Low-Income Housing Finance
This paper discusses the role of microfinance in providing housing finance for the poor.
The formal financial system is limited to upper-income groups in South Asia. Market outreach can, however, be stretched down to lower income levels through innovation and enabling regulation.
Since 1987, when Grameen, Bangladesh, introduced its first housing loan, MFIs have made progressive forays into servicing the housing finance market. Currently, the Grameen housing portfolio is at $3.3 million, with 89% repayment rates. Challenges facing housing microfinance programs include:
- Affordability constraints;
- High land prices in the case of urban clients;
- Commercial viability of microfinance lenders;
- Need for new products, including savings-for-housing instruments;
- Need for mechanisms limiting disaster and disability/death risk in housing lending.
Careful blending of government policies, smart subsidies, planning, public-private partnerships, and technical assistance for housing microlending would help develop the low-income housing and housing finance markets. Success stories, such as the new low-income housing lending mechanisms in India, would provide replicable models. A comprehensive housing program would be useful for Indian households just below the affordability threshold. Government subsidies could help the extremely poor households.
