Habitat for Humanity: Human-centered design for housing microfinance

The ability to access finances and borrow money can be transformational for many families; however, there are many in Nepal—particularly the marginalized and low-income—who often miss out on formal lending products for housing because there is nothing on the market that can service their needs or is affordable. Instead, they remain vulnerable in the inadequate houses they live in, often suffering from overcrowding, lack of privacy, lack of sanitary facilities, and poorly built structures. Since its founding in 1997, Habitat Nepal has provided housing services to over 70,000 households and has developed a network of valued local partners to carry out its housing initiatives. Habitat for Humanity Nepal employs a holistic approach to long-term shelter solutions by developing better alliances with government agencies, leveraging government resources, fostering ties with local partners, and pursuing expansion through housing microfinance and market development programs.

The market penetration of housing microfinance products for low-income families is still relatively low. Habitat Nepal’s market research for housing microfinance found that there is a sizable gap between supply and demand because microfinance institutions (MFIs) have little experience with housing microfinance. The lack of appropriate and affordable housing finance options only exacerbates Nepal’s housing challenges. Often financial institutions view low-income marginalized people as high risk and high cost due to their frequent small transactions and difficult-to-reach locations. The collateral requirements of commercial banks and the mortgage market in Nepal are still in their early stages, with the total amount of home mortgage loans outstanding as a percentage of GDP being 6.67 percent in 2019, whereas a country like Australia has 94.7 percent in the same year. Commercial and development banks and finance companies provide home loans, and due to the requirement of collateral and proof of income sources, low-income families do not qualify for such financing.

Microfinance, on the other hand, can overcome these obstacles by assisting low-income households in balancing their income flows and setting money aside for the future. Due to various challenges and unavailability of medium to long-term on-lending funds, Nepal’s microfinance institutions struggle to reach large numbers of low-income households through housing microfinance services. Many MFIs in the nation offer short-term loans to low-income families for income generation purposes. MFIs can address the need for housing finance to low-income households by offering affordable loans that could be both profitable and offer transformational social change for families. Though MFIs have networks that can reach these communities, they still need partnerships to enhance their technical capabilities to deliver housing microfinance services targeting low-income families. A competitive and stable marketplace comprising various providers is also essential to the financial inclusion landscape. One of the biggest MFIs in Nepal, Jeevan Bikas Laghubitta Bittiya Sanstha Limited (JBLBSL), made the decision to extend the housing-related services to low-income households. The decision to offer housing was carefully thought out after taking into account a number of aspects, including: the enormous gap between the supply and demand for housing microfinance solutions; JBLBSL’s vision of improving the lives of low-income households; JBLBSL’s parent organization history and background related to the housing sector; JBLBSL's long-term business strategy. With the objective of introducing a client-centric housing finance solution that addresses the markets' pain points and promotes adequate housing for low-income households, JBLBSL collaborated with Habitat for Humanity Nepal and Habitat’s Terwilliger Center for Innovation in Shelter to develop a viable housing product. Officials from JBLBSL have observed that housing loan borrowers now feel a greater sense of security, dignity, and social ties; their families or friends are able to visit and stay. A business case study of housing microfinance at JBLBSL reveals the positive impacts on families, with 65 percent of respondents feeling more respect and dignity in their communities, 57 percent feeling more cooperation from their social groups, 55 percent feeling more security for their lives and property, 49 percent expressing improved social relationships, and 41 percent feeling better about their credit because they can now access loans secured by their homes.  Improved housing has had a positive impact on people's health, increasing their capacity to work, reducing illness frequency by 59 percent, reducing cases of water-borne infections by 43 percent, and lowering medical expenses for their families by 43 percent. The children now have access to a separate place for studying and reading, which has improved their learning environment. Homes became more pleasant thanks to better lighting brought on by access to electricity and ventilation via built-in windows. 98 percent of respondents to the household survey believed that better housing contributed to better educational outcomes. Housing microfinance loans' most significant and direct benefit is the reduction in house maintenance costs. The decrease in home maintenance costs is the most substantial and immediate advantage of housing microfinance loans. Families spent Rs 10,000 to 20,000 ($ 84 to 168) on maintenance and repair on average every six months. However, 76 percent of respondents said their home maintenance costs have decreased. Additionally, 59 percent stated that they now had easier access to loans from other financial institutions since they could use the collateral of their new home. Other savings were seen in the form of expenses or profits from rentals. With technical support and collaboration with Habitat for Humanity Nepal, JBLBSL applied a human-centered design, which kept the end client’s needs at the center while developing the housing microfinance product. Therefore, a client-centric product can attract large numbers of low-income families who are in need of home improvements. Similarly, such a process would help to diversify the loan product and ultimately could enhance the sustainability of the institution.