Recent developments in housing
INTRODUCTION
MCALLISTER explained that 1.6 - 1.7 billion people live in sub-standard housing and about a third has sub-standard sanitation. Moreover, 70% of the world’s poor people build shelters themselves. The other 30% mostly rent their houses. While MFIs are already providing solutions to some of the challenges related to housing for the poor, other organisations may be able to provide solutions as well.
PRESENTATIONS
CALDWELL of the Affordable Housing Institute shared her experiences in mortgage finance innovations in the aftermath of the earthquake in Haiti. The middle class had been left out of housing reconstruction efforts. Donors focused on the poor, and largely failed to offer attractive housing solutions, and banks focused on the rich with mortgages starting at USD 300,000. To support the middle class, USAID funded the Haiti home programme using a holistic value chain approach to expand access to housing finance.
Although Haiti has plenty of banks to invest, the banks’ interest in mortgages for the middle class was limited. Banks perceived the middle class as a high risk segment. The Haiti home programme worked on both the supply side and demand side of the housing market. On the supply side, the programme stimulated construction of lower cost houses. On the demand side, the programme improved access to mortgages, as a housing market only works when people can get a mortgage. To improve access to mortgages, the programme provided technical assistance to decrease underwriting costs, down payment assistance (from 20% to 10%), and pay-for-performance incentives.
The programme has shown to banks that providing mortgages to the middle class was a profitable business. As a result the bottom limit of mortgages decreased from USD 300,000 to USD 70,000 and the mortgage volume doubled. Through the programme, the behaviour of existing institutions changed.
GODBOUT of the Fintech company iBuild explained that their iBuild mobile platform connects people to hardware stores and service providers for housing. It answers to the need of the poor who build their own houses. 85% of African households cannot afford the cheapest formally produced home in their country and have to build their own house. These people build incrementally, adding rooms, making repairs and adding utilities.
In the evolving mobile landscape, where new technological solutions are rapidly being developed, and with the increase in mobile money, iBuild found a market for their digital platform which allows all stakeholders to interact throughout the housing construction process. iBuild connects people who want to build a house to five different stakeholders: architects for design services, lenders for financing, suppliers for construction materials, contractors for construction labour, and workers for construction labour.
The five customer offerings of iBuild can be summed up as follows: 1) Digital technical services to find quality building plans and architects; 2) Contractor marketplace to receive quotes and hire rated contractors (iBuild performs checks on historic performance); 3) Find financing to identify home finance offerings & apply; 4) Payments & transparency such as digital wallet payments, allowing for traceability of funds, linked to performance and lastly; 5) Project management tools to monitor progress via status updates with photos.
The iWallet will not only allow for contractor/supplier payment and payment of workers, but will also allow for full traceability of funds, which can then be reported back for analysis. With the digital payments through iWallet, iBuild will be able to take a 1% commission on fees to make the application profitable for them.
Lenders will also benefit from iBuild through the following offerings: loan officer management, loan application review, management of disbursements through the Digital Wallet, loan product advertising, and loan reporting & analytics.
iBuild has already introduced iBuild, including the iWallet service, to four MFIs in Kenya.
VERRINDER presented new research findings from their study on the impact of housing loans in Kenya. He explained that research by Genesis on loans, with an average size of USD 700, provided by the Kenya Women Microfinance Bank to improve housing conditions, showed that clients used the loans for incremental building: adding rooms, improving walls, adding a kitchen, adding a water tank, improving roofs, adding piped water or adding a flush toilet.
The improvements to the houses resulted in a lower incidence of health issues: sore throats, blocked noses, shortness of breath, rashes, and itchy eyes. A possible explanation for the lower incidence of health issues is the decrease in use of open fires and less dust because of better walls and roofing. In contrast to the incidence of health issues mentioned above, the incidence of fevers (likely a result of malaria) increased. A possible explanation is that, as houses became more comfortable, people spent more time inside their houses where the number of mosquitos is often high. In addition, some people may have stopped using mosquito nets because they felt this was not necessary anymore after the improvements to their house.
Other findings of the study in Kenya were an increase in stress, likely caused by the burden of payment, and a reduction of liquid savings, likely due to loan repayments. In terms of changes in income or expenditure, the study found no changes. The evaluation period was only 18 months and other impacts associated with housing improvements are only likely to be experienced over a longer period of time. Thus, even though the impact was limited, the initial improvement of the quality of housing and the high repayment rates of the loans suggest that greater impact will be realised in the longer term.
NINO-ZARAZUA, who conducted the study in Peru commissioned by the Terwilliger Centre for Innovation in Shelter, explained that banks in Peru do not generally provide housing advisory services which has an effect on the housing quality. In Peru, the study focused on the results of the Micasa HMF Programme by the MFI Mibanco in terms of social impact and housing quality. The social impact study was qualitative in nature and used the QuIP methodology, whereas the housing quality assessment was quantitative using a propensity score matching technique. The average loan size of Mibanco was USD 2,500.
Key positive findings were housing improvements, improved space and comfort resulted in improved social and family relationships and additional income, e.g. to rent out (part of) their improved or extended house. Another positive finding was solid building materials, leading to greater security against natural disasters and security against violence and crime. Thirdly, property papers providing security against eviction as well as access to credit and/or government programmes was a well-received outcome. And finally, Micasa loans were the main driver of change for planning of construction and for building in stages.
Key negative findings were the burden of debt leading to an increased feelings of anguish and increased feelings of stress and a decreased quality of sleep. Also vulnerable or provisional building material was mentioned which caused increased feeling of insecurity against natural disasters and increased feeling of insecurity against crime. The third negative outcome was housing extensions which result in more household expenses and work on house and increased sense of insecurity due to the poor quality of the construction.
The lessons learned from these studies to use in the development of future MFI programmes are manifold. One should include additional financial education and debt management components and information on the use of mosquito nets. It is important to strengthen credit appraisal and ability to pay processes. Partnerships and use of technology for construction advisory services are key. It is also advisory to promote additional income as a result of housing expansions and collective action in urban communities to improve quality of construction.
DISCUSSION
One person from the audience raised a question on how the pay-for-performance incentives worked in the Haiti home programme. Caldwell explained that banks received payments from the programme when they had provided mortgages to the middle class. In total, the programme invested USD 600,000 to stimulate banks to give out mortgages worth USD 20 million.
Another member of the audience asked how iBuild will promote the quality of services offered through their platform. Godbout explained that iBuild aims to improve quality of the products and services by allowing clients to rate these. They can block access to the platform by a service provider once the rating drops below a certain level. iBuild will also support the workers and contractors to access vocational training through a cooperation with TVAT in Kenya. Preferably, workers will be able to graduate to become a contractor when they are successful.
Other people addressed the issue of technical assistance during the construction process as part of the financial services offer. The 2017 European Microfinance Award winner shared their experience in the Tosepantomin programme in Mexico where housing loans are accompanied by advisory and support services during the process of construction. He pointed out that impact evaluations are needed to identify the factors behind the changes and how MFIs can improve their services to achieve larger impact. Finally, another member of the audience asked Nino-Zarazua about whether the findings of the study were assumptions or evidence of impact, to which Nino-Zarazua replied that all results were based on self-reported evidence directly from Micasa’s clients.