When a House Becomes a Home

In Machakos County, eastern Kenya, lives Grace Kamene Mutua, a resourceful entrepreneur and long-time customer of Kenya Women’s Microfinance Bank (KWFT).  Recently, she and her family were able to fulfill a long-time dream – to buy land and construct their own home.

To help customers like Grace construct decent houses, KWFT developed an innovative product with the technical support of Habitat for Humanity’s Center for Innovation in Shelter and Finance. It is called the Nyumba Smart Loan and is designed for low-income consumers.

Before receiving the loan, customers are taken through a rigorous training program by the staff of the bank on how to overcome various hurdles associated with house construction. They are given helpful tips on how to construct a decent house, select various materials, select and contract “fundis” (professional tradespeople) and manage the construction process effectively.

The Nyumba Smart Loan provides KWFT clients with various home improvement opportunities that include constructing a new house at once or improving, renovating and expanding an existing house. The clients are financed for as little as Ksh. 5,000 (approx. US$ 50) with flexible repayment period of up to five years.

The importance of housing

The right to adequate housing is considered a fundamental human right and is entrenched in many bills of rights around the world. In addition, Sustainable Development Goal #11 is a call to make cities and human settlements inclusive, safe, resilient and sustainable. By 2030, the SDG target is to ensure access for all to adequate, safe and affordable housing and basic services, and to upgrade slums.

Perhaps less obvious, but no less important is the relationship between shelter and identity. A house becomes a home not only as a basic unit of empowerment but also as it affects an individual’s identity and self-respect.

The problem is particularly acute on the African continent where income levels are such that the majority of households cannot afford to buy even the least expensive house. The United Nations Centre for Human Settlements provides figures which illustrate this stark reality: in Latin America, households need 5.4 times their annual income to buy a house, compared to Africa where an average of 12.5 times the average income is required.

The lack of housing finance in Africa means that the middle class and low income earners end up financing house construction on their own and over time, often in unplanned areas. The World Bank 2014 Global Findex finds low levels of housing lending in Africa, with less than 10 percent of people over the age of 15 having an outstanding home loan.

Government programs and NGOs have had limited scale and sustainability in providing affordable shelter to the millions. In 2012, Habitat for Humanity in partnership with The MasterCard Foundation, developed the project Building Assets, Unlocking Access to test whether a market-based approach could help address the affordable housing challenge. Market research in Uganda and Kenya confirmed a demand for incremental housing construction finance, such as the Nyumba Smart Loan, since lower income earners can then build their homes step-by-step with repayment rates that match their repayment capacity.

Building the business case for housing microfinance, as well as developing the technical support to address incremental construction approaches, is a challenge. Loan tenure is slightly longer and loan size is slightly larger than typical working capital loans of most microfinance institutions. They may need to forego more profitable products that contribute to earlier break-even.

Most importantly, enabling low-income people to borrow more easily to construct or improve tier homes will require unwavering commitment to create social value in addition to commercial success. Habitat’s Center for Innovation in Shelter and its MFI partners in Peru are showing the results of what can happen when supply meets the demand for housing finance over the long term.

For example, this chart shows the increase in a housing loan portfolio (in millions of US dollars) for one of the partners in Peru, the Mibanco microfinance institution, over five years:

The project has reached an exciting stage as pilots have concluded and products are rolling out, currently at 10,000 against a target of 16,000. Habitat for Humanity has structured two impact evaluations to understand the socio-economic impact at the household level of decent housing. Results will be available in 2018 although learning is emerging as the project progresses.