Reaching scale with housing microfinance -- Habitat for Humanity Int'l 1

Reaching scale with housing microfinance

By Christy Stickney

As housing microfinance is gaining popularity and earning legitimacy as a recognized product of microfinance institutions, a key question is emerging regarding the potential scale that can or will be reached by the MFI industry, particularly given that MFIs were originally designed to support the development of micro and small enterprises through the provision of working capital and fixed asset loans.

Seeking answers to this question, ACCION International and Habitat for Humanity International joined efforts to conduct a study covering 10 of ACCION’s partners in Latin America,[1] seven of whom represent more than 90 percent of the ACCION network’s housing portfolio. The study sought to address the following:

What has been the performance of housing portfolios over recent years, and what are the
implications for future growth?

Specifically, what are the key supply-side factors that either facilitate or limit the scaling up of housing microfinance?

What are recommendations for facilitating greater scale in housing microfinance?

Housing microfinance products

The study revealed the following common characteristics among the housing microfinance products being offered by the surveyed MFIs:

  • Loan sizes are almost three times that of the common working capital loans, averaging about US$2,300 at the time of the survey.
  • Loan terms are up to 36 months, but average between 12 and 18 months.
  • Interest rates, on average, are slightly lower than for working capital loans, ranging between 24 percent and 35 percent.
  • Loan guarantees are similar to those used for working capital loans—generally co-guarantors or household items (used as collateral). While formal mortgage liens are not employed, as part of the loan origination process clients are generally required to present some type of document confirming ownership over the land (purchase deed, utility bill).

Portfolio performance
The study revealed the following outcomes for the seven MFIs currently offering housing microfinance loan products:

  • The total housing microfinance portfolio of these institutions grew from US$20 million to US$72 million between 2002 and 2005, demonstrating an average annual growth rate of more than 51 percent.
  • The average annual growth rate of the MFIs’ total portfolios was 25 percent during this same period.
  • The housing microfinance loan portfolio grew from an average of 6.4 percent total portfolio representation in 2002 to 11.5 percent in 2005.
  • In terms of the total number of clients with outstanding housing microfinance loans, the figure has grown from 15,000 in 2002, to about 38,000 at the end of 2005. This represents an average annual growth rate of approximately 35 percent. (See Figure 1.)

The repayment performance of the housing microfinance portfolios was superior to that of business loans among all seven of the MFIs studied.

Primary conclusions

  • Demand is a given: The qualitative housing deficit statistics in Latin American countries are matched by the perceptions of MFIs venturing into housing microfinance to confirm that the market is extremely vast and underserved.
  • Scale is happening: Housing microfinance portfolios are growing at impressive rates of approximately 50 percent per year (double that of the overall portfolio of MFIs), and regulated microfinance institutions are proving their ability to deliver tailored housing microfinance products at a significant scale relative to their total portfolios.
  • The primary barrier to reaching scale in housing microfinance is self-imposed:

MFIs are most likely to be constrained when they perceive housing to be outside the scope of their institutional mission.

HFHI and ACCION International are in the process of writing a report summarizing the study’s findings, which will be published and made available on both institutions’ Web sites in early 2007.

Christy Stickney is director of Housing Finance with HFH in Latin America and the Caribbean.