Microfinance for Housing in Africa’s Cities

Feb 2013
Africa, February, 15 2013 - As the area of housing microfinance is relatively young, the need for capacity building for MFIs and other organizations providing these services is huge.

In this decade, Africa is undergoing urbanization at a faster rate than Latin America, Asia, or anywhere else in the world. In these burgeoning areas, the majority of people are building their own housing, and doing so in an incremental fashion – adding what they can, when they can, and developing their facilities as their means allow.

There are a few big challenges to this. In Africa’s urban centers, there is a limited supply of affordable housing, and financial services to aid housing development are also scarce. Global Findex Data indicate that access to and usage of credit in sub-Saharan Africa is among the lowest in the world. Specifically looking at mortgages, a recent study from FinMark Trust revealed that across the populations of Zambia, Malawi, Botswana, and Tanzania, less than 1.5 percent of individuals utilize mortgages.

Enter microfinance. Typical mortgages don’t fit well with the financial profile of most Africans. Compared to microloans, they’re generally for longer terms, larger amounts, and they are less flexible. Most mortgages require clients to provide documentation of regular incomes. Many Africans operate in the informal sector and lack regular income streams. In Tanzania, for example, only 28 percent of the population is able to satisfy this income requirement.

Housing microfinance (HMF), although young and small in scope as compared to traditional microfinance services, is already demonstrating that its ability to adjust to unique financial capabilities and client cash flows make it a good fit for many Africans’ housing financing needs – whether it’s used for incremental house construction, renovation, land purchase, or site improvement. And the good news is HMF services are on the rise.

A new report from the Centre for Affordable Housing Finance in Africa found that the industry has recently undergone encouraging growth and advances. Perhaps the most notable development is an influx of commercial groups into the HMF space. More microfinance institutions are also incorporating HMF services into their lending portfolios. And NGOs and housing co-ops are also increasingly offering affordable housing financial services. The report points out that the industry has not yet reached its full potential scale, and cites a deficiency of supportive government policies as one barrier to its doing so.

A specific HMF advancement is the New Urban Finance Fund for Africa. The $100 million housing microfinance fund provides direct investments in affordable housing through local banks and microfinance institutions across Africa and the Middle East. The fund will work first in Kenya, Ghana, Tanzania, and Uganda. The investments will go towards housing microfinance and programs for affordable housing real estate development. A small portion of the fund will also be invested in an IFC program on credit enhancement for housing microfinance.

As the area of housing microfinance is relatively young, the need for capacity building for MFIs and other organizations providing these services is huge. To this end, Habitat for Humanity (HfH) has partnered with the Citi Foundation and the MasterCard Foundation on two separate initiatives. With Citi, HfH has created a toolkit for technical training and tools to support the inclusion of housing microfinance products in lending portfolios. The HfH – MasterCard Foundation team have embarked on a “learning and dissemination” exercise to share promising HMF best practices.


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