A debate that has persisted in the HMF industry is whether housing support services (HSS) are an important and necessary accompaniment to HMF lending. HSS are non-financial inputs provided to the borrower to assist them in building, as well as achieving other outputs such as upgrading tenure, infrastructure and services. They can for example, include assistance with construction of the house (known as construction technical assistance). This can be as simple as providing general information on broad building principles and do’s and dont’s and recommending builders or making referrals to materials suppliers. Beyond this, it can be much more in depth assistance, including advice on designs, assistance with elaborate repairs or maintenance and at an even more intense level, multiple site visits to impart specialist assistance for major construction. Regulatory processes around home construction can also be complex and convoluted. HSS can assist the borrower in navigating these with the authorities concerned. Insecure land tenure, an important issue in many urban centres on the continent can also form a critical part of HSS.
The principle behind HSS is that not all borrowers have the technical background and skills to undertake the architectural, engineering and building processes that traditionally surround a housing construction process, but in self-build are left to the home owner. HSS seeks to ensure that a good quality house emerges from the building efforts financed by the loan. It also assists in creating housing that can withstand disasters better, an important quality for what are often vulnerable poorer members of society housed in disaster prone locations.HSS is about providing assistance to hasten what is often a long and inefficient process of incremental construction. In this way, it is also a risk mitigation strategy by the lender; in as far as the borrower is satisfied with the results of the loan, there is a greater likelihood of payment of the loan. For a microfinance organisation, provision of HSS is also about reducing the risk of loan diversion and retaining contact with the loan recipient after disbursement of funds. It can likewise build brand loyalty and attract new clients
But there is no unanimity on the importance on HSS. Some research in fact shows that HSS is not necessary to provide for effective HMF lending. This provides that HSS does not ensure houses of better quality, nor reduce the effects of natural disasters. It further states that the upfront costs to the lender (and therefore also the borrower) of providing HSS may be far outweighed by the benefit, if at all, obtained from it. Clients may not be willing to pay for this higher quality construction. This is an important consideration given HMF markets are particularly price sensitive. It goes on further to state that HSS advice provided to self-builders may be beyond their technical capacity, and thus ultimately unusable.
It is difficult to reconcile these two opposed viewpoints without more conclusive research. However, to provide some direction, we can conveniently draw on practice from the general microfinance industry. In microfinance lending, just like in HMF, a similar vein of non-financial services has developed. The provision of business development services (BDS) is based on the premise that not all small entrepreneurs have the skills and ability necessary to run a business. This is especially so for poorer, less capacitated clients, often the intended beneficiaries of microfinance loans. The aim of BDS is to assist in providing these skills and enhance the chances of success of the business. A microfinance loan is therefore often accompanied by some form of training and technical assistance – for example, how to successfully run the business, product development support, assistance with regard to access to markets, and so on. This service can be paid for as part of the loan.
Striking parallels can be drawn between the underlying rationale for BDS and HSS. BDS is also a risk mitigation strategy for the lender as a successful business is ultimately good for loan repayment. It is vital for assisting small business owners get around complex regulatory and licensing procedures. BDS creates brand loyalty and attracts new clients as an “add on” to lending services. Interestingly, it has been noted that the lack of sufficient supply of BDS can limit the growth of the MFI industry.
More and more organisations are now convinced of the value of HSS in the HMF value chain. CAHF has done research on HSS showing that a number of HMF lenders on the continent see it as critical to their activities. In a workshop hosted by the Centre in 2010, practitioner after practitioner presented why HSS is important for their activities. Undoubtedly more evidence such as this will emerge to conclusively prove the benefits of HSS.
Going forward, the new frontiers for HSS provision are about understanding its positive impacts better, be it to borrowers, lenders or the housing product itself. Developing models that cater to different demands for it, and how this can be met affordably and sustainably also needs greater investigation.