Home ownership, tenancy and the HMF product

An interesting statistic struck me the other day when browsing through an article on land ownership in African urban areas. While in Dakar, Senegal, 74 per cent of the slum dwellers are owner occupiers, in Nairobi it is the exact opposite; as high as 95 per cent of dwellers are tenants and do not own their structures. Nairobi is not unique: in many African and indeed developing world cities, there is a major skew in terms of land ownership.

HMF is a product designed for low income people to use to finance their housing and home improvement needs – whether this involves the incremental construction of new housing or home improvements on existing housing. Indeed, often, the housing that most needs incremental improvement is that which is owned by someone other than the resident – often, these are wealthy landlords. Such people would be probably better suited to borrowing from a bank, or as is often the case, would not be inclined to improve the houses anyway, as it may not always make business sense. One writer calls this latter phenomenon the “low quality high price puzzle” of some slum real estate in Africa, where rentals are high, much higher than would be expected given the poor quality of accommodation offered.  If the borrower is a tenant, the housing investment they are making is likely contributing towards the financial asset of the landlord.  Do they derive value out of such an investment even if it is the landlord’s asset that improves? The dilemma then is, is it ethical to lend?

Some would say yes. Home improvement, in as far as it improves the material needs of the household, is a worthwhile investment, irrespective of whether the borrower actually owns the property in which he or she is investing.  Living there is enough. In fact, one of the reasons that HMF works as an unsecured loan product, is that many of its borrowers do not own the land they occupy in the first place.  Alleviating poor housing conditions is also more than creating a housing asset with financial value.  The housing asset also has a social value that is enjoyed by the resident, arguably more than the landlord: a house and home within a community.

The flipside to the argument of course is that a landlord/tenant relationship, especially in an informal settlement, is not secure. There is a huge asymmetry of power between the two parties, whatever existing landlord/tenant legislation there may be, notwithstanding. This may constitute considerable risk to the lender, for if the tenant is evicted from a property they used the loan to improve, will they honour this debt – and indeed, would the lender even be able to find them? Further, it in effect is a poorer person paying for and eventually ceding the house improvements, for someone more affluent, again raising the question of how ethical this is. From a lender perspective, protecting a commercial interest, and from a borrower perspective, protecting a personal financial interest, may mean we cannot consider lending , even for the shortest term.

And there is a distinction between an illegal occupier of government land, where there may be possibilities of negotiating and possibly increasing tenure security; and a tenancy, where a longer term secure interest in the land cannot be obtained.  This distinction is made fairly often in writing that deals with tenure regularisation for people in informal settlements. One writer notes that the original ownership of land when securing tenure is important as the method of regularisation on public land will differ from that on private land. Public land would entail sale or transfer through a sale or donation for instance. Private land on the other hand is much more complex. Beyond a willing buyer-seller transaction, remedies may be provided in policies and laws dealing with the social function of property, such as adverse possession.  However, adverse possession in most countries is an exacting legal process, with numerous legal criteria to fulfill .

Going forward, of course none of us can avoid the debate about greater equality in land ownership in many of our urban centers.  For now however, how do we resolve this dilemma in increasing access to decent housing, especially when such a significant proportion of households are tenants on private land (and insecure at that)?