Step by Step: Habitat and Housing Microfinance

In our rapidly urbanizing world, decent living conditions are becoming scarce. By 2050, 70 percent of the world’s population is projected to be living in urban areas, causing slums and unplanned settlements to swell.

One of the many reasons that slums and informal settlements develop is a lack of available financial services to help people who live there access better-quality materials, which result in safer and healthier homes.

Like traditional microfinance, housing microfinance has the ability to drastically improve the living conditions of low-income families around the world.

What is housing microfinance?
Housing microfinance consists of small, non-mortgage backed loans starting at just a few hundred dollars that can be offered to low-income populations in support of incremental building practices.

What is incremental building?
Building a home in progressive — or incremental — stages is a common practice in much of the developing world, constituting 50 to 90 percent of residential construction. By slowly saving money under mattresses or in jars, people collect building materials to gradually expand and improve their homes. Improvements can mean adding a concrete or tile floor, shoring up the roof, improving the kitchen, or supplementing living space when welcoming a new child to the family.

How great is the housing need?
Urban population is projected to increase to 6.3 billion by 2050. Currently, 61.7 percent of urban dwellers in Sub-Saharan Africa and 35 percent in South Asia live in slums. Only 3 percent of adults in developing economies report having an outstanding loan to purchase a home or apartment.

How can housing microfinance make a difference?
Efforts to provide new housing in the developing world are limited, and existing bankers and lenders rarely serve lower-income people. Housing microfinance, bundled with housing support services and technical assistance, has the ability to increase access to safer, healthier and less impoverished living conditions and can help speed up the construction of adequate housing.

How is Habitat responding?
Recognizing the need for greater access to housing finance among low-income people, Habitat works in many countries to spark innovation and scale housing microfinance. Two important global initiatives that complement this work are the MicroBuild Fund, a $100 million impact capital fund for housing microfinance, and the Center for Innovation in Shelter and Finance, an advisory service that provides training and technical assistance to help local microfinance institutions develop shelter solutions.

Find out more in Habitat’s 2014 Shelter Report “Step by Step: Supporting Incremental Building Through Housing Microfinance.”