INTRODUCTION
In this tale of two products we have looked at the power of housing paradigms on housing microfinance product development and two different product and partnership designs in Uganda and Kenya. The Uganda product was a flexible housing loan that was delivered by the MFI with institutional support from the Housing NGO, but without branding the NGO to the MFI’s clients or integrating the NGO into the loan process. In Kenya, the product included specific house designs and significantly more construction technical assistance. The Kenyan MFIs product was co-branded with the NGO and staff from the Kenyan Housing NGO participated in the MFI’s housing microfinance loan process. Having looked at paradigms, products and partnerships, we now move on to performance.
SLOW STARTS
The partnerships between the Housing NGO and MFIs in Uganda and Kenya has very similar start-ups. All of the partners attended the same housing microfinance market research workshop and used similar tools and techniques in their market research and product development. Memoranda of Understanding were signed within one month of each other and the amount of loan capital provided by the Housing NGO was the same. The actual transfer of capital to the Ugandan and Kenyan MFI partners took place at approximately the same time. Although Kenya and Uganda have slightly different operating environments, as East African nations they are relatively similar when compared to each other, as opposed to Latin American or Asia countries, or even South Africa. The product development process, time lines, capital committed and even the missions of the institutions were essentially the same. The only salient differences were some product features and the partnership design.
Getting from the transfer of capital to actual loan disbursements started quite slowly with each partnership. The MFI in Uganda (designated “UMFI” for this tale of two products) was going through some internal transitions that slowed down the implementation of its flexible housing loan. Implementation of the construction loan at “KMFI” (not actual name) was also delayed in part due to post-election violence. The Housing NGO offered additional institutional technical support to the MFIs to get the products up and running in each country and the MFIs finally started disbursing housing microfinance loans at about the same time..
HIGHLY VARIED PERFORMANCE
Once loans started being disbursed and minor process issues were addressed, performance between the two partnerships became markedly different. UMFI began experiencing high demand for its flexible housing loan and used up the initial loan capital from the Housing NGO. The partnership was refinanced with additional capital, which was quickly put to use. Loans disbursed are approaching 500, but have been controlled due to limitations on available capital.
The KMFI product continued to struggle, despite KMFI being a significantly larger MFI than UMFI. Disbursements never picked up and the partnership was terminated before the loan capital had been fully utilized. Total disbursements of the construction loan during the partnership between KFMI and the Housing NGO were less than 50.
Neither product truly “took off.” The KMFI product performance was significantly poorer than UMFI’s in terms of generating and meeting demand. Even UMFI, however, has failed to take housing microfinance to scale beyond the capital provided by the Housing NGO. It has intentionally limited disbursement to the funds available at a concessionary rate through the partnership rather than seeking additional funds from other sources to scale up and meet the actual demand for the product.
WHAT CAUSED THE DIFFERENCE IN PERFORMANCE?
The partners themselves have various interpretations of their performance. One explanation for the KMFI performance was that the institution focused on and incentivized their core business loan products rather than the housing microfinance product. Certainly that may be a factor, but I can’t help but believe that having both the Housing NGO and MFI interacting directly with clients may have led to some confusion around the product and between the institutions. We may never really know.
I also believe that higher levels of construction technical assistance (particularly using standardized designs) make it more difficult to generate and sustain effective demand for housing microfinance in Africa. This has been my own experience so far; the greater degree of flexibility of the housing component of the product, the greater the ability to generate effective demand. When comparing higher and lower levels of construction technical assistance in housing microfinance, however, Franck Daphnis has stated that “No empirical evidence currently suggests that one approach is correct and the other is not.” [1] My own hypothesis would be that housing microfinance in Africa with less construction technical assistance will generate more effective demand, a higher rate of loan disbursement and lower cost for the institution. When choosing between a hypothesis from me and Franck Daphnis’ experience, however, Daphnis is the more reliable choice. Even this tale of two products, although true, is largely anecdotal in nature rather than part of a larger empirical study.
CONCLUSION
This brings my tale of two products to a close. The Housing NGO, UMFI, KMFI and their housing microfinance partnerships really exist, although I have not used the actual names of the institutions. The product with minimal construction technical assistance and no direct contact between the housing NGO and the MFI clients did in fact disburse approximately 10 times more loans in the same period than the product with a higher level of CTA and both institutions interacting directly with MFI clients. There were some who predicted this very outcome based on the product and partnership design, even before the first loans were disbursed. Whether that says something definitive about the types of housing microfinance products and their performance is yet to be determined. It is something for more study and I hope that some empirical studies comparing product types in the African context will be coming in the future as housing microfinance continues to develop on the continent.
[1] Daphnis. F. & Ferguson, B. (eds). (2004). Housing Microfinance: A guide to practice. Bloomfield, CT: Kumarian Press, p. 11.
In this tale of two products we have looked at the power of housing paradigms on housing microfinance product development and two different product and partnership designs in Uganda and Kenya. The Uganda product was a flexible housing loan that was delivered by the MFI with institutional support from the Housing NGO, but without branding the NGO to the MFI’s clients or integrating the NGO into the loan process. In Kenya, the product included specific house designs and significantly more construction technical assistance. The Kenyan MFIs product was co-branded with the NGO and staff from the Kenyan Housing NGO participated in the MFI’s housing microfinance loan process. Having looked at paradigms, products and partnerships, we now move on to performance.
SLOW STARTS
The partnerships between the Housing NGO and MFIs in Uganda and Kenya has very similar start-ups. All of the partners attended the same housing microfinance market research workshop and used similar tools and techniques in their market research and product development. Memoranda of Understanding were signed within one month of each other and the amount of loan capital provided by the Housing NGO was the same. The actual transfer of capital to the Ugandan and Kenyan MFI partners took place at approximately the same time. Although Kenya and Uganda have slightly different operating environments, as East African nations they are relatively similar when compared to each other, as opposed to Latin American or Asia countries, or even South Africa. The product development process, time lines, capital committed and even the missions of the institutions were essentially the same. The only salient differences were some product features and the partnership design.
Getting from the transfer of capital to actual loan disbursements started quite slowly with each partnership. The MFI in Uganda (designated “UMFI” for this tale of two products) was going through some internal transitions that slowed down the implementation of its flexible housing loan. Implementation of the construction loan at “KMFI” (not actual name) was also delayed in part due to post-election violence. The Housing NGO offered additional institutional technical support to the MFIs to get the products up and running in each country and the MFIs finally started disbursing housing microfinance loans at about the same time..
HIGHLY VARIED PERFORMANCE
Once loans started being disbursed and minor process issues were addressed, performance between the two partnerships became markedly different. UMFI began experiencing high demand for its flexible housing loan and used up the initial loan capital from the Housing NGO. The partnership was refinanced with additional capital, which was quickly put to use. Loans disbursed are approaching 500, but have been controlled due to limitations on available capital.
The KMFI product continued to struggle, despite KMFI being a significantly larger MFI than UMFI. Disbursements never picked up and the partnership was terminated before the loan capital had been fully utilized. Total disbursements of the construction loan during the partnership between KFMI and the Housing NGO were less than 50.
Neither product truly “took off.” The KMFI product performance was significantly poorer than UMFI’s in terms of generating and meeting demand. Even UMFI, however, has failed to take housing microfinance to scale beyond the capital provided by the Housing NGO. It has intentionally limited disbursement to the funds available at a concessionary rate through the partnership rather than seeking additional funds from other sources to scale up and meet the actual demand for the product.
WHAT CAUSED THE DIFFERENCE IN PERFORMANCE?
The partners themselves have various interpretations of their performance. One explanation for the KMFI performance was that the institution focused on and incentivized their core business loan products rather than the housing microfinance product. Certainly that may be a factor, but I can’t help but believe that having both the Housing NGO and MFI interacting directly with clients may have led to some confusion around the product and between the institutions. We may never really know.
I also believe that higher levels of construction technical assistance (particularly using standardized designs) make it more difficult to generate and sustain effective demand for housing microfinance in Africa. This has been my own experience so far; the greater degree of flexibility of the housing component of the product, the greater the ability to generate effective demand. When comparing higher and lower levels of construction technical assistance in housing microfinance, however, Franck Daphnis has stated that “No empirical evidence currently suggests that one approach is correct and the other is not.” [1] My own hypothesis would be that housing microfinance in Africa with less construction technical assistance will generate more effective demand, a higher rate of loan disbursement and lower cost for the institution. When choosing between a hypothesis from me and Franck Daphnis’ experience, however, Daphnis is the more reliable choice. Even this tale of two products, although true, is largely anecdotal in nature rather than part of a larger empirical study.
CONCLUSION
This brings my tale of two products to a close. The Housing NGO, UMFI, KMFI and their housing microfinance partnerships really exist, although I have not used the actual names of the institutions. The product with minimal construction technical assistance and no direct contact between the housing NGO and the MFI clients did in fact disburse approximately 10 times more loans in the same period than the product with a higher level of CTA and both institutions interacting directly with MFI clients. There were some who predicted this very outcome based on the product and partnership design, even before the first loans were disbursed. Whether that says something definitive about the types of housing microfinance products and their performance is yet to be determined. It is something for more study and I hope that some empirical studies comparing product types in the African context will be coming in the future as housing microfinance continues to develop on the continent.
[1] Daphnis. F. & Ferguson, B. (eds). (2004). Housing Microfinance: A guide to practice. Bloomfield, CT: Kumarian Press, p. 11.
