Housing Microfinance and the Housing Environment

Housing Microfinance is a finance intervention designed to assist homeowners to improve their housing conditions. This could be through the construction of a new house, or the completion, extension, improvement or repair of an existing structure. Housing Microfinance responds to the challenge of acquiring a lump sum of money sufficient to undertake a desired housing activity. Although at its core housing microfinance is designed to address a personal housing finance gap, many practitioners seek to integrate housing microfinance with a broad range of non-financial housing interventions. The extent to which housing microfinance should include construction technical assistance (a construction quality intervention) is a common source of debate among practitioners. Another topic of debate is the role of housing microfinance in the wider housing environment. Is housing microfinance a product of the environment, or should it be a tool for changing the environment according to regulatory and planning frameworks?

 

Those familiar with my writing will not be surprised that I believe that the opposing sides of the debate on housing microfinance and overall housing environment represent two different housing paradigms. They also seem to represent the difference between a should and could approach to housing. The housing microfinance market is largely those who are building incrementally, informally, and outside of the parameters of whatever regulatory and planning frameworks exist. Some housing microfinance practitioners are completely comfortable with this, while others cannot help but have some nagging concerns. Practitioners’ perspective on the role of housing microfinance in the wider housing environment not only serves for some lively debate, but also dictates certain elements of the products and services they offer.

Position One: Housing Microfinance Should Help Drive Change in the Housing Environment

“If you offer housing microfinance without conforming to standards, regulations and plans, you are only expanding the housing problem.” I have heard variations on this statement many times from both opponents and practitioners of housing microfinance. The assumption behind it is that a major contributing factor to what has been identified as the housing problem is the failure of people to build within standards, regulations and plans. Some practitioners fear that if housing microfinance goes to scale without ensuring compliance to these, it will have a negative influence on the housing environment and become a driver of unwanted types of housing and human settlements. Housing standards, regulations and spatial planning reflect what human settlements and housing should be. Practitioners holding this position would then design their products with procedures that ensure that structures built or repaired with a housing microfinance loan conform to stated policy and regulations. This may require a variety of pre-disbursement and post-disbursement verifications. It would also limit the market for the product to those realistically capable of compliance at a cost acceptable to them. 

Position Two: Housing Microfinance Must Reflect the Realities of the Housing Environment

“Housing Microfinance must conform to housing realities to meet an effective demand. When that reality changes, products and services will naturally have to adjust.” This opposing position holds that housing microfinance is a product of the housing environment and not a driver of wider change in terms of standards and policy. Some holders of this position go so far as to say that when standards, regulations, plans and administrative procedures are unrealistic, they are the cause of informal settlements and not the solution. This argument holds that attempts to design a housing microfinance based on an ideal which does not exist in practice will result in products and services that do not correspond to any real demand and will therefore not scale up. While acknowledging that higher standards are a noble ideal, practitioners holding this position emphasize the current housing reality. They seek to support tangible improvements that households can make to their living conditions using whatever parallel housing processes exist rather than trying to enforce what is unachievable for the majority and which authorities have consistently failed to enforce in practice. Product design would then focus primarily on the minimal service needed to deliver a product that will meet local demand with limited risk to the lender. If the operating environment changes (e.g. stricter enforcement of standards) then the product will be adjusted to fit the changing reality on the ground.

The Difficult Question:

The root question is: What do we expect housing microfinance to do? The more we expect it to do, the more complicated the delivery of products and services becomes. As we think about our expectations for housing microfinance, another question to keep in mind is on what are we basing our expectations?