Habitat for Humanity Housing Finance Best Practices

The collection of best practices compiled here is an attempt to gather lessons learned from HFH programs and other industry actors to provide helpful guidance and thoughts to HFH programs’ development of affordable demand driven housing finance solutions. This document seeks to capture promising practices for housing microfinance, which is broadly interpreted to mean any financial service product that is not a traditional mortgage and which aspires to cover costs of service delivery. These financial services may be provided by a bank, NBFI, cooperative, NGO, or other legal regulated entities.

Key Principles

• Housing microfinance is not limited to microcredit. Savings, insurance, remittance services, etc. may also be part of a comprehensive solution for the poor.
• Housing microfinance is not always appropriate. Areas of crisis, war, and disaster may need more direct, immediate, and subsidized housing/shelter assistance. Housing microfinance aims to develop longer term solutions or solutions between relief shelter and developed mortgage markets of the West.
• Housing microfinance products must cover the costs of service delivery if they are to reach large scale outreach. Though HFH, an organization subsidized by donors, can help in the development of innovation, pilots, advocacy, linkages to available public or private direct subsidies, and awareness raising, it is best for the financial service itself to cover full costs of the service.
• HFH should seek to build permanent “systems” of housing finance solutions for the poor. So end of program evaluations are less relevant than evaluations of the investment as an ongoing concern.

Operational Guidelines

• Poor clients demand and are willing to pay for a variety of financial services (savings, credit, insurance, etc.) and studies have shown that between 20-30% of current microenterprise loans are used for housing needs. Tailoring a financial service product’s terms towards the specific needs of housing (savings requirement, loan amount, repayment schedule, interest rate) has the opportunity to transfer efficiency gains to both the client and the financial institution.
• If partnering, avoid, where possible, financial service providers that are part of multi-sectoral donor projects. Preferably, work with a locally registered entity that will be a part of the financial landscape in an ongoing basis.
• Financial service providers are best placed to research, understand, and design appropriate services for their clients. Consultants can be used to help the process, but it must be participatory, involving the clients and the institution that ultimately will provide the service.
• Injecting external loan capital into savings based community-managed funds can actually do harm – and is a practice that has often been demonstrated to not only be ineffective, but to destroy the savings institution that was in place before the loan program was imposed.
• Invest in upfront research, product development, and complementary technical services. These steps increase long term chances for success – and are now industry standard steps for the introduction of new demand driven products.
• It is advisable not to view financial sector partners as delivery mechanisms for a Habitat good. Rather, HFH should seek to build capacity within the institution for the housing service to eventually become mainstream and “owned” by the financial institution.
• When working with partners, ensure they share a long term vision for housing. Be diligent to ensure the intended retail financial service provider has the organizational capacity and commitment towards a mainstream housing product. Utilize the HFH housing finance partnership assessment tool to evaluate this.
• Support consumer protection of clients through clear disclosure of costs of lending, guidance on lender practices, mechanisms for handling complaints and disputes and consumer education/financial literacy.
• Aim for product line cost coverage within the first several years of a new product roll-out. HFH complementary technical services can help achieve that, but an institution in the long run should rely on less support over time from HFH subsidized support.
• Grants are effective for research, piloting new risky products and honing in on an optimal level of technical assistance. Lending to direct implementers is a more sustainable long term mechanism for supporting the ramp up of a viable housing finance product.