Housing Microfinance ’To Take Off in Africa’
Wednesday, August 31, 2005
The trend of providing microloans to poor people to buy houses is likely to rocket in the next few years as an alternative to conventional bank mortgages, says low-income finance expert David Porteous.
While delegates to the African Microfinance Conference in Cape Town agreed that “housing microfinance” was gaining ground across Africa, commitments by the large South African banks could provide a fresh twist to this tale.
Under the Financial Sector Charter, SA’s big-four commercial banks had agreed to divert a far greater amount of funds into low-income housing and were on the verge of nailing down a deal with government to manage the risk.
But with banks set to extend mortgage lending downwards to low-income earners, and microfinanciers extending upwards through “housing finance”, the two groups could yet clash in the middle of the previously underserviced market.
Porteous said the burgeoning trend of microfinanciers providing housing finance was being driven by a greater number of people moving to the cities.
He said in SA 58% of people live in cities, a growing group that requires finance to build, buy and improve houses.
Porteous said that while there was a need for more “housing microfinance” in SA, “there is an even greater need in the rest of Africa”, where conventional mortgages are few and far between.
The Millennium Development Goals, which aim to improve the conditions of 100-million slum-dwellers by the year 2020, were another factor driving the boom in housing microfinance.
Porteous said housing microfinance differed from conventional microfinance, where institutions give unsecured loans to low-income groups. “Housing loans are larger, and (are repayable) over a longer term, so it puts pressure on lenders’ balance sheets.”
There are a number of microfinance institutions providing money for housing across the world, including Sewa in India and Grameen in Bangladesh.
Because people with access to microloans would not qualify for normal bank debt, the interest rates were usually a lot higher on microloans.
But as finance would be provided over a longer period and the repayment record on home loans was good, interest rates would be less than for an average microloan.