Housing Microfinance and the 6 S's: Stuff

We can learn something about a settlement in Africa just by what housing-related items or materials are being sold in or near it. In a place where there is very little cash investment in housing, (which still characterizes much of rural Africa), it may be hard to find any business supplying construction materials. In new settlements (or those showing rapid transformation from traditional construction methods), it is common to find a proliferation of businesses selling blocks, cement and roofing material. Settlements that are more established often have less cement, roofing sheets and blocks on the market, but more electrical supply, plumbing and paints. In settlements that are even more established, businesses sell a lot of Stuff.

In How Buildings Learn: What happens after they’re built, Stewart Brand implicitly considered Stuff as part of the housing process. Stuff is his term for the usually movable things such as furniture or appliances, that go into a house. N. J. Habraken also used Stuff as one of the basic elements in determining supportive housing design in Variations: The Systemic Design of Supports. Without a doubt, beds, sofas, tables and chairs, refrigerators, stoves, toasters, televisions, stereos and other household items are a critical part of one’s housing. Does stuff, however, have a place in housing microfinance?

Stuff is often sold with consumer credit by its vendors. I once visited a housing program in South Africa where clients prioritized payment for their sofas over their house payments. At first I found it strange that stuff had priority over shelter. It was, however, a  logical response given that the local housing environment made it very difficult to foreclose on a housing loan, whereas providers of consumer credit would quickly to arrive and collect their sofas, chairs or other items if their customer fell into arrears. People valued their stuff and there is no reason why housing microfinance could not extend to “stuff” as well. No home is complete without it!

Even if stuff is not part of an institution’s housing microfinance product offering, it still often has a critical role in housing microfinance. One of the differences between housing microfinance and mortgage finance is that housing microfinance usually does not secure land or the house as collateral. Stuff (chattel) often serves as at least partial security on housing microfinance loans. Sofas, televisions, tables and chairs and even beds can be pledged as collateral. They are usually much easier for the lender to seize and sell in case of default in loan payments than an attempted foreclosure and sale of property, particularly in places where even mortgage law is not fully developed in a practical sense.

An interesting thing about stuff is that it is a rough proxy for the socio-economic status of its owner. In the MAKAZI BORA program (the housing microfinance program with which I currently work) we take photographs of stuff that is pledged as collateral. A look through a client’s collateral photos can give a quick indication as to whether the per capita household income is closer to $1.00 per day or $5.00 per day just by the types of items used. Not all radios, sofas and cupboards are alike, and by the second month of implementation we had determined that a section of our operating area had a lot more people of higher income simply by the collateral they were pledging compared to that of other areas. That particular section was the only one in the area where clients consistently had what were listed as “sub-woofers” (music/entertainment systems) on their collateral pledge forms, whereas much older and simpler radios were the rule in other sections of the operating area. One rule of the credit committee is not to make comments or judgments about people’s stuff when reviewing applications. Regardless of its condition, age or value, it is theirs and it represents part of the assets of the people we serve.

Housing microfinance is a housing intervention. Starting with site and ending with stuff, each of Stewart Brand’s Six S’s of a building [1] is a potential loan use for housing microfinance products or otherwise influences the practice of housing microfinance. Housing microfinance products that fit in with the housing realities of their intended users will be the most successful, both commercially and in terms of having a significant effect on the people’s housing process and the overall housing environment. This marks the end of my series on the "6 S's." Additional topics will be forthcoming shortly.

[1] Brand, S. (1994) How Buildings Learn: What happens after they're built. NY: Penguin. p. 13

Housing Microfinance and the 6 S's: Services and Space Plan

In How Buildings Learn: What happens after they're built, Stewart Brand states that “The flow of money through a building acts to organize the building.” [1]  In Sub-Saharan Africa, low income households face challenges with this flow of money due to lack of access to the type of mortgage finance that is the norm for middle and upper class households in other parts of the world. Money for home construction tends to be accessed in relatively small quantities compared to the task at hand, often over a period that can be measured in years. The result is a home that is built incrementally. Incremental construction becomes an exercise in prioritizing the flow of money across what Brand calls the Six S’s: Site, Structure, Skin, Services, Space Plan and Stuff. Services and Space Plan naturally fall after site and structure as priorities, but often surprisingly fall after skin as well.

Services typically include water, electricity or gas connections to a building. Because of climate considerations and the relative cost of various building materials, the most common construction material in Africa is some kind of brick or block. [2] This means that the services must be added through and on top of a block wall. Cladding over the block is extremely uncommon in low income households, with a plaster and paint being the most common interior skin, if there is one at all. Conduits are frequently placed into channels carved into the wall and covered with plaster with the exception of the socket outlets. There is not, however, a significant taboo against having visible conduits in low income households. It is not uncommon to add them directly over the skin instead of the skin being added after the services to hide them.

Housing Microfinance loans for services can link to water and sanitation efforts in upgrading informal settlements. Clients may use a housing microfinance loan to connect to potable water, sewage or a septic tank. The housing microfinance program in which I currently work is in an urban setting and electricity connections are a popular loan use. Loans for electricity connections tend to be taken by households that have reached some level of satisfaction with the structure and skin of their home. These loans are sometimes associated with home-based businesses that may use a refrigerator, freezer, electric sewing machine or other gadget. It is interesting that the “stuff” that uses the electricity is often acquired before the service is connected to the house, having been used in rented accommodation, kept in another person’s house, or used with car batteries that are periodically sent out for charging.

The Space Plan includes non-load bearing walls, ceilings and doors and windows. Because it is very common for low income households in Africa to move into a house before it has all (or sometimes even any) of its doors and windows, these become a common use for housing microfinance loans. In our MAKAZI BORA home improvement loan program in Dar es Salaam, Tanzania, doors and windows may be the most common house component sought, sometimes on their own but often as part of applications for roofing, or other improvements. Some loans have been used for improving existing windows with screens (to keep out mosquitoes) or bars (to keep out other unwanted visitors). Clients with very low incomes have purchased and installed second-hand windows and doors to shut their houses, while clients with slightly higher incomes have used the opportunity of a housing microfinance loan to purchase doors and windows of higher quality and durability.

Ceilings have also been a popular loan use. Like electricity connections, these tend to be for clients who have basically satisfied the rest of their housing priorities as they have worked through their incremental building process. Loans for ceilings are sometimes for relatively wealthier clients, but sometimes simply for clients who are further along in their process as they continue to build and organize their houses according to their own image of what their home should be.

Housing microfinance can be made flexible enough to assist people at all stages of their housing process as they acquire, add, or modify site, structure, skin, services and space. Access to housing finance increases the velocity at which a low income household is able to develop and organize its home. The more flexible a housing microfinance product is, the more utilitarian value it will have for dwellers in their housing process and the greater the potential demand for the product. Although this is a hypothesis to be explored more in-depth at another time, the very awareness of the ability to access affordable housing finance may assist a household in organizing and planning its journey through the 6 S’s.

[1] Brand, S. (1995). How Buildings Learn: What happens after they’re built. New York: Penguin. p. 85.

[2] This is not inclusive of traditional construction methods in rural areas that may use mud walls or a waddle and daub construction, which may still be statistically the most common construction forms in Sub-Saharan Africa.

Housing Microfinance and the 6 S's: Skin

When describing a sort of hierarchy of the 6 S’s, Stewart Brand wrote that “Site dominates the Structure, which dominates the Skin, which dominates the Services, which dominate the Space plan, which dominates the Stuff.” [1] Skin is the layer of the building that meets the eye and covers the structure. Brand calls skin mutable. In How Buildings Learn, he demonstrates its mutability with examples of how buildings’ facades change over time. In Sub-Saharan Africa, it is common for houses to be built and occupied with very little in the way of skin, which is then progressively added. This makes the addition or modification of skin a very popular loan use for housing microfinance in Africa.

Traditional houses in Africa usually have skin. When the structure is poles, builders weave bamboo, reeds or sticks through them and apply a mud or clay skin. Plaster of one type or another is the most common skin in Africa, both on traditional and "modern" houses. It is indeed dominated by the structure, because the plaster (skin) must be of compatible material to bind to the structure. In some of my previous work in the Democratic Republic of Congo and Ghana we built low cost houses using mud bricks as structure in communities where this seemed to be the most feasible option. The structure was then plastered with a mixture of cement and the same type of soil that made the bricks. Taking initiative in their self-help, clients would sometimes increase the cement component of the plaster ratio in the belief that it would make the skin stronger. The actual result was a plaster that could no longer bind to the structure and would soon start falling off. As the skin fell, so did repayments. Despite the fact that the clients’ actions directly caused the problem, the house design, selection of materials and technology and the overall process were ours and Turner's Third Law still seemed to apply.

In other communities where the soil was too sandy for mud bricks or where burnt bricks were an option, we built burnt brick or cement block structures. In an effort to reduce construction costs and keep clients’ income directed towards their loan repayments, we had a policy that houses could not be plastered until their loans were paid off. Complaints were seemingly endless when we (the providers) considered skin to be a luxury that a resilient structure made unnecessary. This was a constant source of conflict and we were ignoring a demand for skin as a loan product and as a key part of people’s housing wants and needs. Necessity and importance are not always the same thing when housing is viewed as a personal process as opposed to a shelter or commodity.

Skin is often a secondary or tertiary priority for households in Sub-Saharan Africa, after site and structure. It is extremely common for dwellers to move into a building before there is any skin except the roof covering. This is incremental building in action: An informal finance strategy that prioritizes available funds against housing as a livelihood component. Once the house is occupied, however, housing microfinance frequently assists dwellers to continue their housing process by adding interior and exterior skin. Plaster, paint, tiles, skirting, rough exterior finishing and embellishment on verandas are very common housing microfinance loan uses with demand even from very low income households. Skin brings a sense of pride to the dweller and adds a personal touch to their home that gives housing a deeper meaning than basic shelter. There is tremendous value in this as well as demand. Skin as a loan use is undoubtedly one key to housing microfinance reaching the scale needed to be sustainable and profitable.

My approach to skin has changed drastically over the years from the days when I was trying to enforce “no plastering” policies. Should we allow a household to use a housing microfinance loan to paint their house pink when there is some other item of apparent necessity still incomplete? Why not? They are probably more aware than we as to what is complete and incomplete on their own house. They probably have a reason why they want to paint it and we, as outsiders to their home, have little idea what painting their house pink means to them. Effective demand and a supportive, personalized housing process ultimately go hand in hand.

[1] Brand, S. (1994). How Buildings Learn: What happens after they’re built. New York: Penguin, p. 17.

Housing Microfinance and the 6 S's: Structure

“Structure is the building,” states Stewart Brand in How Buildings Learn: What happens after they’re built. [1] The structure is composed of the foundation and load-bearing walls. It is situated on the site and sets the parameters for skin, space and services. When low cost house construction is undertaken by the dwellers themselves, how structure is built depends upon what materials and skills are both readily available and affordable as well as cultural factors. Even a cursory survey of a settlement can determine what is readily available, affordable and acceptable to low incomes households simply by observing the materials in most frequent use in the structures and what is being sold where people with low incomes are building. How structure is most commonly built in a given locality and the lending institution’s position on it affects housing microfinance design.

My posting in September titled a product-environment mismatch  was essentially about structure. The prevailing structures in northern Malawi where a housing microfinance product was implemented were mud walls or waddle and daub (mud and pole) with no foundation, but the product required a burnt brick structure with a 60 cm foundation. This made for a slow and expensive start-up, because the effective demand was low based on the low number of households with eligible structures (which was much lower than the number of households in need of improved housing or interested in a home improvement loan). In such cases a decision must be made whether to design the product to work with houses having the prevailing type of structure, to require potential clients to build a different kind of structure prior to receiving a loan (as was done in the example) or to allow the loan to be used to build a structure to the desired standards. This is a decision that combines an institution’s housing ideology and its approach to lending.

The first option of working with the prevailing structures is perhaps the most market-oriented. In the northern Malawi example discussed in a product-environment mismatch, roofing was locally considered to be the biggest housing challenge and people wanted better roofs. Working with the prevailing structures might have meant allowing clients to use a home improvement loan to put a durable roof on a house with walls made of mud or mud and poles. From one housing perspective, putting better roofs on existing houses could be viewed as a significant improvement in living conditions. From another perspective, the houses may still be considered sub-standard, semi-permanent and undesirable to the lending institution. From the market perspective, effective demand for this type of product would be people who could afford a loan for a roof, wanted a better roof and desired to take a loan for roofing. Roofing sheets were locally available, so this may have captured the largest effective demand at lowest cost to both the client and the institution.

The second option of requiring potential clients to build a new structure to higher standards may also have some advantages for the lender. From a social perspective, the lender may have a role in improving the built environment by encouraging more durable building methods. When a household builds a new structure, it also shows a high level of commitment to putting resources into their housing. This can be an indicator of reduced risk for the lender. In the northern Malawi example, however, the demand (for roofing loans) moves to households who can afford a loan for a roof, want a better roof, desire to take a loan for a roof and are willing to rebuild their home using a different technology in order to be eligible. There may be a multitude of reasons that people are using the current methods of building structures. Changing this could be challenging and result in low effective demand with high costs and challenges to the lender in reaching sustainability.

The third option of supporting the structure with the loan could be in the form of cash disbursements for the purpose of building a foundation and walls or the institution actually overseeing the construction. This could result in quality structures, although in practice it is easier to assess the quality of an existing structure than to ensure the quality of a proposed one. The challenge of cash disbursements for structure is that it is difficult to gauge the household’s commitment to their housing process when looking at an empty space on a plot of land. There is a higher risk of loan diversion than when working with a household that has already put their own resources into a structure. When the institution oversees the construction, delivery becomes more expensive and complicated for the lender. It is a possible option, but it is perhaps the most challenging of the three from a lending perspective.

In my current work in Dar es Salaam, Tanzania, we have decided not to support structure with our loan and only work with pre-existing structures. Because of the sandy soil in the city, the prevailing material used for building structures is cement blocks. The advantage to this is that the material used is resistant to rain and can be collected on site and structures stand unroofed for long periods of time. When matched with a difficulty in financing roofing, this results in a market for roofing loans on existing structures. The quality of the structure can be viewed prior to approving a loan for its improvement. A household that has brought a structure to roofing level has both invested significant resources that show some level of commitment and it has learned a lot about building their own home as they have sourced materials and worked with builders. At least that is both our espoused theory and theory in use so far.

As Brand said, structure is the building. Lending institutions make decisions, at least implicitly, on their approach to structure through their housing microfinance product design. An understanding of the types of structures built locally, why they are built that way and what are the possible product design alternatives and their implications should be a prominent feature in housing microfinance product development.

[1] Brand, S. (1994) How Buildings Learn: What happens after they’re built. NY: Penguin. p. 13.

Housing Microfinance and the 6 S's: Site

Although the other 5 S’s of a building come, are modified and go over time, Stewart Brand wrote in How Buildings Learn: What happens after they are built that “Site is eternal.” [1] Site is a prerequisite for (or part of) any housing finance intervention. The level of formalization in the land market determines the legal status of “site” and how it is accessed. This then influences the development of formal housing finance (mortgage market). When a vibrant mortgage market that reaches down to low income households is absent, there will be a rise in demand for housing microfinance to fill the gap and finance alternative housing processes.

Site and Risk in Housing Finance

Mortgage markets require the ability of the lender to put a lien on the property (site) over the loan term. This requires legal title that is dependent upon a land registration process. It also requires a legal framework giving the lender the practical ability to sell the property in the case of default by the borrower. Risk is mitigated by ensuring that the net resale value of the asset (property inclusive of the site and structure) is greater than the amount owed by the borrower. Over-reliance on the asset as a means of reducing risk can be problematic, however, if the resale value of the asset decreases to below the outstanding loan balance.

Housing microfinance usually does not require legal tenure (if it does, it may be more like a micro mortgage). It relies instead on land security, being some kind of evidence that there is low risk of the owner being removed from the land against his/her will. This could be a document showing purchase, inheritance or customary ownership and may include a signed statement from local leaders that the owners has a right to the land that they wish to use for construction or making home improvement. In the absence of formal land registration, there is often a recognized parallel land system. Whereas formal land and mortgage systems prevent the sale of property (site) when it is mortgaged, it is often possible to sell property in a parallel land market by simply generating a new document of sale. This is a potential risk for housing microfinance providers even if they are generally satisfied that the client will not be forcibly removed.

Reducing Risk

Because the site itself cannot be effectively leveraged to reduce risk in housing microfinance, risk mitigation falls back on standard microfinance methodologies. These include ensuring affordability of the housing microfinance loan through rigorous income assessment, assessing character and sometimes using guarantors both as security and a form of social pressure. The process is highly reliant upon the work of credit officers, as opposed to legal documents. Understanding the history of the settlement in which client’s housing project is located, the land and human settlement policy framework and local politics helps to assess whether there is a potential risk of removal from the land. Evidence of commitments in the community and an understanding of the character and personal history of a borrower may also help asses the risk of the borrower selling the site, disappearing and leaving the financial service provider with an uncollectible account.

Site and Effective Demand

When housing microfinance is undertaken in the form of a home improvement loan on a client’s existing housing project, site is a pre-requisite to obtaining a loan. In African rural areas, this is usually not a problem. With some exceptions, most rural households in Africa have access to land through customary rights or agreement with local leaders. In urban areas, however, a significant portion of the poor and low income households rent their accommodation and do not own land. This excludes them from access to housing microfinance, making  effective demand solely from those who have secure land. This can potentially influence the social performance of a housing microfinance product based on the practically ability of low income households to obtain land in a suitable location to match their livelihood strategies. If low income households find it very difficult to acquire land due to whatever reasons, then housing microfinance that relies on a borrower’s access to land will serve clients with relatively higher incomes compared to the very poor in the community. Site (or rather access to it) also influences the market and demand for various potential housing microfinance products.

One way of serving populations who do not have access to land is to offer land (site) as a loan product. This could be the purchase of land on its own, or a package of services that include land and housing. One approach is for an institution to acquire a large piece of land through a formal process, or through mobilization of members, and then parcel it out as part of a housing package. In African urban centers, such land is commonly found on the outskirts of the city and far from employment opportunities for non-skilled workers and the vibrant local economies of informal settlements. Although access to land and housing may be secured using this method, it is at high cost to the institution and it can sometimes be a risk to a household’s livelihood sustainability if the location of the site does not support their income strategies and/or results in significant added expenditures.

Another option for land as a loan product would be to support the acquisition of land through existing informal processes. In this case, a client might identify land for sale in an area of his/her choice and access a loan to purchase it. In some cases, the site may also include an existing structure. This type of transaction takes place frequently in informal settlements, but is usually “off the radar” to those who only focus on formal processes resulting in title. There is no reason why housing microfinance could not support such transactions as long as the institution is comfortable that a reasonable level of security exists and that any risk can be mitigated in other ways.

A third housing microfinance option for serving those who do not have access to their own site would be supporting the construction or improvement of rental units. This could clearly lead to allegations of supporting “slum lords,” but it must also be recognized that renting is a viable livelihood strategy for many low income households in informal settlements. Increasing the quantity and quality of rental stock in low income areas can certainly have multiple benefits, impacting the renter, landlord and overall housing environment. It is not uncommon for low income households living in informal settlements to rent out rooms, providing accommodation for one family and an additional steady source income to the other.

Conclusion

Macro level factors related to site (land policy and legal frameworks) are a major factor in determining how low income household access land. Macro land-related issues also influence what types of housing finance options are (or could be) available and who can access them. Providing site (land) as a product or part of a product could potentially make housing microfinance more inclusive in some environments. Likewise, housing microfinance products that target rental uses also ultimately benefit those who do not have access to land or rent as part of their livelihood strategy.

[1] Brand, S. (1994) How Buildings Learn: What happens after they’re built. NY: Penguin. p. 13.

The 6 S's and Housing Process

I previously wrote about a housing concept from Stewart Brand’s How Buildings Learn: What happens after they are built. (See Incremental Building and Housing Microfinance Part III, posted on 13th September 2009) Brand built upon  work by Frank Duffy and identified “The 6 S’s” of a building: Site, Structure, Skin, Services, Space and Stuff.[1] How the Six S’s are integrated into a building varies, depending on whether the building was constructed through a formal or informal housing process and the degree of access to housing finance. As Brand states, “The flow of money through a building acts to organize that building.”[2]

Let me start with a brief look at the 6 S’s:

• Site: This is the location of a building. In the western setting, it is almost certain to be legally and specifically defined. In other parts of the world, there may be no legal title. Many countries have yet to conduct cadastral surveys for the vast majority of land, making formal title nearly impossible and resulting in  alternative forms of land tenure. Site has a tremendous impact on the building process in terms of the eventual form of structure and  the availability of housing finance options.
• Structure: Brand writes that “The foundation and load-bearing elements are perilous and expensive to change – so people don’t. These are the building.” [3] The structure of a building is  defined by its foundation plan and, as Brand notes,  is not likely to be significantly altered. Structure can be added incrementally through additions and extensions, using either formal and informal housing processes.
• Skin: The skin of a building is what meets the eye. It has a functional purpose of protecting the structure and providing insulation, security and safety, but it also frequently has aesthetic purposes. It is not uncommon for waddle and daub traditional houses in Africa to have an extra layer clay added to the outside to protect the structure. This is sometimes painted in designs with different color clays. “Keeping up with the Jones’” knows no socio-economic boundaries and often involves improvements or changes to the skin of a building.
• Services: Services include heating, electrical wiring, gas fittings, plumbing communication or other utilities and services in and around a building. Efforts are often made to hide the majority of services behind the skin of the building with the exception of access points like sockets, plumbing fixtures, etc.
• Space: The space plan includes the non-load bearing walls which delineate how space is used within the structure, as well as elements such as ceilings, doors and windows. Years ago I remember my father taking a sledge hammer and tearing out a wall between our dining room and kitchen to join the rooms and add a wood-burning stove. At the time, I didn’t think of it as a modification of the space plan and addition of a service, but that’s exactly what he was doing.
• Stuff: These are the things we put into the house and usually take with us when we move. Furniture, appliances and personal items all fall into this category. “Stuff” is clearly separate from what we usually consider as the building, but you will almost never see a building that is being utilized without it!

How Buildings Learn addresses the change and adaptation that takes place in a house or structure after it is built. Owners personalize and adapt buildings to their needs and wants over time. Brand uses the 6 S’s as a frame for identifying the types of transitions through which buildings pass. Brand looked at the change process primarily in the context of the formal housing sector. Although there are many similarities, there are also a number of differences when viewed through the lens of informal housing.

The 6 S’s in a formal housing process:

• Instant House: Whether built as new construction or bought as a pre-existing building, all of the 6 S’s (except “stuff”) are usually complete at the time of purchase. The incremental process of change begins after the owner has acquired a complete unit. At the time of sale, one owner’s ending point with a building becomes the next owners starting point, but it almost always starts as a complete unit in terms of the S’s.
• Built to Standards: The S’s themselves are built to standards, with inspection being a requirement. The formal housing process is highly regulated and the builders, sellers and just about everyone involved must be licensed and /or conform to standards. This is in an effort to guarantee quality and safety.
• Financed with Formal Housing Finance: The mortgage market is designed to facilitate the purchase of complete units with repayments over a long period of time. The structure, skin, services and space plan must meet quality standards and there must be legal tenure for the site, because mortgage financing is based on the presumed legal ability to resell the asset (the building) in case of default. Mortgage financing supports the acquisition of the 6’s in one complete unit, but it is also dependent on the ability to do so according to local quality standards and regulations.

The 6 S’s in an informal housing process:

• Incremental Construction: Most informal building processes are incremental. The time from the start of construction to when a building is complete with all of the 6 S’s can often be measured in years. Many buildings never have a complete set of the 6 S’s in their entire lifespan. In the incremental building process, structure is king. Buildings often sit on an untitled site and are occupied with incomplete skins, space, services and stuff. The S’s are added for the first time as the building is already in use by the owners.
• Questionable Standards: Even where regulations and standards exist, low income households often cannot afford to comply with them. This results in houses being built outside of standards. Builders are usually people who may have some knowledge of simple construction, but have not received formal training or licensing and are difficult to hold liable for the quality of work. There are few guarantees or avenues for recourse in the case of a poor quality construction.
• Financed Through Informal Sources: Houses built using informal process are  commonly built by people who do not qualify for loans from a bank. The site may not be legally viable as collateral and an informal building process undertaken by builders of indeterminate skill may appear risky to conservative bankers. As a result, owners build using whatever sources of finance they can access. This is often self-financing through savings, but could also include small loans from family, friends or places of employment. With the growth of the microfinance industry it is not uncommon for small business loans from MFIs to be diverted into housing. Whatever the source of funds, it tends to be piecemeal and the incremental building process becomes an exercise of prioritizing the 6 S’s and then adding and improving them gradually. The flow of money does indeed determine the building process.

Owners usually don’t choose whether they want to use a formal or informal housing process. The policy, regulatory and finance environments linked with predominant sources and levels of income essentially predetermine the process that will be used in practice and how the 6 S’s will be acquired. How Buildings Learn demonstrates that incremental building is more common than often imagined within the formal housing sector. Although housing microfinance is often thought of as a tool to support informal housing processes, its use in terms of the 6 S's it is not too different from home improvement loans delivered through formal lending institutions to support housing modifications complete with building permits, inspections and qualified builders. When housing microfinance is applied to informal housing processes, however, the effect is to speed up the initial acquisition of the 6 S’s and to allow the dweller to move towards and eventually own a complete building. As Brand showed, however, buildings continue to transform long after initial “completion.”

[1] Brand. S. (1994) How Buildings Learn: What happens after they're built. New York: Penguin
[2] Brand, p. 85
[3] Brand, p. 13

Incremental Building and Housing Microfinance Part III: The Product Fit

If it is agreed that the poor tend to build incrementally and that housing microfinance can flourish where this type of home construction is actively taking place, then successful housing microfinance products will be designed to interface with incremental building processes. Perhaps the most common housing microfinance product is some kind of home improvement loan. Although often thought of as being for repairs and renovations, home improvement loans can be applied to a variety of uses in the incremental process. I usually group home improvement loans into five loan use general categories, which are by no means exhaustive or definitive.

COMPLETION: I currently define completion as when a home improvement loan (or similar housing microfinance product) is applied to new house construction on a house that has not yet been occupied. The objective of completion is to bring a structure to the point that the dweller can occupy it, (or to work towards occupation if it cannot be achieved with a single loan). I generally consider “completion” of a structure as dweller-defined by occupation: A house is complete when the household decides to occupy it. This is unlikely to ever be accepted as an industry standard, but it comes with the caveat that a house can be complete (good enough for occupation by the dwellers’ standards and/or current needs) without being “finished.” The point at which dwellers decide to enter the home varies from household to household, depending on their individual circumstances and livelihood strategies. Some are quite willing, or find it necessary, to occupy a structure as soon as there is a roof for shelter. Others require more substantial work to be completed prior to occupation.

Completion loans bridge financing bottlenecks to make a house at least minimally habitable (according to the criteria of the dweller) and usually build upon previous in-kind savings in the form of the materials and structure of the walls. In Sub-Saharan Africa, completions commonly translate into roofing a structure and / or shutting the structure with doors and windows. Because the roof is an expensive and challenging investment for many households, loans for completion  help a household occupy their new home and continue work on it as they enjoy its shelter.

The foundations and walls of a new house would also fall under the category of completion. In the housing microfinance products which I have developed, however, we have favored working with structures that already have the foundations and walls built. This helps to ensure that the client is actively committed to his or housing process and has some stake and investment in the structure. By the time a client has constructed a house to wall plate level, he or she has much experience in the housing process and has more realistic expectations of what is ahead compared to someone who has yet to start building. I have, however, seen foundations as a housing microfinance loan or component thereof.

The house above appears to have had the wall raised in several stages and then been left for some time (tall weeds inside). It is typical of a loan used for roofing to work towards occupation.

Construction on this house appears more recent, but would also fall under the "completion" category.

The small house is ready for a completion loan (roofing, doors and windows), but the owner has plans to extend to the right in the future.

FINISHING: I consider finishing as new work undertaken on an occupied house. Housing is a process that is rarely ever truly “finished.” In How Buildings Learn: What happens after they’re built, (which is fascinated reading), Stewart Brand demonstrates that even buildings that have been “completed” and/or “finished” still often undergo significant change over the course of time. Building upon the work of Frank Duffy, Brand identifies “six S’s” that define a building and are subject to change: Site, Structure, Skin, Services, Space Plan and “Stuff.” [1] Brand’s concepts are broadly applicable and visible, even in the informal settlements and rural communities of Africa. Brand focuses on changes to a building that may have otherwise have been considered “finished” at one time, much of which would be considered extension or repair/renovation in my loan categories. Finishing as a housing microfinance loan use tends to add structure, skin and services for the first time as the dwellers occupy the house. This includes key house components such as floors, ceiling, doors and window, plaster, utility connections, etc. The finishing loan use category corresponds to an incremental building strategy of moving into a structure before it is completely finished.

The dweller-influenced loan use classification I have utilized is sometimes initially confusing to loan officers. What is classified as a completion for one household may be finishing for another, even though the actual work done is exactly the same. A common example of this is windows and doors. Some households are willing to occupy a structure before the windows (and sometimes even doors) are installed. They cover the window and door openings with some provisional solution, such as plastic, old sacks, mats, blocks, old iron sheets or just about any other  imaginable item. Other households, however, find this totally unacceptable and will not occupy a house that has temporary shutting (e.g. see picture above of roofed house lacking windows). The amount and value of household assets (stuff) at risk from theft, the likelihood that the house may be left unattended for periods of time and the security situation in the neighborhood may be some of the factors influencing thes decisions. In summary, the completion and finishing loan use categories tell whether the work was done on an unoccupied or occupied home.

Floors, plaster, ceilings, utility connections and even windows are often added to houses gradually after occupation. These activities are well suited for housing microfinance loans and can makes a significant improvement in living conditions for the household.

Windows are often details left to be finished after occupation. The houses above are examples of occupied structures with windows made of temporary materials.

EXTENSION: Extension involves adding new rooms to an existing house. Many houses are designed constructed for possible future extension. A growing family is often a cause for extension to a home. Sometimes, homes are also extended to earn income through a home-based business or rental units.

Extensions take many forms and are also often built incrementally. The houses above have begun extending incrementally, with partially completed walls in the areas being extended.

REPAIR / RENOVATION: Replacing old components of a home with newer components. Re-roofing is a common repair undertaken in older informal settlements. I also consider upgrades as being in the repair / renovation category, such as replacing older doors or windows with new ones.

Houses that could benefit from a loan for repairs. Built with sun-dried blocks, the structures are at risk due to the condition of the roofs.

AUXILIARY STRUCTURE: Adding additional structures on one’s plot. In areas where there is no sewage connection and no access to electricity, outdoor cooking, bathing and cooking are the norm. Bathing areas and even toilets are often open and sometimes only made of temporary materials such as plastic, mats or reeds. The construction of such outdoor structures can provide greater privacy and living conditions by improving sanitation on the property.

Examples of outdoor baths and latrines that could be replaced with a loan for an auxiliary structure on the client's  property.

Names for loan use categories are not necessarily important. What is most important is that a housing microfinance product is flexible and aligns with the local building realities for low income households. Flexibility allows multiple options to borrowers in their housing process. The housing microfinance program with which I am currently involved in Dar es Salaam is still very new, but the breakdown of loans by loan use category so far is approximately as follows:

Finishing:                             54%

Completion:                         22%

Repairs:                                11%

Auxiliary Structures:           9%

Extensions:                           4%

This is likely to change in the future as we gain more clients and enter into new areas. Older settlements are more likely to have finishing and repairs, while new settlements have more completions.

The loan use categories presented here are simply ways of tracking what the loan was used for and do not represent different loan products. In time, however, they may provide information that could identify a need to adjust product features for specific loan uses. Regardless, flexibility that fits into the local practice and keeps the dweller in control is likely to be a key in making a housing microfinance intervention successful in reaching large numbers of households in a sustainable manner.

[1] Brand. S. (1994) How Buildings Learn: What happens after they’re built. NY: Penguin. 13.