BUILDING THE BUSINESS CASE FOR HOUSING MICROFINANCE IN SUB-SAHARAN AFRICA: Housing microfinance is a growing sector that can generate profits for financial service providers and help address Africa's housing needs.


Financial service providers are discovering that vast business opportunities exist within the lower-income housing markets of the developing world. Housing is a basic human need, and for the majority of households, their home, including land constitutes their greatest financial asset. Market studies of the low-income households, the "base of the pyramid" defined as the approximately 4bn people with incomes under $3,000 per year in local purchasing power--have identified housing as one of the three largest market sectors (along with food and energy).

A 2014 study by McKinsey estimates that meeting the increasing demand for urban housing from low-income households worldwide would cost $2.3 trillion by 2025, representing additional revenues of approximately $200bn-$250bn annually for the construction industry.

Nevertheless, for this lower-income majority, representing over 70% of the world's population, financing options for housing remain scarce and largely informal. There are an estimated 1.6bn people in the world living in substandard housing. This figure is climbing, especially as the world becomes more urbanised and people migrate to cities for economic opportunity. In sub-Saharan Africa, as many as 99% of people do not have access to formal financing--credit, savings, mortgages--that can let them purchase, build or improve their homes. Traditionally, they build homes gradually as their resources allow. Developer-built, bank-financed homes are rare in Africa, serving fewer than five% of households in most countries.

Habitat's Terwilliger Center for Innovation in Shelter study entitled Building the Business Case for Housing Microfinance in Sub-Saharan Africa shows that housing microfinance can and should become a mainstream offering for financial institutions in sub-Saharan Africa as they respond to growing housing needs in the region, particularly from poor people. Housing microfinance refers to microfinance products that consist of small, non-mortgage-backed loans offered for relatively short terms, between 12-36 months for $500-2,200, and in succession to support the existing incremental building practices of low-income populations.

The study builds its case on the work of the project Building Assets Unlocking Access. The project is a partnership between Habitat's Terwilliger Center and the Mastercard Foundation. So far, it has reached over 47,000 households and mobilised more than $43m in capital to benefit over 237,000 individuals.


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