When Housing Microfinance is Not Housing Microfinance

Some months ago I wrote two posts on the topic of Housing Microfinance as Microfinance (See: Housing Microfinance is Microfinance Part 1 and Housing Microfinance is Microfinance Part 2). My premise was that “good” housing microfinance should conform closely to generally accepted principles of microfinance. In Sub-Saharan Africa, there is growing interest in housing microfinance, but it is still very much in an early stage of development. Housing microfinance products, both actual and proposed, are beginning to take a wide variety of forms. Some have loan sizes and terms that seem to have more in common with SME (small and medium enterprise) lending than traditional microfinance products found within the same operating environment. In at least one case in East Africa, housing microfinance falls under a lending institution’s SME department. As long sizes increase to amounts similar to SME loans, housing microfinance bears less and less of a resemblance to microfinance.

 

Some of those considering housing microfinance also appear to be working under the assumption that it requires more security than one typically seeks for a microfinance loan. (This may be a corollary drawn from an assumption that housing microfinance will automatically have higher loan amounts and longer terms.)When a housing microfinance product collateralizes the client’s property it essentially becomes a micro-mortgage. Because of high cost, complicated administrative procedures and in many cases the lack of prerequisite surveys and systems for securing property as collateral, a housing finance product that does so becomes out of reach for the majority of low income households in Africa.

One of the roles of microfinance is availing financial services to households that would otherwise be financially excluded. It would then reason that housing microfinance should bring access to housing finance in the same way. With an under-developed mortgage market in Sub-Saharan Africa, there is certainly a role for something like a micro mortgage or housing finance with loan terms similar to SME loans. I have seen a number of such products falling under the broad spectrum of housing microfinance. Such products are unlikely, however, to significantly expand access to affordable housing finance for low income households and begin to move away from some of the basic principles of microfinance. As housing finance continues to develop in Africa, it may become beneficial to differentiate between the product types that form the lower end of the market. The disparity in product features, methodologies, and mechanisms in what currently falls under the umbrella of housing microfinance leads not only to vastly different products, but also to serving significantly different target markets.