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> Posted by Juan Blanco, Associate, Financial Inclusion 2020, CFI
In Latin America and the Caribbean, approximately 40 percent of families live in houses to which they have no title or that lack sewage systems, water, electricity, or proper building materials, according to the Inter-American Development Bank (IDB). However, current annual investments in living solutions by the base of the pyramid in LAC total $56.7 billion, confirming the increasing buying power of this segment and the growing opportunity in developing housing finance business models.
A few weeks ago I attended an event hosted by the IDB to launch the report Many Paths to a Home: Emerging Business Models for Latin America and the Caribbean’s Base of the Pyramid. The report was written by Christy Stickney for the Opportunities for the Majority Initiative (OMJ), a part of the Private Sector Group of the Inter-American Development Bank. OMJ provides finance to small, medium-sized, and large companies, as well as financial institutions and funds to support the development and expansion of business models that serve BoP markets.
The report analyses cases within OMJ’s housing portfolio in countries such as Colombia, Mexico, Nicaragua, Paraguay, and Peru. Stickney found two main housing solutions for the BoP, a “complete” housing solution and an “incremental” housing solution.
> Posted by Patrick McAllister, Asia-Pacific Housing Finance Director, Habitat for Humanity
The Financial Inclusion 2020 project at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
Housing remains one of the most pressing issues in Asia. United Nations estimates show that more than 500 million people, or one in eight, still live in slums on the continent. That figure will surge as the Asian population increases from the current 4 billion to 5 billion by 2050, according to Asian Development Bank projections. Low-income people can improve their living conditions, but with much difficulty if they are excluded from the markets that provide goods and services to their wealthier compatriots, including affordable financial services that can be used for home repair and improvement.
Despite recognition in recent years that low-income people need a variety of financial services to manage their surprisingly complicated financial lives, progress in offering new products has been slow. The lack of financing to repair or improve homes is a case in point. Evidence of the need is clear, both from the statistics on the shortage of decent houses, and from the actions of low-income families themselves: studies have shown that 20 to 30 percent of microfinance loans intended for income-generating activities are actually diverted towards home improvements.
Perhaps things are about to change. Recent research by Habitat for Humanity’s Center for Innovation in Shelter and Finance (CISF) shows that in 10 MFIs around the world, offering housing microfinance loans is good business: risk is more diversified, administration costs are lower, and client retention and repayment rates are higher. Reasons for these trends certainly include the higher loan size and longer terms of housing loans. It could also be that MFIs are watching these new products closely, or are still in a “honeymoon period.” But speaking to customers and MFI staff, one gets the sense that perhaps the most important reason is the increased motivation by clients to repay loans that are tied to a family’s most valuable asset – their home.