Housing microfinance story series: Julia Montano
March 15, 2010
Monthly Income, gross: **US$300
Monthly Income, net: US$224
Monthly Remittances: US$150-300
Source of income: Remittances
Loan amount: US$1,000
Term of loan: 24 months
Monthly payment range: US$43-76
Julia’s* family lives on a large property on the outskirts of a town. Its three rooms are built around an open passageway, where a strong rain hammers the sheet metal roof above. The property is subject to flooding, since it was built slightly below the street level, a fact that she did not realize when they moved there. Until late last year, the family lived in another house owned by Julia’s uncle in-law. A family dispute compelled them to move out of his home, where they had been for more than a decade. Her household now pays rent of US$100 a month, an expense that they had not accounted for only months ago.
Julia’s household encompasses three families living under the same roof, each contributing the household expenses and collectively stretching to cover the gaps when necessary. Her aunt is a housewife and supplements her income by selling Avon products and other small wares. She is joined by her daughter, who also works independently selling a variety of goods. The second family unit, as Julia described it, is made up of Julia’s cousin, who is 28 and works as an auto mechanic, his wife, a hairdresser, and their two daughters. Finally, there is Julia and her ten year old son, and an elderly uncle who suffers from mental illness.
Julia does not work outside of the home, but manages the household’s finances and assists her aunt and cousin with their businesses when necessary. All of the children attend school.
Now 70, Julia’s mother has lived in the United States for about 15 years. Her mother applied for and received a U.S. visa, and ultimately settled in Arkansas. Julia’s son and daughter, who were raised primarily by their grandparents, joined their grandmother in 2000.
Julia’s daughter has her own family now, and her son is about to finish high school. Before Julia’s mother departed, she was employed as a nurse. Now she works in a food service business.
According to Julia, her mother has always sent remittances in some amount. The average amount, however, started to drop in the last two years, from a high of about US$250 a month to current remittances averaging about US$150 monthly. The company has been cutting her hours lately, Julia explained, and her mother’s worsening health has required her to direct larger portions of her income toward medical expenses not covered by Medicare insurance. Her mother has always played a role in defining the use of remittances, she said, always telling Julia how she has expected the money to be spent.
After finding out about the Local Development Fund (FDL in Spanish) from a friend, Julia applied for a loan of US$500, to add a room onto the previous dwelling owned by her uncle-in-law. A technical advisor from FDL prepared a budget based on the scope of work and advised her that US$500 would not suffice to complete her project, and Julia was approved for a loan of US$1,000.
Not long after taking on the loan, the family dispute compelled Julia and her household to temporarily rent a space to live. Their housing strategy changed drastically then, having shifting from the development of the vacated home of Julia’s uncle-in-law to an undeveloped plot of land that Julia had purchased in 2006. Since Julia’s household now consisted of three families, one plot would no longer be enough to accommodate them. The household decided to purchase two additional adjacent plots. Julia commented that it could take years, however, to build their homes from the ground up, especially since they needed to pay rent and make payments on the lot on a monthly basis.
The plots that Julia and her family purchased are located about a ten minute walk from their current rental property, in a subdivision owned by a large Nicaraguan real estate development company, Lotinica. Each lot measures 7.5 x 23 square meters, and cost US$4,886, for a total of US$14,658 for the three lots.
Over twelve years, each family will contribute US$34 a month towards the three lots, all of which are in Julia’s name. She does not know the interest rate on the land, but says that all the fees are included in payments, including advisement from the company’s engineer on how to build the house and comply with building standards.
The company requires that lot owners build in concrete, and a company official inspects each stage of construction to ensure compliance with the company’s various construction norms. This meant that the Escobar family could not build a provisional dwelling on the property, and that they were obligated to first install a septic pit before starting the construction of the house.
Julia redirected most of her FDL loan to pay for the materials and labor necessary to dig this pit. She had brought some materials from her previous home, and bought the rest herself. She then contracted with a mason to build the pit for US$700, paying half at the start of construction and half after completion. The job took five masons three weeks to complete, and an official from Lotinica inspected and approved the quality of the work.
Julia is glad to have received the remittance-backed loan from FDL, and explains that it helped her family to begin to implement their strategy of developing the land that would eventually become their home. Without considering remittances, she would have likely lacked the payment capacity to qualify for a loan.
Julia is currently at least US$270 in arrears on her loan, having been late on her payments for 170 days. The family’s significant debt appears to be the main reason. Unforeseen conflicts in the family led to unforeseen expenses, and in the process of strategizing for the future, the family took on more debt in order to pay for the two additional lots. This situation was exacerbated by the drop in remittance income from her mother. Julia explains that she is focused on repaying her debt and hopes to keep open the possibility of securing financing in the future. “I just need some time,” she explains. Julia has arranged a payment plan with FDL and the company who manages her lot in to get current. (She commented that she is also late on payments of the lots, and has entered into a payment plan there.)
She has never had a loan from a formal institution before, but she did take a loan from a loan shark once and regretted the experience, having had to pay 40 percent interest weekly. In this case she took out a loan of US$100 over two weeks, paying a total of US$140.
Julia spoke positively of her experience with FDL. She had never had a formal loan before, and found that FDL’s way of doing business made the process manageable. She said that FDL staff had treated her well, even when she was in arrears on her loan, always showing respect for her as a client.
The only evidence of a future dwelling on Julia’s plot is the septic pit that she built with the FDL remittance-backed loan. As we stood in the empty field, Julia described how the houses would look when fully built. The model house constructed by the developer stood in the background, a benchmark to her aspirations. She will pay back the loan in time, she said, because she has so many things to build in the future.
Key points from Julia’s story:
- A drop in remittances in itself is not the main issue for Julia in repaying her loan; the family’s financial difficulties stem largely from a precipitous jump in the household’s expenses (primarily a high monthly rent), together with a drop in remittance income. This US$100 expense appears to have caused a ripple effect that stretched the extended family’s resources and made it more difficult to pay off current debts and save to build a home for the future.
- Julia purchased a plot in a subdivision that imposed strict rules about the materials that could be used and the construction process that needed to be followed – a process more akin to formal housing development than the progressive building process. This dynamic meant that Julia and her family could not employ some of the tactics used by other low-income households, such as building out of less expensive, more temporary materials as an intermediary measure to build a shelter. One possible result of this is that it will take longer for her to build the house and may spend an equal or larger portion of her income on rent than on investments in the construction of her future home.
- Julia is emphatic about the positive treatment that she received from FDL, and clear that this good treatment continues even when she is delinquent on her loan.
Story and photos courtesy of Habitat for Humanity consultant, Brendan McBride.
*The names of the families have been changes to protect their identity.
**Gross income is the total of all income sources, whereas net income reflects the number of family members that are supported by that income. The calculation is made by subtracting from the gross income an estimate of the minimum cost of living (including food, transportation and education) for all family members.