Access to adequate housing for low-income earners is a critical development issue globally. A safe and stable home is the first step to a productive, healthy life. Yet owning a home is beyond the reach of the vast majority.
In sub-Saharan Africa, the poor have very limited access to long-term financing for housing, which is almost invariably limited to commercial banks offering formal, multiyear mortgages. Only 2.4 percent of the Kenyan population, for example, is able to afford typical loan rates. At the end of December 2018, there were only 26,187 active conventional mortgages in the whole country — the majority of which were granted to urban professionals. In Uganda, which has a population of 42.8 million, the number was just 5,000 in 2018.
“We are continuously exploring and innovating our approach to address additional dimensions of the housing crisis and encourage others to do the same.”—
Housing microfinance allows low-income families to improve their housing incrementally, as they can afford it. Through access to housing microfinance, households in sub-Saharan Africa can improve their housing and their quality of life. That is the key finding of evaluations of a recently concluded six-year project in Kenya and Uganda.
Microfinance at work
Building Assets, Unlocking Access
The partnership between Habitat for Humanity and the Mastercard Foundation is aimed at making an impact on housing in Africa by enabling existing financial service providers to design housing microfinance products and housing support services that can be accessed by low-income families to use in the incremental improvement of their homes. The objective of the project was to develop scalable and innovative housing microfinance to be replicated by other financial service providers in sub-Saharan Africa. The project has enabled over 70,000 households to access housing microfinance products improving their shelter, living conditions, and social well-being.
The Building Assets, Unlocking Access project helped financial service providers to develop housing microfinance products for people living on $5-10 per day. The participating institutions offered loans of $30-10,000 for improvements such as adding an extension, toilet or running water; finishing a roof; adding insulation; as well as for constructing a new home. These products were designed for the vast majority of the population who live in substandard accommodation and are locked out of formal housing finance. These households may possess a firm desire to improve their living circumstances and prospects, but can only afford to do so incrementally.
In Kenya, a study found that low-income women who took up the Nyumba Smart Loan offered by the Kenya Women Microfinance Bank used it to improve roofs and walls. Nearly 30 percent expanded their homes, and around 9 percent built separate kitchens. As a result, overall housing satisfaction rose by almost 15 percentage points over just a one-year period.
In Uganda, the study found that the existing quality level of housing was already comparably higher than in Kenya. However, a 20 percentage point increase of clients used their loans to build separate kitchens. Overall housing satisfaction rose by 30 percentage points. In addition, the improvements made by Uganda borrowers were not confined to their own homes, but frequently applied toward development or improvement of rental units. These rental units contributed to increased income for borrowers — an unanticipated dynamic in our study and a fact that addresses the key concern many have that housing microfinance diverts funds and resources away from income-generating activities.
Improved homes mean better health outcomes too. In children younger than 6 in Kenya, significant decreases were found in vomiting, sore throats, and rashes, all illnesses associated with allergies and poor environment. In Uganda, however, these health improvements were not observed, with evaluators noting that it can take time for health indicators to become evident.
Janet Maritim, a farmer in Bomet, western Kenya, said: “It has been a huge relief not to worry about the health of our children. In the old house, the cold air that ran through the rooms always made me fear that a flu would turn into a serious illness like pneumonia. It makes me happy to see the children thrive.”
Jane Migare-Miluka waited seven years for new housing to be completed. When it finally was, her name was not on the list of residents. This is part of our six-piece Failed Aid series, which investigates citizen reports on failed or unfinished aid projects in Africa.
Improved housing can have a positive effect on children’s education, offering more space in which to study and making them less likely to miss school due to sickness. Though it was too early for such factors to show up meaningfully in the survey, many respondents expressed delight with the impact their home improvements were having on their children.
Better housing also generated greater self-esteem and dignity for families. Shalifa Namaddu, a 28-year-old single mother with two children from Lyantonde, southern Uganda said: “I am more confident and have become a respected member of the local community. People admire me for what I have achieved, and it makes me very proud when they ask for my advice.” Namaddu, who runs her own general store, has already taken out four loans with the Centenary Bank, and is planning a fifth to complete the house by adding an indoor toilet.
The business case for housing microfinance
Not only does housing microfinance align with the social mission of many microfinance institutions, it also makes financial sense, with 47 percent of institutions saying such loans have relatively the same profitability as more conventional microfinance loans, such as those for business or farming.
At Habitat for Humanity, we believe housing microfinance can reach far greater numbers of people. The sustainability of these products will carry the impact of improved housing forward and the market is demanding more progress in this sector, as indicated by the recent announcement of $26 billion in investment pledges for housing in Kenya. Two of the key partnering banks — KWFT and Centenary Bank — are posed to disburse an additional 50,000 housing microfinance loans or so over the next 12 months.
There are obstacles, of course. Other financial institutions will need long-term funding and guidance as they learn how to develop, market, and manage housing microfinance products for their markets. To expand the product, institutions will need to identify adequate sources of long-term funding. Each market is different, and attention will need to be paid to designing loan products that suit local characteristics. Also, awareness of the housing microfinance concept is still low. With skeptical looks, people ask me what this small-loan, incremental approach looks like in practice.
The findings of these evaluations are a great step forward in addressing the skepticism and understanding the real impacts. We are committed to sharing the opportunity that these products present for improvements in low-income housing. I am convinced this can become a major sector in the continent and do a great deal to relieve frequently poor housing conditions.
When I discuss what we have done in Uganda and Kenya at conferences and forums, I realize that this is but one part of a larger housing market dilemma. We are continuously exploring and innovating our approach to address additional dimensions of the housing crisis and encourage others to do the same.