Shelter Report 2014 - Step by step: Supporting Incremental Building Through Housing Microfinance

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Housing in the developing world is a process. Families might replace a dirt floor with a clean, hard surface. They might reinforce the walls or the roof to prevent water from seeping through the cracks when it rains. They might build an additional room after welcoming a new child into the world.
This method of improving housing one step at a time is called “incremental” or “progressive building” and accounts for up to 90 percent of residential construction in the developing world.
Families build their homes bit by bit as needs change and resources become available.

Although this model for building simple, durable shelter takes time, having access to appropriate financial products and construction advice enables families living in poverty to dramatically improve their living conditions.

With 1 billion people living in slums - a number still rising - the task of significantly affecting the problem of substandard housing will not be easy. But by facilitating incremental housing efforts, Habitat for Humanity and other organizations can help create more safe and secure dwellings and can reduce the financial burden on governments that subsidize housing. By improving the incremental process, we can help create better planned communities rather than ad hoc solutions.

Access to financing that low-income families can afford is a crucial element for the success of incremental building. Research indicates that only 2 percent of traditional microfinance loans are designed to improve shelter, but up to 20 percent of microenterprise loan funds intended for businesses are used for housing

Recognizing the need for greater access to housing finance among low-income people, Habitat has been working in many countries to spark innovation and scale housing microfinance.
Two important global initiatives that complement this work are the MicroBuild Fund, a $100 million impact capital fund for housing microfinance, and the Center for Innovation in Shelter and Finance, our advisory service arm that provides training and technical assistance to help local institutions develop appropriate shelter products for their context.

Recently, I saw firsthand how incremental housing has changed the lives of families in Kenya. I participated in a local savings group meeting in a tea-farming community. Members contribute to a fund, and individuals take out loans for specific home improvement projects. In addition to building floors and walls, many families have purchased cisterns in which to collect rain water for the dry season. Each individual negotiates a loan amount with Habitat, but the entire group is collectively responsible for total repayment. Loans vary in size and duration and are secured with alternative collateral such as livestock.

Efforts to provide new housing in the developing world are limited, and existing lenders rarely serve lower-income people. We need to encourage market solutions such as housing microfinance to support high-quality incremental building. If these are bundled with basic housing support services, we can create scalable, replicable and sustainable solutions.

Jonathan T.M. Reckford
CEO, Habitat for Humanity International