Shelter is one of the most basic human needs. However, acquiring shelter is mostly a do-it-yourself activity for the world’s poor, and those in Afghanistan are no exception. A new housing loan initiative now aims to change that.
In Afghanistan, there are 2.6 million households living below the poverty line. Approximately 288,000 of these households have access to microfinance services. The fact that in Afghanistan the housing stock is in poor shape – as a result of the war that destroyed countless homes – means that many people are eager to borrow for, and make improvements to, their homes. However poor, people worldwide feel the desire to invest in their dwellings. As the financial diaries of Portfolios of the Poor indicates, investments in property and housing ranked either first or second in priority in the three diary countries.
This will to invest in homes, presents a tremendous “next generation” opportunity for service providers committed to serving the poor’s needs. The sequential steps of a household’s incremental investment in housing can be reasonably mapped to the cyclical savings and credit cycles commonplace for microfinance. However, home improvement loans are not widely offered by microfinance institutions and remain a largely untapped opportunity. Housing and shelter finance currently represent less than 3% of outstanding microfinance portfolios, while the market opportunity could be as much as four times that of traditional enterprise lending.
Microfinance providers sometimes confuse investments in shelter assets as off-mission and non-productive. But people’s investments in their homes should not be lumped together with consumer debt. Housing too can often be productive. Home-based businesses are integral to many of the economically active poor, with living quarters commonly doubling as warehouses, production sites, rental rooms, or sales windows for passing customers.
An inspirational example of how an institution can offer a low cost housing product is First Microfinance Bank of Afghanistan (FMFB-A), a banking and loan institution of Aga Khan Agency for Microfinance. The FMFB-A, now aims to stimulate and support the long-term development of affordable housing for those who would otherwise fall short of a basic human right: a safe and decent place to live. Their housing microfinance product now serves as a model for the regional market. With the initial support of the International Finance Corporation, a housing microfinance loan product was piloted and scaled up at FMFB-A in 2008, with technical assistance from ShoreBank International. The product is currently available in all urban branches and FMFB-A is currently replicating and adapting the product for rural areas, with support from a grant from USAID.
The loans are coupled with construction guidance. This technical advice on construction will ensure that individuals who are provided with loans make smart, long lasting investments and upgrades that will improve the entire family’s health and safety. The bank is building insulated demonstration houses in various provinces to help save energy and costs. Most clients are keen to borrow and build using the same skills and materials as used in the demonstration houses.
The product performance has exceeded FMFB-A’s initial expectations. As of November 2011, outstanding portfolio was over $10.3 million USD, the number of active borrowers was over 7,800, and PAR was at 0.65%. Most of the housing loans clients are already existing customers of FMFB-A, who are able to service two loans at the same time subject to their repayment capacity. The biggest advantage is that while enterprise loans are subject to diversion and miss use, housing loans have tangible results to the society and the impact serves as a marketing point for the institution for potential clients. The housing product currently is now nearly 25% of the bank’s portfolio and is the fastest growing product being offered by the bank. The initial product target was to disburse 10,000 loans for over $8 million USD in amounts within three years; a target which was met and surpassed by the end of the second year of offering the product.
Importantly, the housing product offering at FMFB-A helps ensure the long term sustainability of the institution, through positive financial performance to support its pursuit of social goals. It is through this model that the bank will be able to help the long-term development of Afghanistan, and provide it’s people with their basic right to a safe and decent place to live
Authors: Michael Okwemba, Housing Microfinance Product Consultant, First Microfinance Bank of Afghanistan, Patrick Kelley, Director of International Housing Finance, Habitat for Humanity International and Lauren Moser Counts, Vice President, ShoreBank International
This article draws on information from: ‘The Portfolios of the Poor’, by D. Collins, et al. www.mixmarket.org and ‘Impact Investments, An Emerging Asset Class’, by JP Morgan and Habitat for Humanity International.