Defining Habitat’s housing finance models -- Habitat for Humanity Int'l 1

Defining Habitat’s housing finance models

By Patrick Kelley

One task of the microfinance conference delegates in October 2006 was to identify and assess what Habitat for Humanity is currently doing in terms of housing finance. For the past few years, Habitat has been talking about microfinance—loans rather than mortgages, incremental housing solutions rather than full houses and, finally, the value of partnerships. Both HFHI and Habitat national organizations have tried innovative approaches and forged partnerships in order to lower the cost to the homeowner and increase repayment rates as well as sustainability. As Habitat begins to leverage these initiatives, a key question is: “What are we currently doing and how is it working?”

The first challenge was to define what we meant by “housing finance,” since most Habitat programs offer some sort of loan or mortgage. We decided to look at programs that were implementing microfinance methodologies or partnering with a microfinance institution or bank with the intention of instituting a sustainable model. In terms of housing finance, sustainability is defined as covering the total cost of service provided—not only the cost of the house, but also the cost of servicing the loan and any administrative fees.

We identified as many as 22 countries with Habitat programs that loosely fit this description. As we looked at the various models and partnerships, three broad categories emerged, each with its own variations, advantages and limitations. (See list at the end of the article.)

Category 1:
A Habitat for Humanity program that has instituted a sustainable model, either through incorporating microfinance methodologies or charging interest. In order to manage the risk of default and establish the appropriate loan size, many of these programs include a savings component. Other characteristics include a smaller loan size, shorter terms and social collateral, where community members, friends or family vouch for the homeowner.

One example of this type of program is the Home Improvement Loan program instituted in Malawi four years ago. The size of the loan is determined by the amount the client is able to save during a set period of time. Loans are small and repaid within months, rather than years.

An example of another approach, while still focused on sustainability, is found in El Salvador. HFH El Salvador is building full houses, but has shortened the term of the mortgage from 15 to 10 years and instituted a rigorous loan repayment evaluation as part of the homeowner selection process.

The Save & Build program developed in Asia/Pacific could also fall into this category. Savings groups are formed and continue to support each other until each member of the savings group has a core house.


Habitat for Humanity is working independently and, thus, can control the quality, mission principles and Christian identity.


  • Habitat for Humanity has limited systems or expertise in implementing a sustainable financial model. Many programs have struggled to reach the 75 percent repayment rate within 90 days, required in the standards of excellence program, and that rate is far below what is considered acceptable in terms of financial sustainability.
  • Scalability is an issue, both because of the limitations of “working alone” and the legal ramifications of operating like a financial institution. Most countries have laws that regulate the financial sector. Habitat is generally exempt now because we don’t charge interest and haven’t reached that kind of scale in most countries where we work.

Category 2: Agreements with a financial lending institution in which Habitat for Humanity is responsible for the family selection and construction of the home, but the financial institution assumes full responsibility for servicing the loan. Because the house is “sold” to the homeowner at cost and subsidized by volunteer labor and donated materials, the value of the house is greater than the mortgage. Thus the financial institution or bank is willing to accept the house as collateral for the mortgage. This model works well in developed economies, like the United States, Canada, Ireland, Great Britain or Chile.


There is a clear division of roles. Habitat is the builder, the bank is the lender.

Habitat for Humanity maintains the relationship with the homeowner and can capitalize on its brand and strengths like mobilizing volunteers and raising awareness.


This model is only successful in developed countries where financial institutions have solid, legal recourse to recover investments, if necessary.

It is dependent on an awareness and culture of social responsibility on the part of banks and lending institutions.

Category 3:
Joint venture with a partner organization or microfinance institution in which responsibilities for program implementation and financial sustainability are shared.

There are a wide variety of examples of these partnerships, but the overarching characteristic is that the partner entity has a similar mission and vision to serve the poor. As in any good partnership, both Habitat and the partner organization contribute their special expertise to providing a new service that neither could provide completely on their own. In the case of a microfinance partnership, most MFIs provide small business loans and do not have a housing component. Habitat is able to provide the expertise and technical support for developing a variety of housing products, while the MFI provides the experience in servicing the loan, supporting the clients in a variety of ways and an extensive list of potential clients with a proven track record in loan repayments.

Within this category are two broad types:

  • The national organization develops a partnership with a local MFI to provide service to a particular group of people within a geographic region. Examples include the Philippines, Vietnam, Colombia or Macedonia. [See article, “Microfinance programs in Vietnam.”]
  • Habitat for Humanity International establishes a partnership in a country where there is no existing Habitat national organization and essentially works under the umbrella of the partner organization. Examples include Rwanda and Peru.

Each of these partnerships can be further analyzed in terms of the roles and responsibilities defined by the relationship. Critical questions that define the relationship include:

  • Which organization provides the ultimate service and ongoing interaction with the client?
  • Which organization carries the risk of loan default?
  • Which organization provides the majority of funds?


  • This model has the potential of high scalability. Depending on the partner organization, the potential for helping a large number of families with some sort of home improvement is very high.
  • Potentially high impact—the strengths of both organizations provide a holistic approach.


  • The joint nature of activities can slow down service delivery and scale.
  • Success depends on developing a good long-term relationship with the joint venture partner(s). As in any partnership, there is a risk that requires due diligence, clear definition of roles and responsibilities, careful nurturing of the relationship, and alignment with vision and mission.
  • It requires that Habitat for Humanity develop more specialized skills.
  • May potentially remove Habitat from direct interaction with the client group, which could impact how we communicate about ourselves and limit volunteer opportunities.

While the development of more sustainable housing finance models has its challenges, the advantages are also great. Any of these models opens the doors to capital market financing. Because they have the potential to quickly become sustainable business models, they do not require a dependency upon donor funding. Socially motivated investors have already become interested in Habitat programs, including DIGH (Dutch International Guarantees for Housing), the Bangladesh government and Oiko Credit, also in the Netherlands.

Clearly, there is much that we have learned in the past few years and much that we will continue to learn as we move in this direction. Habitat has a unique opportunity to benefit from the successes of the microfinance movement while also providing leadership in moving the industry toward housing solutions.

HFH programs in the following countries have or are implementing microfinance models or partnering with a microfinance institution in order to develop a sustainable model.

Africa and the Middle East


Asia and the Pacific

Sri Lanka

Latin America and the Caribbean

El Salvador

Europe and Central Asia

Great Britain
Republic of Ireland

Patrick Kelley is director of International Housing Finance at Habitat for Humanity.