Using microfinance to improve housing – Experience from Africa
While the North American and African contexts may seem very different, they share many of the same obstacles to the development of new affordable housing:
- decreasing or no financial support from the public sector
- escalating land costs especially in serviced and built-up areas
- little to no interest from the market to supply affordable housing
- barriers to financial literacy particularly among low income households
- the need to address health and housing challenges simultaneously
What is housing microfinance?
While there isn’t one solution that will address all of these obstacles, microfinance may be part of an answer. Housing microfinance (HMF) refers small loans that are used to gradually improve housing conditions by enabling a household to purchase and service land or to renovate an existing home. It caters to an underserved market to which mortgages are neither available nor a realistic option due to very low income levels. While the HMF concept is fairly straight forward, the research found that it is usually executed with either a construction focus or a finance focus.
Construction focused HMF institutions play a more direct role and are most interested in building or improving the housing asset. HMF is a means towards a wider end: ensuring that affordable quality homes are built that increase the household’s assets. Often times these lenders work directly with savings groups and local community members. They often originate from a housing organization in which HMF has become a new service to members or clients. Rooftops Canada works with the National Cooperative Housing Union (NACHU) in Kenya and WAT Human Settlement Trust in Tanzania, both of which combine microfinance and construction to improve local housing conditions. Similarly, Zambia Homeless and Poor People’s Federation (ZHPPF) provides micro-loans in three areas: business development, health improvement and housing, to a group whose members are almost entirely made up of women.
Josephine, Kitwe, Zambia
Josephine never imagined that she would have her own home. She joined ZHPPF in 2009. She lives with her 5 children, her niece, her grandchild and her husband. She has used the micro-loan program to build 4 rooms. She has also saved money to pay for the children’s school fees. She is the sole income earner of the household as her husband is partially paralyzed from a stroke. The group has helped her find employment as a home-based caregiver.
Finance Focused HMF
Some lenders see HMF as a financial product and, as such, focus on a market where there is a business opportunity related to enlarging existing housing. Finance-focused HMF lenders are aware of the building process, however building is not central to their objectives. They may however provide financial literacy-related options to enrich the loan and repayment capability of borrowers. These lenders generally work directly with individuals rather than groups. Rooftops Canada has partnered with the Kuyasa Fund in South Africa, who has tapped into an existing housing market where individuals have a plot of land or government issued house that they would like to enlarge and/or improve.
Funo Residence, Khayelitsha Township, South Africa
The Funo family, parents and four children, have been on this property since 1986. Previously an informal shack, it was first updated to a very small government delivered home. The mother, who is a domestic worker, has used the Kuyasa Fund to expand and improve the home to accommodate the family’s now adult children. Today, the home has two bedrooms, a bathroom, a kitchen and a living room.
What can Ontario learn?
Some key ideas from housing microfinance practices in Africa can be applied in Ontario. The first is the importance of financial literacy: raising awareness and helping low income households to better earn, save, spend and borrow money. This includes a combined focus on earning incomes and housing. The second is “building incrementally”. This may not always mean renovating and enlarging a home as in Africa, it can also include finding more ways to move up the housing ladder. More work is needed to implement these ideas in a Canadian context but it’s important to remember the importance sharing ideas and strategies to improve access to safe, adequate and affordable housing locally and abroad.