May 6, 2013

Affordable housing requires microfinance approach – MfB MD


The need to adopt the principles of microfinance has been advocated in the quest by government to provide affordable housing for low-income earners in the country.

Managing Director of LAPO Microfinance Bank, Mr. Godwin Ehigiamusoe, alluded to this in his presentation at a housing exhibition recently held in Abuja. Speaking on the topic, “Achieving affordable housing: Creating 500,000 housing units by 2016 through housing microfinance”, he noted that traditional mortgage practices do not take care of low-income people.

Microfinance basically entails the provision of financial services to micro-entrepreneurs and small businesses, which lack access to banking and related services due to the high transaction costs associated with serving these client categories. The two main mechanisms for the delivery of financial services to such clients are: relationship-based banking for individual entrepreneurs and small businesses; and group-based models, where several entrepreneurs come together to apply for loans and other services as a group.

Ehigiamusoe asserted that much like microfinance, affordable housing is about liberalising access to mortgage and also the possibility to use flexible structures and processes to achieve mass housing targets on a sustainable basis. He noted that housing is required by the poor because it is a basic human need. Also, because among the poor, there is strong connection between the home as a place of shelter or as a means for engaging in income generating activities.

The LAPO MfB boss said that the targets of affordable housing are ready clients, customers and members of microfinance institutions, such as MfBs, Cooperatives and NGOs. “These people organisations have developed flexible and responsive structures and procedures that could be useful for providing mass housing facility.

MFIs are already active in provision of houses to low-income people across developing nations such as Bangladesh, India, Kenya, Bolivia and Mexico.” He identified challenges of housing microfinance to include policy and regulatory constraints, lack of funding, and inadequacy capacity. According to him, a major constraint is the regulatory definition of micro-loans in terms of volume and tenor, adding that housing loans are usually of larger sizes and of longer tenor.

Ehigiamusoe said the challenge of lack of funding is two-dimensional – the volume of funds required for housing is not available to microfinance banks as they have limited options for deposit mobilisation; and the problem of asset-liability mismatch that will arise when housing microfinance is provided by MfBs.

On inadequate capacity, he noted that there is a lack of awareness on technical skills required for providing housing microfinance in the country. “Like microfinance, affordable housing for the poor will require flexible and responsive strategies which differ from the formal mortgage practices. It takes time and resources to build the required competences.”

He called for a review of the microfinance supervisory guidelines that will recognise the roles that microfinance banks can play in provision of mass housing and review size and tenor of micro-loans. On the issue of funding, Ehigiamusoe recommended the establishment of funding linkages between microfinance banks and cooperatives on the one hand, and commercial banks on the other and also called for the inclusion of mass housing loans into the proposed micro and small enterprise development fund by the Central Bank of Nigeria (CBN).

In addition, he emphasised the need for technical support for microfinance banks and cooperatives. “The soft technology of mass housing is reaching maturity in other countries and regulatory jurisdictions, and Nigerian microfinance banks can learn from the experiences. Technical assistance focus should be on mobilization of potential beneficiaries, need assessment, and structuring of loans and repayment schedule,” he stated.