New sustainability policy important step in maximizing number of families served -- Habitat for Humanity Int'l 1

New sustainability policy important step in maximizing number of families served

By Mike Carscaddon

In October 2006, HFHI’s board of directors (IBOD) approved a policy to clarify Habitat for Humanity’s position on the sustainability of the Fund for Humanity and improve the public understanding of Habitat’s lending practices relative to subsidies and sustainability.

One of Habitat’s mission principles is to match the cost of a home with the homeowner’s ability to repay—subsidizing in contextually appropriate ways to maximize the number of families served long-term. Historically this has included both sale price and loan cost subsidies. The sustainability policy is not intended to compromise in any way the affordability of the loan to our traditional homeowner population. Changes in both product and process will enable Habitat to continue to reach this target population.

However, it is Habitat’s obligation to protect the Fund for Humanity from deterioration and the resulting decrease in Habitat’s ability to help more families using the recycled funds. Habitat can maintain its financial sustainability and the donor funds by mitigating against elements that have an adverse affect on the Fund (e.g., inadequate recapture of appropriate loan costs, loan default and inflation over time). This sustainability will help ensure long-term support for community transformation objectives from startup to scale.

One of the most obvious threats to the Fund for Humanity was recognized early in Habitat’s history as hyperinflation in developing countries reduced the mortgage value to a mere fraction of the actual value of the house.


In 1986 the IBOD recognized that the Fund for Humanity was not sustainable but instead was heavily subsidized resulting in a fraction of a donor’s contribution actually helping an additional family, as advertised. Specifically recognizing the threat of inflation to the Fund and the loss in terms of “houses that could have been constructed” with the “loan value lost” due to inflation, the IBOD required HFH entities outside of the United States to:

Mitigate the effects of inflation by having in place appropriate systems that adjust both future payments and outstanding balances on Habitat for Humanity loans to offset the effect of inflation.


Based on this policy, some HFH entities moved to a commodity-based repayment system and other schemes that have sometimes been referred to as “a house for a house” to underscore the intent of helping the next family with the repayment of each loan.

Unfortunately, the 1986 inflation adjustment policy introduced donor confusion in countries where the public perception and the regulatory environment characterize inflation adjustment along with other cost adjustments as interest, which is prohibited by the national and affiliate covenant agreements. In addition, Habitat has historically described and promoted its programs as “no profit, no interest” which has heightened the confusion, especially for United States donors and volunteers visiting international programs.

Apart from the sustainability issue, Habitat’s expansion into nearly 100 countries has resulted in a wide variety of lending models including partnerships with microfinance institutions (MFIs), non-banking financial institutions, government housing banks and for-profit banks. While not all partner organizations share Habitat’s no-profit principle, there are locally appropriate partnership opportunities that substantially leverage Habitat resources enhancing our ultimate mission. Accepting that the partner charges interest on their contribution to the loan resulting in a blended interest rate does not compromise Habitat’s lending principles. The cost of funds associated with the partner contribution is considered as one of the elements of the total cost along with other finance and construction costs.

The new policy allows each national organization and the U.S. Council to articulate its approach in balancing sustainability and protection of the Fund for Humanity with providing affordable loans. The result will be greater transparency and clarity both for donors and for our partner families.

The policy states that all HFH programs shall support Habitat’s mission to provide simple, decent, affordable homes through financing options that do not burden the poor. In order to more effectively accomplish the HFH mission and vision of eliminating poverty housing globally, each HFH national organization (in the United States, the U.S. Council) shall develop a national sustainability policy that:

  • Ensures loan affordability for Habitat’s traditional home partners who have no access to affordable home loans through the conventional lending market. Habitat for Humanity loans may not be usurious nor profit[1] from the poor.
  • Preserves the Fund for Humanity for use by future home partners. National subsidy strategies shall be developed as appropriate in the local context. These subsidies can be reflected in the sale price and/or lending costs as appropriate to ensure affordability.
  • Complies with local laws. HFHI through its area offices, with support from HQ functional departments, will work with the national organizations to help ensure compliance with the approved procedures and local laws.

Mike Carscaddon is senior vice president of Field Operations at HFHI.