One of the basic human needs is to have a decent place to live in safety and comfort. This can be said for people in all income brackets but regrettably harder to attain for those with little or no income. The availability of credit for housing finance remains extremely limited for low-income families in the developing world. In Nepal, low-income families, who represent roughly more than 31 percent of the population (World Bank Report 2007), which live below the poverty line and 59 percent (World Bank Report 2007) with low or irregular income, had virtually no access to loans through the formal mortgage sector. Commercial banks and the other mortgage lenders prefer to focus on the middle-and upper-income segments due to the perceived risks when funding low-income clients who generally have no collateral to guarantee loans. From a public policy perspective, there exists a huge gap in low-cost housing because current government policies encourage the investment in real estate development targeting middle and upper class families. Migration and urban growth have resulted in a shortage of adequate housing in towns and cities, crowded living spaces and the growth of sub-standard housing. According to government data, nearly 430,000 families live in sub-standard housing in Nepal. The gap between the supply and demand of decent and affordable housing in Nepal is wide. In a rough estimation, about 70,000 new homes per year would need to be built to close the housing gap in Nepal. Understanding the issues from various perspectives, HFH Nepal realizes that developing low-income housing credit represents a missing link to satisfy the basic shelter needs of the poor. Housing Micro-Finance (HMF) programs features prominently among organizations that address the shelter needs of the urban and rural poor in Nepal. In 2005 HFH Nepal pioneered a Save and Build approach that offers housing finance to those who would otherwise not get a loan. Save and Build brings together low-income families in a community to form saving groups to save funds and materials to repair, renovate or build new homes. No collateral is needed and very simple documentation is required, which addresses some of the usual barriers that the poor face in accessing financing. Save and Build offers a flexible loan payment structure and construction process. Ultimately, this methodology supports holistic, sustainable community development, through house ownership. The impact of HFHI Nepal’s Save and Build program attracted the attention of the United Nations agency, UN-Habitat who was looking for partners for its pilot project, to break the poverty cycle by providing small housing loans to the urban poor such as slum dwellers in Nepal and five other countries. The landmark US$5 million Experimental Reimbursable Seeding Operations and other innovative mechanism (UN-ERSO) project provides loans of up to US$500,000. The Save and Build model with its incremental approach is seen as a way forward. “Housing is a process and if we help people take the first step, they will be on their way to acquire house.” - Aruna Paul Simittrarachchi, Country Representative, Habitat for Humanity International, at the signing ceremony of UN-ERSO at Nairobi April 2009. HFH Nepal is tying up with 11local NGOs and microfinance institutions in seven districts to build new decent and affordable homes for slum dwellers in the capital Kathmandu, Chitwan district, Biratnagar city, Dharan city, Itahari city, Jhapa district, Ilam district. Lasting three years, these projects are set to benefit over 1,700 families. Construction on the new homes, incremental construction and renovations are scheduled to begin in mid-2009 in four urban slums. Habitat’s Save and Build programs will be implemented under the pilot UN-HABITAT initiative. This calls for potential Habitat home partners, who are saving with cooperatives under the local NGO partners, to each contribute half of the house construction cost and also their own construction materials and labor to build their houses. The remaining sum will be provided for by the UN-HABITAT loan administered by HFH Nepal and funds from Habitat for Humanity International. HFH Nepal’s role includes managing the UN-HABITAT loan, coordinate the activities of local partners, and liaise with the government over land issues and championing for decent and affordable housing with the government. In the case of family selection, HFH Nepal is developing criteria in accordance with the income categories outlined by the Central Bank of Nepal. The pilot UN-HABITAT initiative enables HFH Nepal, which works in both rural and urban areas, to reach more families in urban and semi-urban areas. The projects will also pave the way for new partnerships with the local governments. Through its learning experiences, Habitat has found that housing microfinance not only increases the earning and saving capacity of the people but also addresses the need of sustainable livelihood. This initiative in developing and scaling up housing solutions for lower income and poor segments will add bricks to housing micro-finance. However there is a need of active and dynamic participation of several public and private actors, including special government bodies, e.g., Ministry of Housing, Special Housing Funds, local governments (municipalities that set the standards for construction and urbanization), real estate developers and construction companies, utility companies (water, electricity), financial institutions, NGOs and other lenders, capital markets, regulating and supervisory bodies land titling bodies, and, the home owner. The UN-ERSOO housing microfinance program is a win-win situation for all those involved. HFH Nepal with its Save and Build program will serve as a launching pad for a long-term sustainable housing program that will significantly scale up the provision of decent housing for the poor. The UN-ERSO partnership will also open doors to many more such funding agencies that HFH Nepal could partner. HFH Nepal would like to acknowledge the honor and trust placed on it by UN-Habitat to break the cycle of poverty by building homes and empowering communities.
- Amrita Sharma Suvedi