In A Tale of Two Products Part One, I began to look at the power of housing paradigms on housing microfinance product design. Two groups that attended the same product development workshop in Mbarara, Uganda and had worked together during field research developed two remarkably different housing microfinance product concepts. The workshop was a training exercise that was part of an initiative to forge partnerships between a housing NGO and microfinance institutions. Two rough product concepts that came out of the workshop bore a close resemblance to the final products that were later used in the partnerships; one in Uganda and one in Kenya. This is a continuation of the Tale of Two Products.
As the two product concepts were presented and debated, there was little to no controversy or disagreement over product features such as interest rate, grace period, security or loan insurance. Whether the products should be linked (for existing clients) or stand alone (available to new clients) was also not a major point of contention. The debate (and it was heated, contentious debate) was over what the housing component of the product would look like. Here is a summary of the two housing microfinance products, focusing on the housing component:
FLEXIBLE HOUSING LOAN
As the two product concepts were presented and debated, there was little to no controversy or disagreement over product features such as interest rate, grace period, security or loan insurance. Whether the products should be linked (for existing clients) or stand alone (available to new clients) was also not a major point of contention. The debate (and it was heated, contentious debate) was over what the housing component of the product would look like. Here is a summary of the two housing microfinance products, focusing on the housing component:
FLEXIBLE HOUSING LOAN
The Flexible Housing Loan concept was a home improvement loan. The design concept was to allow the client to personalize the loan to his or her own unique housing situation by proposing the work to be done within the given limits on loan amounts. Loans would be disbursed in cash or cheque and the client would be responsible for overseeing the home improvement project. Clients who used the loan for non-home improvement purposes would have a higher interest rate than clients who used the loan on a home improvement as agreed with the MFI.
The MFI would not provide construction technical assistance to the client. It was assumed that there was sufficient construction expertise locally to undertake typical home improvement projects. This was deduced by the fact that the vast majority of the houses in the area studied during the workshop had good roofs, despite the fact that the households had built on their own using informal construction services that were locally available.
The flexible housing loan product concept aligned closely with the supporter paradigm of housing. It supported incremental building while emphasizing dweller control of the housing process. Existing and informal construction services were essentially seen as part of the solution to be harnessed, rather than part of the problem. Something very similar to the flexible housing loan concept was later implemented by the housing NGO and its MFI partner in Uganda, which we will call UMFI for the purpose of this tale of two products.
THE CONSTRUCTION LOAN
The Construction Loan product concept offered a variety of housing packages to clients. The packages ranged from complete units to designs that could be built in stages with several loans. The objective of the range of house designs was to offer complete housing services for clients with different income levels. The designs had names such as the gold, silver and bronze packages. Loans would be disbursed in-kind or in installments to avoid diversion to non-housing purposes.
The primary emphasis was ensuring the quality of the house product. Full technical services were included, from training of the client in the housing process to supervision and potentially procurement and the actual construction work. The product concept, with its emphasis on a complete solution and the quality of the house aligns with the provider paradigm of housing. A very similar product was launched by the housing NGO in Kenya with its MFI partner there, which we will call KMFI for the purpose of this tale.
THE DEBATES
The two groups at the Mbarara workshop entered into hot debate. What was more important, quality or flexibility? Could the institution providing the loan accept a housing result not up to given quality standards? Did the institution have the capacity to deliver construction services at scale? Did clients have the ability to manage their own construction process? In the end, the debates were not resolved and the workshop facilitator had to close the session.
Several months later, UMFI went on to offer a flexible housing loan in partnership with the housing NGO. At almost the same time, KMFI offered something similar to the construction loan with the same housing NGO in Kenya. Aside from the clear differences in the product features, how the housing NGO and MFI interacted with each other (and with the MFI clients) was markedly different in Uganda as compared to Kenya, but that is for another posting.
THE DEBATES
The two groups at the Mbarara workshop entered into hot debate. What was more important, quality or flexibility? Could the institution providing the loan accept a housing result not up to given quality standards? Did the institution have the capacity to deliver construction services at scale? Did clients have the ability to manage their own construction process? In the end, the debates were not resolved and the workshop facilitator had to close the session.
Several months later, UMFI went on to offer a flexible housing loan in partnership with the housing NGO. At almost the same time, KMFI offered something similar to the construction loan with the same housing NGO in Kenya. Aside from the clear differences in the product features, how the housing NGO and MFI interacted with each other (and with the MFI clients) was markedly different in Uganda as compared to Kenya, but that is for another posting.
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