A vast unmet demand exists for housing finance for low-income populations in the developing world. Though solutions have yet to reach a significant scale, either from the government or the private sector, the microfinance industry has recently made great strides in this area. Housing microfinance has shown signs of potential to reach scale. Housing microfinance (HMF) refers to products to finance shelters that are not backed by mortgages. These loans follow the basic principles of microfinance, such as small loan amounts, relatively short loan terms, and alternative forms of collateral. Institutions interested in housing microfinance are beginning to recognize the potential of the “progressive building” activities of low-income families, who finance and build their homes in an incremental fashion. Most HMF products are used for home improvement or expansion, though some may be used for a home purchase or new construction.
Just as microenterprise loans boost the income-generating activities of the economically active poor, the provision of HMF is increasingly seen as a method of leveraging the ingenuity and efforts of low-income families as they strive to improve their living conditions. Seeking to better understand the potential for scale in HMF, ACCION International and Habitat for Humanity International joined efforts to conduct a study in conjunction with Cities Alliance’s financial support. This study covered ten of ACCION’s partners in Latin America, representing more than 90 percent of the ACCION Network’s housing portfolio. The objective of this research was to understand the key success factors as well as challenges and barriers for reaching scale in housing. This insight discusses the results of this research. Housing microfinance is gaining popularity and earning legitimacy as a recognized product of microfinance institutions (MFIs). However, its potential is bumping up against the original mandate of MFIs, many of which were designed to support the development of micro and small enterprises through the provision of working capital and fixed assets loans.