Microfinance for Housing: Assisting the "Bottom Billion" and the "Missing Middle"

This paper explains how Microfinance for Housing (MFH) differs from mortgage and microenterprise finance, examines its relevance and lists challenges for its growth.

MFH loans, designed to meet the housing needs of the poor, are smaller than conventional loans and are used for housing development or home improvement. MFH is offered by MFIs, banks, non-banking financial institutions, cooperatives, credit unions and NGOs. The funding sources for MFH providers include deposits and mandatory savings, commercial credit, subsidies from donors and foundations and credit enhancement. While MFH is growing rapidly worldwide, it still represents a limited portion of total MFI portfolios. The article identifies three types of barriers for MFH growth:

• Limited knowledge and expertise of individual lenders;
• Financial and capital market barriers;
• Shelter sector barriers.

Finally, the paper presents a table of MFH products suitable for different income groups and affordability profiles.