Housing microfinance, the other financial inclusion

As proponents of affordable housing finance and housing microfinance (HMF), we often feel that it does not get sufficient attention in financial inclusion discourse. This feeling was rekindled when I browsed through the recently released Tanzania National Financial Inclusion Framework. It had no mention of affordable housing finance, while products such as micro-insurance, pensions, and even investment in securities are included as indicators of financial inclusion. There is mention of credit of course, along with savings, transactions and insurance, all key contributors to inclusion. Maybe housing finance is subsumed under the broad “credit” category. Either way, housing credit certainly deserves explicit mention especially given small business and agricultural credit is highlighted. Add to the this the fact that Tanzania is a country where, according to a presentation at the African Union for Housing Finance (AUHF) conference, there is a backlog of 1.4 million houses; where 79% of households use unimproved sanitation; where the  potential demand for housing microfinance is estimated at over US$ 400 million; and where there is almost no formal affordable financing to allow households to replace their poor quality dwellings. Imagine then the impact of providing financing to even a fraction of this demand, should the industry change tact. Enormous!

According to more research, this failure to meet this demand is because the financial sector is inherently conservative and lacks the specialized knowledge of offering finance for a housing product outside the tried and trusted mortgage. Wrong perceptions persist on what innovative forms of lending for housing such as housing microfinance really are. Is it not here then that the agenda for reform and increasing financial inclusion should lie and be given prominence, in policies such as these?

Of course, there have always been champions of affordable housing finance in financial inclusion discourse. FinMark Trust examines housing finance, through its Finscope surveys, when analysing the reach and uses of credit. The organisation and its affiliate the Centre for Affordable Housing and Finance has a housing finance program that looks at affordable housing finance. It was likewise pleasing to see that the more recent World Bank financial inclusion data, the Global Financial Inclusion database (Findex) has specific data subsets that deal with housing finance. It measures borrowing among the population reporting on:

  • The percentage of respondents who report having an outstanding loan to purchase materials or services to build, extend, or renovate their home or apartment, a housing microfinance loan in many ways; and
  • The percentage of respondents who report having an outstanding loan to purchase their home or apartment, akin to a mortgage or micro-mortgage.

Housing microfinance taps into a visible and obvious but often more mundane reality on the continent; the billions who live in inadequate housing and need to improve it, but lack the finances to do so. As seen in the case of Tanzania, new frontiers of financial inclusion could be opened if more innovative forms of financing for housing can be adopted. HMF does not have the revolutionary edge of Mpesa or its latest addition Mshwari. Providing it is complex in many different ways. It needs an understanding of not only the lending dimensions of the business, but also how this works for incremental construction of a house. It is a process of borrower and lender interacting over the lifecycle of an improving home. But HMF can open new and enormous frontiers for lending and access to finance. And it is qualitatively an ideal form of financial inclusion. The impact that decent housing has on a household in terms of providing a valuable asset, economic opportunities, better health and social status is unrivalled.

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