Turner's Three Laws and MAKAZI BORA

MAKAZI BORA, the small housing microfinance program with which I currently work, just registered its 1,00th Client (646 loans disbursed – currently 507 active clients). We have had our struggles over the last 20 months since the MAKAZI BORA pilot opened its doors, but the product seems to have high demand and sells itself. (We have done very little promotion and no community sensitisation.)

Recently I have been working on some  brief refresher sessions for staff on the topic of The Foundations of MAKAZI BORA. The sessions reflect concepts I have discussed in this blog, which form some of the theory that guides our approach to housing microfinance and the design of the MAKAZI BORA product. The first of these “Foundations of MAKAZI BORA” is an oldie but goody from John Turner’s Housing by People: Towards Autonomy in Building Environment. Turner wrote Housing By People and Freedom to Build before the development of microfinance and long before housing microfinance began to emerge. I am more convinced than ever that his thought, as summarized by Collin Ward in Turner’s Three Laws of Housing, is fully complementary to housing microfinance products and services, if not essential.

 

I have written on Turner's 3 Laws of Housing before, but I never tire of them because (as any good law should) they continue to ring true over the years and through a variety of housing experiences:

1. Turner’s First Law of Housing: When dwellers are in control of their housing process it is a better process both for the individual and the overall housing environment.

2. Turner’s Second Law of Housing: The value of a house is not in what it is, but in what it does for the household. The value is not necessarily related to imposed standards.

3. Turner’s Third Law of Housing: “Deficiencies and imperfections in your housing are infinitely more tolerable if they are your responsibility than if they are somebody else‟s.” (1)

Housing is a funny thing in that very good microfinance institutions can be tempted to develop housing microfinance products that do not adhere to the principles of microfinance and housing institutions can follow assumptions that lead them to design housing microfinance support services that, in practice, work contrary to Turner’s Three Laws.  I will continue to argue that it will be difficult to develop a successful housing microfinance product targeting low income households in Sub-Saharan Africa  that does not align with Turner's Three Laws. Perhaps that will change as the overall finance and housing environments develop and change, but the short to medium term reality, I believe, will reward housing microfinance products that give clients the most freedom to build.

(1) Turner, J.F.C. (1976) Housing by People: Towards autonomy in building environments, London: Marion Bayers, p.51

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?

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.