Housing Microfinance:

Transcription

1 1 Housing Microfinance: The role of Housing Microfinance in supporting sustainable livelihoods Presentation to the African Union for Housing Finance Training Session: 17 September 2007 Accra, Ghana Kecia Rust, FinMark Trust 2 Understanding housing micro finance Housing micro finance in a wider housing process The housing asset and its role in supporting sustainable livelihoods Supporting sustainable livelihoods with housing microfinance Overview

2 3 Understanding housing microfinance 4 Methodologies adopted from the microfinance revolution: Loans are for relatively small amounts, and are based on the clients capacity to repay Repayment periods are relatively short Loan pricing is expected to cover the real, long-run costs (operational and financial) of providing the service Loans are not heavily collateralised, if at all. Collateral substitutes are often used. Credit services can be linked to prior participation in savings or micreoenterprise loan services. Housing microfinance is the microfinancing of housing needs: the application of a micro-finance based approach to housing finance. From: Daphnis and Ferguson (2004) Housing Microfinance: a guide to practice What is housing microfinance?

3 Less than 30% of households in most emerging countries can afford a mortgage to purchase the least expensive developer-built unit because of: House prices are high High real interest rates of 10%+ amortised over years creates high monthly repayments that low income earners often cannot afford Unavailability of long-term funding, which creates interest-rate risk and limits the supply of mortgage credit Costly formal-sector systems for property rights, land use development, property transfer taxes etc., push families into the informal sector, and contribute to limit the demand for mortgage money Instability of household income makes long-term debt risky to lenders and unattractive for many families 5 So, most households build step-by-step, room-by-room As explained previously by Bruce Ferguson: IUHF Meeting in Brussels, June Why do we need housing microfinance? Rural Housing Loan Fund, South Africa 12 months to 31 March Even gender split Female 51% Male 49% 25% 19% 44% earn < $350/month 14% 22% 20% less than R1 500 (US$214) R1 500-R2 500 US$214 - $357) R2 500-R3 500 (US$357-$500) R3 500-R6 000 (US$500 - $857) more than R6 000 (US$857) Majority public sector 43% 55% 2% Private sector Public sector Self-employed, informal Who uses housing microfinance?

4 7 Understanding housing microfinance in the context of a wider housing process I N F O R M A L Source: Ruth McLeod, Homeless International (2002), Research on Bridging the Finance Gap in Housing And Infrastructure and the Development of CLIFF Obtain legal tenure of site Put in infrastructure Build a house Move onto the property Extensions / improvements F O R M A L Whether formal or informal, housing is an incremental process 8

5 I N F O R M A L Getting the planning & building permissions Obtain a loan Source: Ruth McLeod, Homeless International (2002), Research on Bridging the Finance Gap in Housing And Infrastructure and the Development of CLIFF Finalise the construction plan Start the project F O R M A L Informal housing processes are financed differently 9 10 Understanding the housing asset and its role in supporting sustainable livelihoods

6 Poor people save but they hold these resources in defective forms: houses built on land whose ownership rights are not adequately recorded and unincorporated businesses with undefined liability Because the rights to these possessions are not adequately documented, these assets cannot readily be turned into capital, cannot be traded outside of narrow, local circles where people know and trust each other, cannot be used as collateral for a loan, and cannot be used as a share against an investment. 11 Title deed Access to mortgage finance Access to property ladder Access to business finance Source: Hernando de Soto (2000) Mystery of Capital. Page 6 WEALTH Traditional views 12 Financial asset Small scale landlords Home based entrepreneurs Economic asset Social asset Source: Shisaka Development Management Consultants (2006) Research Report: Consolidated analysis of research into small scale landlords and home based entrepreneurs. A more nuanced view

7 Small Scale Landlordism 13 We see as typical the migrant who first builds a onestorey house for his family, then adds a second storey to which he moves, renting the ground floor to tenants; later he builds a slightly better house for himself and the whole of the first house is let; again he might build a new house specifically designed for a few tenants. (Lloyd, 1990:294) Housing as an economic asset Home based entrepreneurialism 14 HBEs are income generating activities undertaken by residents from their homes. In low income areas in South Africa they are predominantly informal in nature and survivalist in scale, but often are the only source of income for the household. There are: Retail oriented: spaza shops, frozen food retailers, clothing retailers, etc. Production oriented: fence and gate manufacturers, food preparation, etc. Service oriented: hair salons, mechanics, traditional healers, B&B perators, restaurants Housing as an economic asset

8 2 nd dwelling for business 15 Income for retirement Once homeless, now an investor, providing housing to other low income earners Borrow microloan to improve Starter house Sell and buy Sell to buy Mortgaged 2-room house with backyard dwelling Improved house with backyard room (for rental) Mortgaged 5-room house with granny cottage Using housing microfinance and the economic asset to mobilise the financial asset 16 Supporting sustainable livelihoods with housing microfinance

9 For small scale landlords Township, subletting and unit owner landlords personal savings rather than formal loans (62-82% used own money) Access to financial products generally poor : < 1/3 unit landlords used loan to purchase unit < 12% of Township Landlords accessed loan Reluctant to use house as collateral Building owner landlords: Access loan finance more easily three quarters accessed a mortgage loan and half have a current or cheque account Commercial Banks risk averse. For HBE s Access to formal finance limited most used savings or an informal loan Lack of access due to complexity of lending to small start up s and high levels of informality Two main sources for formal loans Commercial Banks and Specialist Lenders Financial support not enough business skills and helpful environment needed Service Providers do not explicitly recognise HBEs Support Programmes need to be focused -high levels of understanding of Entrepreneurs motivation, nature of business and market sector 17 Source: Shisaka Development Management Consultants (2006) Research Report: Consolidated analysis of research into small scale landlords and home based entrepreneurs. What housing entrepreneurs need 18 Borrow microloan Make improvements Accommodation for rent Small business The house provides a critical platform for enterprise/business activity offering opportunities for income generation and poverty alleviation Realise income Pay back microloan Improved housing asset Repeat loans HBEs and SSLs generate significant income and provide appropriate affordable and convenient services for lower income customers They are supported in their efforts by housing micro lenders A viable business for the microlender and a sustainable livelihood for the borrower

10 Thank you!