, a lack of business strategies from financial institutions, etc. This led Caspian to create two housing finance equity investments, and one housing developer. In 2013, Caspian started a debt fund which also included housing. Housing became a relatively large part of the MFI's portfolio. Kachhwaha revealed that there is strong government support for housing finance in India, which has spurred market growth even in lower segments. In general, housing finance has delivered positive experiences in India, but the recent demonetisation impacted the portfolio quality of several companies. Kachhwaha reminded the audience that this is still a young industry, so we might not have all metrics fully figured out yet, but that developments have been bullish and have received good government support.

Kachhwaha answered some questions from the audience, the first one dealing with the structure of Caspian's loans. She clarified that unsecured loans for refurbishments or improvements, typically housing microfinance, tend to be three-year loans. However, affordable housing loans for new housing and constructing from scratch have a minimum length of 15 years. Regarding collaterals, Kachhwaha revealed that housing microfinance loans usually require documents such as proof of residence or occupation, but larger loans, for instance for constructing a new home, require documentation such as a land title.

Paul KATENDE stated that housing microfinance is a market-driven development in microfinance, and was introduced at Stromme Microfinance East Africa Limited in 2010 as a result of market research undertaken in three countries: Uganda, Kenya and Tanzania. The product rollout was done in small loans, in order to test the product, and targeted an incremental housing model. Katende explained that incremental housing meets a basic social need for decent housing, but also touches upon other aspects, such as improved health, incomes and social status. He also stated that incremental housing suits the different microfinance housing needs of the poor, which can range from land acquisition to construction and upgrades. The product also contains a technical assistance component, delivered to customers in different formats (radio shows, TV shows and manuals), but with the common goal of creating awareness. Katende emphasised that capacity building is also done at the levels of board and senior management. He concluded his presentation with a few of the challenges in housing microfinance, at the MFI level (lack of housing strategy, inappropriate products, inadequate exposure, etc.) and at the client level (land ownership challenges, irregularity of incomes, culture constraints, etc.). He related these challenges to the pre-conditions for scaling up, such as governance and leadership buy-in, affordable product-specific funding and staff skills in housing microfinance.

Katende also received questions from the audience, firstly reacting to the subject of gender and the intrinsic challenge in Eastern Africa concerning women's land ownership rights. He revealed that MFIs constantly cooperate with local authorities to go around this challenge, since few female clients have land titles. In a question about Tanzania, Katende revealed that Stromme is bringing Tanzanian MFIs into housing microfinance, and that Tanzania is a growing market where he expects the portfolio to develop well. He also indicated that Stromme has developed indicators on housing which will be used as of next year to track impact.

Ewa BANKOWSKA brought to the panel MFC's experience with MFIs in Central & Eastern Europe and Central Asia. She revealed that MFC established a partnership with Habitat for Humanity a few years ago, which led to its involvement in housing microfinance. Bankowska emphasised that understanding the region's characteristics can give an insight into its housing dynamics: it's a commercial and advanced market (with very few non-financial services); there is increasing competition from downscaling banks; much low-income housing dates back to Soviet times and is in dire condition. Around 60% of the MFIs within MFC's network are involved in housing finance, mainly for housing renovation work.The main opportunities for MFIs to get involved are: evidence of social responsibility, venturing into new segments and portfolio diversification. At the same time, the product presents challenges such as high risk in case of microentrepreneurs with irregular incomes, caps on consumer portfolio and access to affordable capital. Bankowska further described the typical loan and its key elements (individual, bigger size, 2-3 year maturity, enough for small renovations, light education). She closed her presentation by sharing a few positive client outcomes such as access to running water and sanitation, privacy and less humidity.

The floor was once again open to questions, and Bankowska dealt with the issue of interest rates. She acknowledged that the interest rates in housing microfinance are higher than in business loans, but pointed out that this varies significantly per country. Bankowska also recognized that MFIs are often accused of charging high interest rates, which contributes to the industry's reputational crisis, but defended that the sector also needs to charge clients to remain financially sustainable.

Iván GUTIÉRREZ from REDCAMIF presented the lessons learned from housing finance in seven different countries in Central America and the Caribbean. He started his presentation by explaining that housing is one of the pillars in this region, and that clients are strongly focused on improving their households. At the same time, Central America and the Caribbean have an enormous deficit in housing, both in quantitative and qualitative terms. For REDCAMIF, creating a programme in housing finance also came as an alternative after the financial crisis, which marked the need for financial institutions to search for new markets and diversification. The programme also arose in reaction to a market gap, since the usual financial services for housing did not suit the clients in REDCAMIF's network. This network is marked by long-term loans, linkages to subsidies, high collaterals and high mortgage guarantees. The main lessons learned from this programme, implemented alongside 11 institutions in the region, are: the market is much broader than micro-entrepreneurs (including remittance receivers); the progressive housing model is adaptable to different family incomes; there is no need for collateral; and women are highly present in the programme. Gutiérrez concluded that housing finance products are not standardised, but they must always be part of a clear strategy and proposition of production and social impact, aligned with a robust technical assistance and savings promotion model. These elements will lead to a virtuous cycle for clients in the network.

Gutiérrez addressed a question dealing with the intrinsic risk which housing micro­finance brings to MFIs that chose to specialise in this sector. He stated that, even when an MFI is specialised in housing microfinance, it can still segment the market to diversify its portfolio and mitigate risks.

Prieto asked the participants from East Africa, Latin America and The Caribbean; and from Eastern Europe and Central Asia about cost recovery of the construction technical support that each of them mentioned within their presentations. All of them shared the relevance this component has as a differentiated characteristic to support the self-building process low income groups are used to; but also about the challenges to charge the clients for these services. Prieto concluded the session by stating that MFIs are looking into differentiating their housing micro­finance products further, thus addressing their clients' housing-related needs within the different segments of the market. As portfolios get more diverse, they also become more resilient to shocks and, consequently, become more attractive to investors. However, topics such as the inclusion of non-financial housing support services remain an issue that needs to be further explored, since the pricing structure is not clear and, until now, fully or partially subsidized.