Small Loans for Shelter: The Rise and Rise of Microfinance

Emerging practices of providing housing microfinance on commercially viable terms
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This backgrounder from UN-HABITAT describes housing microfinance for the poor, as well as names organizations that are involved in the proliferation of housing finance. It also includes short case studies of housing finance in Kitale, Kenya, India, and Bolivia. The document states the characteristics of shelter microfinance and community finance mechanisms:

  • They involve small-scale lending for shelter improvements;
  • They aim to establish a close working relationship with the community:
    • To encourage savings;
    • To help reduce the risk of default.

Further, the feature lists the reasons for the diversification of microfinance agencies into housing:

  • Lending for land and housing has commercial benefits for a microfinance industry;
  • Longer repayment period associated with housing loans helps to draw the borrowers into a longer-term relationship with the lending agency and increases the likelihood that further loans will be retaken;
  • A further potential role for shelter microfinance is within slum upgrading programs.

The document concludes with the following arguments in support of shelter microfinance:

  • The programs inherently struggle to reach down to those with lower incomes;
  • They appear to be effective in improving the housing conditions of a group eager to invest in its own dwellings;
  • The group is clearly benefiting from the assistance.

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