Going to Scale with Housing Microfinance: The Role of Commercial Banks
This paper examines commercial banks’ hesitation to get into housing microfinance (HMF). It seeks to identify patterns among current commercial bank HMF products to determine banks’ reasons and methods for getting into HMF and their results.
Commercial banks globally have yet to demonstrate a comprehensive interest in delivering HMF loans. Global financial markets, international development organizations and housing advocates in the developing world are keen to involve banks in this sector. The paper states that commercial banks:
- Are wary of HMF because of the complexity of housing issues in developing countries, and subsequent perception of risk;
- Stick to traditional microenterprise products before they develop HMF products;
- Tend to avoid provision of construction assistance, specialized loan officers, and other services that raise costs and complexities;
- Must have a strong commitment from management to break traditional opinions about housing finance and microfinance.
The paper predicts that housing will soon be part of the second wave of products that commercial banks develop subsequent to their entry into the microfinance market, with microenterprise development as the starting point.
