This paper provides the rationale behind housing microfinance, and makes recommendations to increase donor effectiveness in this area.
Housing microfinance consists mainly of loans to low-income people for renovation or expansion of an existing home, construction of a new home, land acquisition, and basic infrastructure. The demand for housing microfinance is high and MFIs say that clients channel a good portion of microenterprise loans to home improvement. Housing microfinance brings together a variety of actors, including urban developers, regulated financial institutions, government agencies, credit cooperatives, NGOs with an urban poverty focus, and MFIs.
Expansion of housing microfinance is hampered by limited access to capital, insufficient understanding of the relationship between subsidies and financial services, and insecure land tenure. Donors could help expand sustainable housing finance by:
- Using appropriate technical expertise;
- Providing flexible funding mechanisms;
- Funding product development for strong financial institutions;
- Supporting research, innovation and dissemination of experiences.