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Housing Microfinance

Alternative financing to improve the quality of life for thousands

SAN JOSÉ, Costa Rica (October 7, 2013) – In Latin America and the Caribbean, millions of people face diverse barriers, which limit their access to adequate housing. According to the United Nations, the region’s current quantitative deficit is 28 million units, coupled with a qualitative deficit of more than 26 million—and growing.

In 2005, 134 million people resided in slums. By 2020, this is expected to reach 163 million. More than 75 percent of the homes in these marginalized communities have been “self-built.” This trend of self-construction—families building their own homes, often without professional assistance—originates from “base of the pyramid” communities, who struggle to save, generate income or access financing. So, low-income families set about to build their homes themselves, little by little, as their finances permit.

Resolving the qualitative housing deficit, therefore, calls for significant coordination between the various stakeholders along the “housing value chain”, in order to create technical, financial, social and legal interventions that are scalable, sustainable and aligned with the needs, preferences and capacities of extremely low-income families. Today, many governments have begun to implement initiatives that facilitate access to adequate housing for families at the base of the pyramid in various ways, such as strengthening savings and credit programs or providing direct subsidies to those in need. Nevertheless, despite these efforts, only a small segment of extremely low-income families are actually being served by these programs. Efforts are also being made to launch programs that facilitate access to mortgage lending for this target population. However, it is still a veritably inaccessible option for a large part of this group, as few families can meet the mortgage lending requirements, which often include a stable and verifiable source of income or a legally registered property title.

In this context, Housing Microfinance has become a viable alternative for tackling the qualitative housing deficit—helping a tremendous number of families access the financing they need to build adequate housing progressively—that is, step-by-step. This solution is not only compatible with low-income families’ tendency to “self-build”, but also accommodates their often limited and informal income. The Housing Microfinance model also inspires the participation and coordination of diverse housing-related actors from the public, private and non-profit sector, which could help generate even greater sustainability and scale.

Housing Microfinance adapts the microfinance principles often used to finance productive, income-generating activities for families at the “base of the pyramid” , to the environment of housing self-construction. With Housing Microfinance, loans of US$3,000 or less are typically provided for a 36-month period, accepting collateral or trust-based guarantees and adapting payment plans to each family’s source of income . Thus, through a series of “micro-credits,” families can move toward resolving their housing necessities according to their needs, preferences and capacity to pay. Wilfred Cohelo lives with his wife and five children in Cerro Camote, Jicamarca, Peru. He received a loan from EDYFICAR—a microfinance lender—to improve his home. His story describes the typical self-construction process, and the importance of a family being able to access financing and technical assistance to progressively improve their home.

“My house was built with mats and plastic. When it rained, the moisture would get in, so my children were sick all the time. A neighbor told me about EDYFICAR’s home improvement loans. I took out two loans, and listened to the instructions of the technical advisor. I used the first loan to build new walls and support the beams. With the second loan, I built a new roof. The truth is I never thought it would be possible to have a house like this.”

Cohelo’s family is just one example of the thousands who are benefiting from Housing Microfinance programs created by the Latin America and Caribbean branch of Habitat for Humanity International’s Center for Innovation in Shelter and Finance. Based on the success of the Housing Microfinance program in Peru, Habitat and EDYFICAR are committed to continuing to work together, serving more and more families on a greater and greater scale—all focused on marginalized, extremely low-income populations. Both partners understand the importance of connecting an even greater number of actors in the housing market value chain, such as construction materials providers, masons and other construction professionals, technical construction institutions, local governments and others.

Habitat for Humanity International’s 2014 Shelter Report focuses on deepening the impact of Housing Microfinance on the qualitative housing deficit around the world, and its potential for scalable impact in people’s quality of life. For more information, please visit http://www.habitat.org/gov/take_action/shelter_report_2014.aspx.