HF 6

Institutional
efforts to
assist • Microenterprise finance
incremental • Shelter Microfinance
housing of • Community funds
low-income
groups
Microenterprise finance
• Provide investment for enterprise development and enable
economic growth.
• Borrowers
– Micro and small entrepreneurs
• Use of loan for development of business
• Savings may be required.
• Additional support generally required
• Generally very poor people are avoided except in some special
programmes
• A community organization may sometimes play the role of
guarantor
• Short term in nature
• Collateral – Personal guarantees, goods, co-signers
• Linked to other financial institutions
Shelter Microfinance
• Those who build incrementally or progressively are very significant number in
many countries.
• Land purchase, service installation and upgrading, house construction,
consolidation and expansion – done during separate times. 70% of housing
investment in developing countries occur through progressive building.
• Despite its significance – progressive building is not encouraged by formal
finance sector because of risks with building process, uncertainty about house
value and hence problems with mortgage valuation
• Loan finance for shelter-related investments in incremental dwellings made by
low-income households whose income come from the informal economy is
rarely available through formal financial sector.
• There are several institutional efforts to assist these households. Eg:- Shelter
microfinance, Community finance mechanisms, Micro enterprisefinance
finance
• Most common in Asia and Latin America – undergone multiple explorations
and innovations in the last two decades.
• Research in 1990s proved that the quality of self-help investment could be
enhanced by financial institutions that enabled accumulation of savings or
offered small loans.
Shelter micro finance
• Provide housing improvement and improve well being
• Borrowers
– Those with land and need to improve the dwelling
• Use of loan is for housing improvement
• Savings and deposits may be required.
• Additional support generally possible
• Attitude towards poor depends on orientation. Requirement of land is likely
to exclude the poor.
• A community organization may sometimes play the role of guarantor.
Sometimes additional community support is part of the process.
• Short term in nature – 1-8 years
• Collateral - Personal guarantees, goods, co-signers, mortgage
• Linked to other financial institutions, mayinvolve the municipality in slum
upgrading programme
• Innovations in this field – Mibanco in Peru – one of the largest MFIs in Latin
America – 70000 active borrowers. Became a commercial bank in 1998.
Shelter Microfinance
• Microfinance is a type of banking service provided to

unemployed or low-income individuals or groups who
otherwise have no other access to financial services.
• Interest rates are typically lower than that of money
lenders, but higher than that of formal financial institutions
• Loans are very small and repayment period very short with
a maximum of three years.
• Unlike typical financing situations many microfinancing
organisations focus on helping entrepreneurs
The main principles of housing microfinance:
1. Loan sizes are relatively small and are disbursed based
on the borrower’s capacity for repayment.
2. Repayment periods are relatively short
3. Loan pricing is expected to cover the real operational
cost and risk premium
4. Loans are not heavily collateralised.
5. Loans do not aim to finance the complete housing
units at a time, but rather housing improvements and
incremental expansion of home space.
6. Although savings are not prior condition for obtaining
housing micro-credit, MFIs often link loans to clients’
savings profile and habits
Housing Microfinance enables partial financing of
housing needs which meet only some of the poor
people’s aspirations to proper home.
Providers of Housing Microfinance Services
An increasing number of institutions are involved in
housing microfinance services these days.
1. MFIs
• Large scale MFIs with over 100,000 clients
• Medium sized MFIs with 10,000 – 100,000 clients
• May be Stand-alone or linked.
• Stand alone - does not require clients to demonstrate a
prior repayment history. Loans preferably given to
individuals rather than groups.
• Many have taken government funds for expansion.
Commercial funding usually not available, resulting in
funding mismatch
Eg:- Grameen Bank
2. NGOs and Community based organisations (CBOs)
Capacity to transfer technologies across affiliates in

various countries.
Some are direct lenders while others are wholesale
providers of credit.
Eg: - Accion, CHF International, FINCA, Homeless
International
3. Co-opeartives, Mutuals and Municipals
Locally owned and locally started hosing programmes
Usually part of net work that enable cross-experience
sharing.
4. Government Housing programmes
Some are professionally run. Others are very much
political and not market-based. Limited out reach.
Demonstrated out reach to low income clients
5. Commercial Banks
Security is a major issue here. Have the capacity to
expand.
Community-based housing finance
• Enable the poor to access shelter assets, particularly land and
infrsatructure
• Borrowers
– Those without secure tenure, basic services and adequate housing
• Use of loan is for land, infrastructure and occasionally housing
improvement
• Savings and deposits may be required.
• Additional support generally considered because of
complexities of land development.
• Generally seeks to help the very poor if they are residentially
stable
Community-based housing finance
• Landing is collective and the role of the group is seen as
essential to address the exclusion of the poor.
• long term in nature – 3-20 years
• Collateral – can be title deedsbut emphasis placed on
collective loan management.
• Seeks state support to offer subsidies for land development
and services in order to include lower-income families.
• Innovations in this field – Mibanco in Peru – one of the largest
MFIs in Latin America – 70000 active borrowers. Became a
commercial bank in 1998.
Low income Housing Finance Project, India
• Financed by World Bank
• Provide access to sustainable housing finance for low income households to
purchase, build and upgrade dwellings.
• Project has three components - 1. Capacity Building - Under this activates will be
financed to strengthen the capacity of NHB, qualified intermediary institutions
and Qualified Primary Lending Institutions (QPLIs). Aim - to develop new
financial products, loan standards, risk management tools, financial literacy,
consumer protection capacity. Pilots will be launched, monitored and evaluated.
This component will also support an impact assessment to independentently
assess the social and household level impact of the project.
• 2. Financial support for sustainable and affordable housing
• -component refinances N
• HB to finance
• 3. Project Implementation
• -Project Implementation Unit (PIU) to be set up within NHB to implmenetthe
project, carry out monitoring and avaluation, responsible for legal issues and
grievance ref=dressal
Source: http://www.worldbank.org/en/topic/financialsector/brief/housing-finance
Also read…
• 8th Global Housing Finance Conference, May
30-June 01, 2018, Washington, DC
• The theme of the conference is “Breaking the
Mold – New Ideas for Financing Affordable
Housing”
• Affordable housing: Policy and practice in
India

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Institutional

• Microfinance is a type of banking service provided to

2. NGOs and Community based organisations (CBOs)

Capacity to transfer technologies across affiliates in

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