Small steps to big impact -- Habitat for Humanity Int'l 1

Small steps to big impact

By Christy Stickney

On my trip to the airport this morning, Henry Santamaria, the driver who has been serving the area office staff of HFH Latin America and the Caribbean for almost 10 years, proudly described the process of financing and building his own house over the past four years. First, he used a combination of savings and financing (from the prior landowner) to purchase a small plot of land. Next, Henry sought loans from family and friends to build the basic structure of his house.

When he and his family first moved into their house two years ago, they didn’t even have windows and had to sleep in one bed to keep warm from the cool winds blowing through their house. Today they have tiled floors, ceiling panels and all the windows are in place. Henry has been borrowing, building and repaying in small, incremental stages over the past several years. He explained that his next idea is to borrow enough money to purchase the plot next to his so that he can expand his house and, possibly, build space for a small business. However, this time he will be able to access a bank loan, using his new house as collateral.

Although Henry’s income places him above the poverty levels targeted by HFH, his financing and building strategies follow the same patterns as most of the low-income populations around the world. The poor do not purchase whole houses since they generally cannot access the needed financing. They rely on limited savings and informal borrowing mechanisms—often at high interest rates and in very small installments—and incrementally build or repair their houses.

Their savings are rarely stored in bank accounts, but rather in small stocks of building materials or other kinds of assets like livestock or jewelry that can easily be converted to cash when needed. As Habitat celebrates the construction of 200,000 houses around the world, the majority of the world’s population is slowly but steadily improving their houses without any outside support. How can we better align ourselves with this vast effort—one that is most powerfully contributing to a world where everyone has a decent place to live?

Habitat, along with many other housing-focused organizations, is now looking to microfinance as one of the highly effective strategies for supporting the progressive building efforts of low-income families. Microfinance basically refers to the provision of financial services to underserved, low-income populations. While microfinance activities were initially focused specifically on providing loans (“micro-credit”) to small entrepreneurs seeking working capital to grow their businesses, the term now refers to a whole host of financial services including, among others, collecting deposits (savings), extending loans for education, transferring remittances and selling micro-insurance plans.

Microfinance as a poverty-reduction strategy has received increasing attention over the past decade, and recently reached a new peak in public attention with the October announcement that Muhammad Yunus, the founder of the Grameen Bank in Bangladesh, was the recipient of the 2006 Nobel Peace Prize. Around the world, micro-loans have been extended to more than 100 million borrowers, most of whom are women, attracting even commercial banks to venture into serving this vast sector.

Microfinance has demonstrated its effectiveness as a development strategy through outcomes such as:

  • Building dignity and responsibility through extending loans (versus handing out charity).
  • Increasing income of clients (primarily women), thereby empowering them to invest in the well-being of their families (for example, education, nutrition, medical expenses and house improvements).
  • Enabling large-scale impact by attracting diverse sources of capital (loans, equity investments and savings) due to the demonstrated high financial performance and sustainability of leading microfinance institutions.

Microfinance practitioners have also effectively developed specific methodologies to reach the lowest income sectors and have found methods to link other kinds of development programs to their financial services (such as literacy, business training and health education).

More recently, microfinance institutions (MFIs) have started to venture into housing finance, recognizing the vast, underserved market as both a business opportunity and part of their social mission. Housing microfinance—the application of microfinance principles such as shorter loan terms, smaller loan amounts, non-collateralized guarantees and market-based interest rates to housing loans—is rapidly gaining popularity among MFIs as leading institutions confirm the positive social and financial performance of these loans. A recent study conducted jointly by Habitat for Humanity International and ACCION International revealed that ACCION’s partners in Latin America grew their combined housing microfinance portfolio from US$20 million to US$72 million in just three years, representing an average annual growth rate of more than 50 percent, currently reaching more than 38,000 borrowers.

The ambitious goals of our strategic plan are compelling us to engage with innovative financing strategies to exponentially increase access to improved housing worldwide. Habitat for Humanity is moving boldly into this new area through a variety of efforts, many of which are highlighted in this edition of “The Forum.” One of the key opportunities perceived around the globe is that of partnering with financial institutions to extend housing microfinance to qualifying families. More than a dozen alliances currently exist between HFH and MFIs in the field, and HFHI has signed global partnership agreements with two international MFI networks (Opportunity International and ACCION International) in an effort to promote greater collaboration between organizations.


Housing microfinance is still an emerging practice, and Habitat could assume a strategic role in promoting several lines of action:

  • Encourage MFIs to incorporate housing microfinance as a principal line of business, building on their existing success in effectively managing financial services for the poor.
  • Design housing microfinance strategies that are especially suited to the lowest income sectors, including those who currently do not even qualify for a Habitat house.
  • Develop progressive building techniques and tailor technical assistance support to complement the provision of microfinance.
  • Facilitate peer-learning networks among institutions engaging in housing microfinance.

These kinds of efforts will imply building new skills within the organization and, possibly, assuming roles that conflict with former conceptions of Habitat’s identity. However, there is no other organization that is better poised to leverage its image and identity as the only house-building organization with a global presence.

As we finished our conversation, I told Henry that Habitat is seeking ways to help families access financing that would enable them to build their houses in a manner similar to his own. It really seemed to make sense—to both of us!

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