Microfinance for Housing: The Mexican Case
This paper assesses whether microfinance institutions (MFIs) are suited to providing housing improvement credits and evaluates whether diversified housing portfolios can improve performance and mitigate risks for these institutions.
The paper argues that while a considerable percentage of houses in Mexico need improvement, there is a striking mismatch between the demand and supply in the country mainly due to:
- MFIs' lack of information on demand;
- MFIs' inexperience in housing finance;
- Unavailability of medium- to long-term, commercially priced credit lines for the MFIs.
The paper analyzes the characteristics of housing loans and compares them with the enterprise loans that are core of MFI portfolios. It states the following differences:
- While mortgage finance loans are directed to middle and upper income households, microenterprise and housing microfinance loans, are directed to moderate and low income households;
- Amounts and maturities of housing microfinance credits are significantly lower than those of mortgage loans and higher than those of microenterprise loans;
- Interest rates of housing microfinance loans are closer to those of micro-business loans than to those of mortgage loans.
To conclude, the paper suggests that the governments and donors should play a catalytic role for the development of housing microfinance by:
- Supporting market studies and pilot initiatives;
- Providing incentives to help institutions involved in housing microfinance to scale up their portfolios;
- Providing innovative sources of funds for housing microfinance;
- Encouraging franchising, joint ventures, and exchanges.