Maximizing Choice: Diverse Approaches to the Challenge of Housing Microfinance

This paper reviews the role of housing microfinance (HMF) in providing housing finance for the poor. It draws from five studies conducted in 2007. The boundaries of housing microfinance are increasingly blurred as microfinance integrates into the mainstream. Commercialization and access to capital markets are essential for the scaling up of housing microfinance. Study findings include:

• Increasing demand for financing progressive building of homes has been met with a growing supply of financial options and supportive regulatory frameworks;
• Given the extensive costs and organizational changes required to implement a housing product, institutions must have the necessary institutional capacity to launch the product;
• Distinct loan products such as mortgage loans, consumer loans and HMF may be converging;
• Construction assistance can strengthen the quality of progressive housing, but it is not a necessary component to HMF;
• Profitability of housing microfinance is not yet proven, although it appears to be more profitable among MFIs that have been able to reach substantial scale.

Finally, donor funds are best targeted at technical assistance and policy development that reduce some of the perceived risks in housing finance.