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regard the poor as “bankable”, 26 and in the past 10 years, a growing number of
housing microfinance programmes emerged offering loans to low-income
households. 27 Housing microfinance loans are much smaller than mortgages, are
typically granted for shorter terms 28 and are used mainly to finance progressive
improvements to housing (for example, building sanitary amenities) and expansions
to an existing dwelling. 29
18. Most housing microfinance initiatives originate in developing countries and
emerging markets — Latin America, 30 Asia and, to a lesser extent, in Africa. 31
Although microfinance agency interest rates are typically lower than those of
informal moneylenders, they are much higher (between 20 and 50 per cent) 32 than
those charged by formal financial institutions and have much shorter maturities. The
poorer the client, the more likely the housing microfinance agency will attempt to
manage default risk by reducing the size as well as the time over which the client
must repay the loan and by increasing the interest rate. 33 The use of floating rates of
interest also leads to increases over the repayment period, sometimes up to double
the original rate. 34 It is therefore questionable whether housing microfinance fosters
housing affordability for the urban poor or whether, in some cases, it leads to
increased indebtedness.
19. The small scale and the nature of most housing microfinance programmes, in
particular their focus on profitability, prevent them from addressing other central
aspects of the right to adequate housing — tenure security, location, infrastructure
and the availability of services.
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Bruce Ferguson and Peer Smets, “Finance for incremental housing; current status and prospects
for expansion”, Habitat International, vol. 34 (2010), pp. 288-289; World Bank, Housing
Finance Policy in Emerging Markets, p. 395; C. K. Prahalad and S. L. Hart, “The fortune at the
bottom of the pyramid”, Strategy and Business, No. 26 (first quarter, 2002), p. 1.
UN-Habitat, Financing Urban Shelter (see footnote 25 above), pp. 103-104, 106-112; see also
Housing Finance in Emerging Markets: Connecting Low-Income Groups to Markets, Doris
Köhn and J. D. von Pischke, eds. (Berlin, Springer, 2011), pp. 33-35.
Center for Urban Development Studies, Harvard University Graduate School of Design,
Housing Microfinance Initiatives: Synthesis and Regional Summary — Asia, Latin America and
Sub-Saharan Africa with Selected Case Studies (Bethesda, United States, Development
Alternatives, May 2000).
Bruce Ferguson, “Housing microfinance: a key to improving habitat and the sustainability of
microfinance institutions”, Small Enterprise Development, vol. 14, No. 1 (March 2003), p. 21.
Such as MiBanco in Peru, BancoSol in the Plurinational State of Bolivia, Banco Solidario in
Ecuador, Banco Ademi in the Dominican Republic, Calpia in Honduras and Genesis Empresariál
in Guatemala. UN-Habitat, Financing Urban Shelter, p. 106 (see footnote 25 above).
FinMark Trust, “Scoping the demand for housing microfinance in Africa: status, opportunities
and challenges” (2009); see also Annika Nilsson, “Overview of financial systems for slum
upgrading and housing”, Housing Finance International, vol. 23, No. 2 (December 2008),
pp. 20-21; S. Merill and N. Mesarina, “Expanding microfinance for housing”, Housing Finance
International, vol. 21, No. 2 (December 2006), p. 21.
UN-Habitat, Housing for All (see footnote 25 above), p. 19.
Ibid., pp. 23-25.
P. K. Manoj, “Prospects and problems of housing microfinance in India: evidence from
‘Bhavanashree’ project in Kerala State”, European Journal of Economics, Finance and
Administrative Sciences, No. 19 (2010), pp. 178 and 190.
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