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Impacting Affordable Housing Solutions in a Big Way

The Swiss Capacity Building Facility (SCBF) is a public-private development partnership promoting financial inclusion for low-income people in developing and emerging economies. SCBF is currently cooperating with Habitat for Humanity to build capacity and expand the housing microfinance sector in Cambodia, Honduras, and El Salvador.

The support from SCBF is critical to Habitat’s vision of increasing the number of housing loans given to the poor to 10 percent of all microfinance loans. Today, only 2 percent of these loans are designed to improve shelter. This shift will have a great impact, representing an almost $4 billion investment in affordable shelter for about 15 million households. 

Early signs of this vision becoming reality are promising, as housing microfinance is gaining popularity and earning legitimacy as part of microfinance institutions’ business. However, its potential for growth is bumping up against the original purpose of these organizations, most of which were designed to support the development of small businesses by providing loans to these enterprises.

Habitat´s approach

This is where SCBF’s support for Habitat for Humanity International comes in. Habitat´s main strategy is promotion of market-based and sustainable housing solutions, assistance to financial institutions to overcome these challenges and unlock the potential of housing microfinance.

The majority of the world’s low-income families build their homes incrementally but, at the same time, they lack access to housing loans and sound advice that would help to build their home faster and better. Incremental home building is a process where a family builds their house in stages, as their resources permit. A family could start by replacing a thatch roof with tin one year, adding a cement floor the next year, and an improved kitchen the following year. This is how majority of families build their houses in less developed countries.

Increasing the poor’s access to housing microfinance and combining it with housing support services is a proven way that Habitat has found to support incremental housing. A housing microfinance loan is similar to traditional microfinance loans (small loan amounts, short loan lengths, alternative forms of collateral), but it is used for home improvement.

There are some differences with traditional microfinance, which is where Habitat’s expertise is critical in helping the MFIs add this type of loan to their existing business portfolio. This strategy allows Habitat to take its role as facilitator seriously, supporting existing institutions that, in turn, enable the poor to build a quality shelter using their own preferred construction approach.

So what does the assistance look like?

In Cambodia, the SCBF’s support allowed Habitat to partner with the Cambodian Microfinance Association to do a survey of financial institutions and related organizations, followed by an interactive workshop to introduce housing microfinance and help the institutions to assess their readiness to enter into housing.

Additionally, the Center went much deeper with two of the top MFIs — Thaneakea Phum Cambodia (TPC) and Hattha Kaksekar Limited (HKL) — to increase their housing efforts and test new models of housing support services.

“We chose this approach in Cambodia to help to facilitate more MFIs entering into housing. Right now many MFIs say we want to do housing but we don‘t know where to start. That’s were our work comes in—to help them to start, to show them the opportunities for construction technical assistance and to strategize how to scale up,“ says Vong Chhim Vannak, Consultant for the Center for Innovation in Shelter and Finance

The beauty of the support from SCBF is in looking at it as a stepping stone for truly great impact as it addresses the key challenges to scaling up housing microfinance. The initial targets for households benefiting from these loans are relatively modest. But as the institutions acquire greater capacity with this product, they can access funding from Habitat’s MicroBuild fund and, ultimately, reach tens of thousands in Honduras, El Salvador and Cambodia.