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Making microfinance work in housing products

The house that Kdan, Huch and their family used to live in stands next to their new house – it is a small wooden structure, now used as a kitchen and for animal storage.

1 October 2014

Kdan and Huch live with their three children and three grandchildren in the rural village of Preak Raing, Cambodia. They recently received a US$7,000 housing loan from local microfinance institution Hattha Kaksekar Limited (HKL) to build a safe, decent and affordable home. In addition, HKL provided technical construction assistance from a civil engineer. All of this was made possible through HKL’s partnership with Habitat for Humanity – providing an injection of capital and the non-financial assistance.

While microfinance has shown great success, lending products are predominantly designed for micro enterprise rather than home construction or improvement – despite the high demand for housing finance products. HKL President and CEO, Hout Leng Tong: ‘When the economic situation of a family improves, their first priority is to improve their shelter conditions. Despite having a plan of what they want to do, many need the support of a bank or other financial institution in order to secure the required funds.’ Habitat for Humanity supports microfinance institutions in developing housing products, in its capacity as a shelter expert and with funds from its MicroBuild Fund .

HKL provides housing finance as a social product for low-income families, allowing them to improve their lives and contributing to the development of Cambodia. Habitat for Humanity’s Center

for Innovation in Shelter and Finance (CISF) is working with HKL to support development of housing microfinance products and non-financial services. HKL has run a three-month pilot and disbursed 222 loans totalling US$1.7 million in five branches to date. Tong elaborates: ‘HKL has taken this opportunity to develop a housing finance product that fits the needs of low-income families. It is also a way to contribute to the development of Cambodia; housing finance is like a social product we provide our customers, allowing them improve their lives with decent, affordable homes.’

As the industry moves beyond microenterprise and markets become increasingly competitive, housing microfinance is a compelling business opportunity. ‘Cambodia’s construction sector is growing fast compared to other emerging sectors. The country is developing rapidly’, said Tong.

Kdan and Huch received enough from HKL to build a decent home, plus civil engineering assistance. This is not the norm in the Asia-Pacific region.Kdan and Huch have plans to lay a concrete floor and build a balcony to incrementally advance their new home.Huch: ‘Without a loan we wouldn’t have been able to build our house. Now we are happy. We have the opportunity to marry our children now that the house is complete.’

Photo credits: Tim Mason

Category: Payday loans

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