Is housing microfinance a bottom of pyramid solution?

I was referred recently to a series of exchanges between two people well versed in issues of housing for the poor. The subject of discussion was whether housing microfinance (HMF) is truly a solution for the bottom of pyramid housing problems facing many of our countries. The exchange happened some time last year, but the issues raised by both are as pertinent as ever. This is especially so for housing practitioners who battle with question of what is a true scaleable solution to housing the poor.

Both sides of debate made valid points. On the one hand is the argument that HMF cannot be more than a temporary solution to housing problems at BoP. HMF according to the first writer polishes over what is and what will always remain a bad state of affairs. In essence, a slum unit is a slum unit, and making it larger and slightly better in terms of protecting from the elements leaves you, still, with a slum. We should not be stuck in a paradigm that accepts a bad state of affairs as our starting point, and claim to have a solution based on this premise. Why should we accept this bare minimum when other developed countries have successfully eliminated slums, and provided good quality housing for all, the writer poses? Secondly, HMF cannot work in the current environment of threat of evictions, which threat will always remain in slums. Thirdly, that the buildings associated with HMF do not meet international standards, and likewise the structures built are of very poor quality and lack longevity. In essence, inexperienced planners, builders, local leaders and HMF specialists are being given a free hand, without any codified supervision or control to do what they want. This is based on the very attractive but weak position that they are simply complementing existing efforts.

The counter argument was in many ways an acceptance of some of the points above; the fact that HMF is not a long term or permanent solution to the problem, but a much needed albeit pragmatic response to a pre-existing housing strategy. That in fact the reality is that the improvements to the “slums” are the only viable available options to slum dwellers. HMF is thus not a solution to the social, political and environmental problems that persist in many of our countries, starkly manifest in these poor areas. That secondly, indeed HMF will not work in an environment of tenure insecurity, and one prerequisite is that this has been attained. Thirdly, quality is not necessarily low when HMF is used to build, although this does not mean that international building standards will be met. What is in fact important is that the improvement projects are completed to the satisfaction of the households and there is non-opposition from authorities.

My inspiration in bringing up this debate is a video I watched where a beneficiary to HMF loans from NACHU an NGO in Kenya that offers HMF became part of national news (unfortunately the video is partly in the local language Kiswahili but still very much worth the watch). The same story has also landed itself in one of the countries popular daily, with the eye catching caption “Mama uji (literally translated porridge lady) saved to buy a house”.

I would like to draw attention to a number of things from this inspirational story. Number one, if there ever was a true poster child of the bottom of the pyramid here it is. The beneficiary being interviewed is a widower with seven children and formerly lived in a slum called Kawangware. She is not totally devoid of income but is by all means poor, as she earns a living by selling porridge in public transport ranks. She fled internal post election violence in the country and was in effect left destitute. Are the houses portrayed in the news item of poor quality? I do not think so, at least not from what I see. Nothing fancy, but surely a solid house with all services necessary; nothing like a slum at all. The news article describes the two bed roomed house as a “renter’s envy”. Most importantly, the house has been built through the efforts of the lady herself, her intent to improve her housing conditions done incrementally stage by stage, just like millions of others do. The house incidentally is also very affordable at around US$ 14,000, which she has paid for using the loans she received from NACHU.

There is surely merit then to HMF being touted as a long term solution to the BoP housing problems. Determined members of the community, strong and capable community organisations, and an incremental finance product can indeed create affordable decent housing. Yes, NACHU is not a commercial lender and gets funding and guarantees from international donors. But importantly, it is illustrating a principle that can be built upon by a commercial lender, much in the same way general microfinance lending, operating on commercial principles relies on BoP to sustain it. There is definitely a role for a government in creating the solution; in fact, government probably had a role especially around land and infrastructure in this project. HMF however takes the initiative, harnesses the self-build efforts that are already happening, and brings all players together. Not all projects render themselves suitable for HMF, much in the same way not all housing can be done through mortgages nor government build, given the state of our societies. However, HMF does have an important role to play, and yes, specifically for the bottom of pyramid.