Addressing poverty housing through microfinance partnerships -- Habitat for Humanity Int'l 1

Addressing poverty housing through microfinance partnerships

By Zoran Kostov

In 2005, HFH Europe and Central Asia’s youngest affiliate, HFH Macedonia, and Moznosti, the local implementing partner of the global microfinance coalition Opportunity International, initiated a partnership through an innovative housing microfinance model. In February 2008, after only two years of project implementation, it was selected as one of the three most innovative development projects worldwide at the ninth Global Development Conference held in Brisbane, Australia.

The first step of the Macedonian partnership, named Home Improvement Fund, was to set up a credit line that provides microloans for repair, renovation and reconstruction of Macedonian substandard homes through the joint financial contribution of the partners. Nowadays it is a well-established program that takes a holistic approach in dealing with poverty housing and includes construction, financing, community development, volunteer development and advocacy. An additional program component aimed toward capacity building of the target group is expected to be launched later this year.

The Home Improvement Fund offers microloans ranging from US$2,400 to US$5,000 with a repayment period up to 60 months. The interest rate applied on the loans is 11 percent on declining balance, which is considered moderate compared to the commercially offered rates for housing loans in Macedonia. The affordability of this loan is even greater while considering the issue of access to finance, especially for the low-income segment of the population.

Tasks and responsibilities regarding program implementation are shared among the partners on both strategic and operational levels. Boards set up principles of cooperation through a written partnership agreement. Boards also evaluate the results of the program on an annual basis. At the operational level, boards appoint members for the Joint Credit Committee, which is responsible for the final approval of the loans.

Management teams of the partner organizations are engaged in different phases of loan processing. Generally, Moznosti is responsible for the financial aspects of the program — screening of the client’s financial reliability, processing the loans and monitoring the repayments — while HFH Macedonia determines the target group, provides construction advice and monitors construction. In practice, loan applications are collected and initially selected by HFH Macedonia through applying basic Habitat principles of need identification. Selected applicants are passed to Moznosti for financial evaluation. In the final stage, applications are presented to the Joint Credit Committee for approval.

As a supplement to the loan-processing activities, HFH Macedonia works with selected families, providing them know-how in simple, decent, affordable housing. In a similar manner, Moznosti works separately on the financial monitoring of the clients/partner families in order to assure proper and on-time repayment of the loans disbursed.

This way the partners outsource the expertise of the other, creating an innovative synergy in addressing poverty housing in Macedonia. The current repayment rate of more than 98 percent makes the fund a durable source of funding for the housing microloans designed with the program.

Based on this model, additional families have been served through the parallel, replicated housing microfinance partnership named Roma Housing Fund, developed with the Horizonti Foundation — formerly Catholic Relief Services partner in Macedonia.

In addition to HFH Macedonia and Moznosti’s contribution to the joint fund, in December 2007 HFH Macedonia was approved by the Dutch International Guarantees for Housing for a soft loan of Euro 5 million for five years, fully designated to further lending for the final beneficiaries. This financial arrangement is currently seen as additional recognition of the functionality of the existing partnership model. Within the next 10 years it is expected to provide housing microloans with subsequent housing improvement for 6,700 poor families in Macedonia.

Dr. Zoran Kostov is a university professor and HFH Macedonia’s executive director since the organization’s establishment in 2005. In addition to his specialization in communications, he has extensive training and experience in microfinance. He is a founder of the first MFI in Macedonia in 1996; from 2002 to 2005 he served as a Global Network board member of Opportunity International; and in 2004 he was selected as an International Policy Fellow on the subject of scaling up in microfinance services at the Central European University. After joining Habitat he was principal project developer of two national housing microfinance partnerships.

Dr Kostov may be contacted at

Dr. Kostov answered some questions dealing with the practical aspects of maintaining strategic partnerships:

  • Have any differences in roles and responsibilities emerged? How were they resolved?
    Roles and responsibilities were defined based on the proven record/expertise of each of the partners. With its 12 years of experience in microfinance, it was easier for Moznosti to prove its expertise in its field — creditworthiness assessment, loan administration and repayment mechanisms. At the time of the program launch, Habitat was a brand-new organization in Macedonia, but since the people who served (and still serve) on HFH Macedonia’s board were well-known and influential, Moznosti agreed to a partnership. Habitat would deal with need identification, construction advising and monitoring.

    Differences are present, but are manageable. The main tension comes from the fact that Moznosti is a formal financial institution supervised by the Central Bank, while HFH Macedonia is an NGO. Being supervised by the Central Bank means an obligation to follow strict procedures, including imposing strict sanctions over those clients/partner families who fall behind on their repayment schedule. In practice, it means that Moznosti gravitates toward wealthier clients (more reliable payers), while Habitat looks for those in real need (not very reliable payers due to irregular income, etc.).

    Another difference arises with regard to setting the goals, in terms of what each partner considers a “goal.” For Moznosti, it is the number of loans disbursed and for Habitat it is the number of reconstructions completed. Ideally, these two numbers should match but, in practice, there are partially misused loans. Clients who are repaying their loans regularly are not sanctioned by Moznosti, while Habitat insists on controlling and sanctioning mechanisms in cases where the loan is being misused.

    So, to resolve these differences, the only way is to reach a compromise with the partner, but also to set limits for these compromises. For example, if HFH monitoring finds out that more than 50 percent of the housing loan amount is spent for non-housing purposes, HFH can ask for activation of a sanction, which means immediate repayment of the whole amount of the loan. For those that spent more than 50 percent but less than 90 percent, we negotiate without sanction.
  • What makes this organization a good “fit” for Habitat?
    Moznosti is a good fit for Habitat in many respects. Both Opportunity International and its Macedonian branch, Moznosti, share a similar vision and mission to that of Habitat, and most of the same values. This creates synergy that can transform the lives of those in need. Additionally, Moznosti was willing to contribute both reliable expertise and significant financial resources (twice of Habitat’s contribution) to the partnership.
  • How is the partnership being evaluated?
    The initial partnership agreement set out that the program should be evaluated after the first year of implementation. This took place from July 2006 to October 2006, with all program stakeholders involved: HFH Macedonia, Moznosti, HFH E/CA office, partner families/clients and constriction advisers (at that time external). Based on that evaluation HFH Macedonia initiated scaling up of the program and, in February 2008, we signed a loan agreement worth Euro 5 million with another party, Dutch International Guarantees for Housing, to provide new finances for re-lending to those in need.