Housing Microfinance: Policy Recommendations for Sida's Programs

Since 1988, the Swedish International Development Cooperation Agency (Sida) has supported several programs that, in retrospect, provide a good fit with our current understanding of housing microfinance (HMF). In Costa Rica, Honduras, Guatemala, Nicaragua and El Salvador, Sida has helped public agencies as well as for-profit and not-for- profit institutions develop initiatives that extended credit to the working poor, under terms that deviate from more orthodox housing microfinance in the following ways:

1. Loans have often been for relatively small amounts;
2. Repayment periods are relatively short compared to traditional mortgage loans;
3. The programs are typically expected to contribute to the self-sufficiency of the financial providers;
4. Non-financial services in the form of construction assistance are often an integral part of the loan package.

As housing microfinance emerges from the shadows of micro enterprise lending and mortgage-based housing finance, Sida’s work in Central America sheds a useful light on the promise —and current limitations— of the new practice. The following document, based on an independent review of Sida’s housing microfinance programs in Central America and on subsequent policy recommendations presented to Sida in the fall of 2002, highlights elements of that promise and explores some of these limitations. Finally, this document includes policy recommendations the authors believe could assist Sida in developing and overseeing highly performing housing microfinance programs in the future. The following is a synopsis of some of the key observations the consultants made during the rapid review of Sida-assisted housing microfinance programs in Central America.

[Adapted from the author]