New innovations in housing microfinance: Lessons learned in Rwanda -- Habitat for Humanity Int'l 1

New innovations in housing microfinance: Lessons learned in Rwanda

By Jane Katz and Patrick Kelley, with Faustin Zihiga

In a presentation to the 2005 Africa Middle East Leadership Conference, Ted Bauman, coordinator of Community Finance and executive director of the Utshani Fund, shocked the audience by criticizing Habitat for Humanity’s long-standing practices. He said, “If housing microfinance is to be a true anti-poverty strategy, it must start from the perspective of household livelihood strategies—not the house. Poverty-oriented housing microfinance design should, therefore, not be based on the cost of production of a predetermined product, but on the ability to finance within a sustainable livelihood strategy.”

In truth, Habitat had already begun a few models using the approach Mr. Bauman advocated. These ways of working are becoming an increasingly important part of Habitat’s efforts to be part of the global poverty solution. One example is the partnership with the MFI URWEGO[1] in Rwanda.

The partnership began in 2004 when Habitat for Humanity agreed to help URWEGO research and design a Home Improvement Loan (HIL). The product was piloted in the provinces of Kibungo, Umutara and Byumba, where much of the population lives well below US$1 per day. URWEGO’s clients (now more than 25,000), can be found in the open-air markets in Rwanda’s villages operating small micro-businesses in their homes to diversify their volatile cash crop incomes from coffee or tea and their subsistence farming for food. They still live at poorer levels than in prior years due to Rwanda’s post-war/post-genocide economy. Homes are often unfinished or in disrepair.

URWEGO found that many of their business loans were diverted toward home repair, but the terms did not match the needs of housing repair finance. Without much experience in housing products, URWEGO was able to turn to Habitat for Humanity’s housing expertise to design a menu of home improvements that clients could do with the HIL. The financing extended to the family was different than URWEGO micro-business loans. Some changes made were an extended loan term, a lower interest flat rate, and separate procedures for application and approval. Families also received technical assistance on how to do the repairs. As a result of the pilot, 200 families benefited from home repairs—used for repairs on foundations, walls, floors, roofs, doors and windows. URWEGO currently awaits further financing (to be in the form of a loan) from Habitat to extend the product beyond the pilot phase to all the branches of the organization.

Using this model, both organizations benefit. Habitat is succeeding in pushing services down-market to poorer people while also scaling up to serve more families per year than has traditionally been achieved. The microfinance institution (MFI) benefits from being able to make another demanded product available to its clients. Executive director of URWEGO, Faustin Zihiga, says, “The value we perceive in the HFH partnership is that we have been able to add value to our commercial loan products. The home improvement loans stabilize poor people’s homesteads, raise their morale and give them confidence about a happy future. ...The partnership was and is an answer to long-term unanswered questions of the poor shelter conditions of our clients.”

Indeed, the evaluation of the pilot phase indicated that the Home Improvement Loan had a significant impact on the housing and living standard of recipients—through the installment of higher quality roofs, cement floors, window and door fixtures, and latrines. There was also significant demand for the program to be expanded. Repayment rates were 100 percent.

Habitat’s experiences like this in incremental housing show that building in stages and home improvements allow the homeowner to build or improve incrementally over time. The approaches are innovative because they support the way the very poor build, unlike traditional mortgage systems. There are many MFIs in the world, working with millions of the world’s poorest economically active people. Habitat for Humanity can put love into action by helping these institutions address a need they are aware of, but unsure of how to respond.

Jane Katz is the director of International Programs at HFH’s Washington, D.C. office. Patrick Kelley is director of International Housing Finance at Habitat for Humanity. Faustin Zihiga is executive director of URWEGO, Rwanda.


[1] URWEGO means “ladder” in the Rwandan language, connoting the climb out of poverty.