HMF can grow a “saturated” microfinance market

The great potential in the relationship between general microfinance and HMF emerged again at the recently held 6th African Housing Microfinance Conference in Durban, South Africa. The conference is convened every two years  by the microfinance industry, and attracts stakeholders and practitioners from across Africa and the world.  For the first time, the event had a particularly strong HMF component, with a key note address, numerous practitioner sessions and a workshop all dedicated to HMF.

Why is this? What does HMF have to offer to traditional microfinance? And does the microfinance industry still remain the most likely platform for scaling up HMF going forward? Many commentators see the reliance on the microfinance industry to grow HMF as limiting. On the other hand, for the microfinance industry, HMF is often at first glance not such an attractive proposition. It is quite different from what MFIs do in small business and consumer lending. The product seems to be much more complex, the loans can be much larger and thus the risk is perceived as higher. And then there is that pesky land question that seems to confound everyone!

Offering some clues into why this current tentative relationship between general microfinance and housing microfinance may evolve to something much more concrete emerged in a presentation by Brigit Helms of DAI titled “Why we need disruptive business models in financial inclusion”. A reflection on the current state of the microfinance industry, she boldly stated that “the microcredit market is saturated.”  According to her, the segment of the poor and financially excluded that microfinance traditionally targets, that is micro-entrepreneurs, has largely been exhausted. Other segments of the poor  and financially  excluded, such as small holder farmers, casual labourers, low-wage salaried workers, artisanal fisherman, pastoralists, working age poor, the elderly, youth and so on, are not being served. To resolve this problem, she suggested that there is need for a new wave of “disruptive business models” to challenge this status quo, learning from the microfinance  industry’s own success, which was based on such a disruption. This changes who is targeted, what products and services are offered, and how these products and services are delivered.

Certainly, HMF does not capture the imagination in the same way that, for example, mobile money does, which disrupts how microfinance products and services are delivered. In fact, the how to the equation remains pretty much the same with HMF. However, HMF does offer a new product offering, and, importantly, it targets a much larger market segment than traditional microfinance.  In fact while the demand for HMF was initially noticed through lending for micro-entrepreneurs (where the often quoted 30% of diverted loans for housing originated from) it definitely has much wider potential, and can include most of the categories of people mentioned as currently not being served by microfinance.  Everybody needs to improve their housing situation, and with urbanisation rates in Africa such as they are, this is an even more significant opportunity in this continent.  This is why HMF offers such a useful route for microfinance to grow; and likewise, why microfinance, with its well developed infrastructure and networks, remains the most promising platform for growing HMF.

Keep a look out for more materials and analysis from the conference on this website.

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