What constraints do housing microfinance lenders face? What business models have housing microfinance lenders developed to manage these constraints? Capitec, Real People and Select Africa all lend to households who build their housing incrementally. Each company accesses financing, originates loans and deals with credit risks differently. Yet the three companies also adopt similar strategies, such as limiting loans to those who are formally employed. The Centre for Affordable Housing Finance in Africa commissioned a case study on the business models of these three housing microfinance lenders in order to contribute to the growing track record of novel solutions and initiatives, pioneered by policy makers, financiers, developers and households themselves that suggest that there are new opportunities for making the housing finance sector work for the poor in Africa. The recommendations from the case study are that, first, weak regulatory, legal and lending support infrastructure (such as the quality of credit reports) in a country leads to higher costs for financial institutions, limiting access to housing microfinance. Second, that scale is needed to succeed as a housing microfinance provider. And, third, that banks have significant advantages in terms of capital availability at low costs and access to a diversified income stream, with the implication that HMF providers should strategically consider obtaining banking licences once they have reached scale. We hope that this case study, and the other case studies in the series, contribute to the development of imaginative solutions by housing finance practitioners across the continent, assisting them in adapting initiatives to manage the vast array of challenges they face daily.
The research includes:
- An Excel spreadsheet, containing models for two of the case studies, with balance sheets, income statements and return on equity as outputs;
This case study was prepared with the support of FinMark Trust