When considering the challenges facing a growing world population, estimated at 11 billion people by the year 2050, much of the discourse has centred around the issues of food and clean water. But affordable housing is a challenge very present today in the developing world, and financing development in this sector has seen a number of obstacles.
European Microfinance Platform’s Executive Secretary, Christoph Pausch, recently spoke to Microfinance Gateway about the challenges and opportunities inherent in microfinance institutions becoming involved in financing the development of affordable housing. Some of the challenges remain institutional and regulatory; governments may detail specific areas, such as developing income generation, in which MFIs can provide services. Many governments have programs that inform and challenge private sector efforts at financing affordable housing.
But the very poor, and those who are using microfinance to develop income generating enterprises, still face significant barriers to safe housing, clean water, adequate sanitary systems, and sustainable energy systems. When moving from rural areas into the city, many find temporary shelter in illegal slums or favelas, and build shelters out of whatever materials can be found. Since there is no land ownership, the traditional land as surety for a long-term building loan isn’t feasible. In many rural areas, a long history of family land ownership may come without legal title; trying to navigate government agencies to obtain the traditional title work is both risky and expensive.
These are two of the issues that bring challenges to MFIs hoping to enter the market for financing affordable housing in the developing world: they need expertise in negotiating government agencies and regulatory restrictions on affordable housing construction, and they need to be able to manage long-term loans, such as construction loans and mortgages, and navigate land-ownership issues in the local community. Both of these areas bring more risk, as they involve long-term commitments. This is a different system, with new challenges, outside of the traditional microfinance initiatives for rural farm development or income generating activities in urban centers.
One of the success stories in the affordable housing market in the developing world is the work Habitat for Humanity International has done. They have focused on sustainable building initiatives in areas of the world with significant poverty, as well as the more developed world, and are trying to improve local capacity for sustainable construction, clean water and sanitation, and sustainable energy systems. Educating builders to use materials and methods that render buildings more likely to survive an earthquake, for example, or using indigenous materials such as bamboo, are part of their efforts at not just affordable housing, but improved education, healthcare, livelihood development, and response to natural disasters. While they have a broad reach, they developed their financing systems with the long-term financial commitment of housing in mind.
The European Microfinance Award has worked with a number of MFI and community cooperatives to provide services such as savings, financial literacy education, and assistance for dealing with regulatory and government agencies, as well as the financing projects related to affordable housing. Many of the best programs, like Habitat for Humanity, have a strong community based approach, in which members of a cooperative or community work together to build each other’s homes.
The need for MFIs to move into financing affordable housing construction, and the many related areas, will be a challenge and opportunity for the industry.
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