A perennial and vexing question posed to all HMF practitioners is how to scale up delivery. The need for HMF is frustratingly obvious given the major housing challenge (crisis?) in many developing countries including in Africa. Demand is seemingly endless given our urbanisation rates and the current housing shortfall. The underlying rationale whether making money or poverty alleviation means everyone wins. But even with these seemingly good ingredients, to many it fails to grow beyond at best some exceptional practices in a few regions of the world where there is the rare dedicated HMF lender. In fact more likely when examining HMF is that it is an oddity of microfinance practice or if deliberately being done, a small highly supported and scrutinized pilot project.
People have spoken and written on this issue. The seminal book on Housing Microfinance by Frank Daphnis in one of the contributed chapters pointed at a number of do’s (macro-economic stability, recognition of incremental build by policy, selection of financial institutions with a track record, capacity building and promoting research on best practices) and don’ts (premature inappropriate regulation and interest rate subsidies). Bruce Ferguson more than eight years ago wrote of competitive interest rates, strategic alliances with building materials suppliers and diverse local funding sources for onward lending, as possible ingredients to going to scale.
Yet many of these are not particularly problems specific to HMF lending. Looking to one of the finance sector’s major revolutions, general microfinance, this seems more so. While comparisons with general microfinance are not always welcome, especially to HMF purists trying to distinguish it as a product of its own, the links are un-questionable. It is thus perhaps useful to go back into history. The “microfinance revolution” was according to some not so much a revolution of ideas, but a paradigm shift in thinking of development banks. They had known for long of the informal lending practices for small business, but it was when there was sufficient ideological and policy weight in supporting these did the shift happen, and subsequent implementation became the success it is.
This shift in the 1970s saw development theory emphasizing targeted credit to small farmers and business. This was a move away from 1960s developmen t paradigm which had instead targeted large scale capital transfers to support large industrial and infrastructure projects that will modernize economies and catalyse them to “take off”. Microfinance also fitted in nicely with new policies of market extension instead of state intervention, and the deregulation policies and decline of many development banks of the 1980s definitely created a niche for its growth. Its successful commercialisation on the other hand is attributed to the fact that it provides a service that poor people are willing to pay for, leaving subsides and donations for capacity building and training.
Maybe herein lies the solution with regard to HMF going to scale. We fully know it happens, but this has not resulted in large scale development. We then probably need a similar paradigm shift to catalyse this revolution. It could be required of the private sector, in terms of how it perceives HMF, including at a wholesale lending level where a shift in priorities to provide greater funding for HMF is needed. Retail lending also requires changes to products and how they are designed and structured, to better support HMF. Finally, the shift may lie in the public sector. Here particularly important in this regard is regulations governing the finance sector such as building regulations and land.