BOOM! housing (a case for housing loans)
By Cameron Morris KF8, Mozambique
Kiva is the world’s first person-to-person micro-lending website, empowering individuals to lend directly to unique entrepreneurs around the globe, right? Well, yes and no. Although that text is lifted directly from the about us section of Kiva’s website it doesn’t tell the complete story. If your zeal for Kiva has lead you to spend late nights combing through Kiva loans you may have also noticed loans for housing, education, and personal use. Alas, how is building a home, going to school or buying a refrigerator an entrepreneurial activity. None of these activities are inherently entrepreneurial, but they are all deeply connected to Kiva’s umbrelic mission to connect people through lending for the sake of alleviating poverty. Let me tell you a few things you may not know about the housing market.
You may be thinking “housing, didn’t the housing market recently cause my 401k to hit the toilet and push my retirement back another 10 years?”. If these are your thoughts my condolences go out to you. The subprime crisis in the US housing market was a low point for responsible lending and showed that some of the US’s biggest mortgage brokers design poorer loan products and do a worse job of managing their risk than the majority of the MFIs Kiva works with. So what does a home loan product look like at an MFI in a developing country? In Mozambique it looks like 50% interest on the declining balance of a MT 20 K (USD $750) loan over 16 months. When you’re done with that you will probably take out 3 or 4 more identical loans before your project is concluded. So you’re looking at $2250 + $858 = $3108 to buy a piece of land, purchase construction materials and build your home.
$2250 with 50% interest. If you’re sitting in Surprise, Arizona with a $400k tract home and a 0% variable-rate mortgage that probably seems both extremely cheap and prohibitively expensive. What’s the reality of the situation? The reality is that every client (100%) that I’ve talked to in Mozambique finds these interest rates very affordable and that home construction is booming. When I say home construction I don’t mean 3 bedroom, 2 bath, kitchen, living room, pool in the backyard and manicured front lawn. I mean simple – one to two bedrooms with a living room, external kitchen and outhouse (all made of cement blocks). This is a vast improvement from the simple huts of mud, crushed rocks, and corrugated metal roofs that most Mozambicans were living in 10 years ago (see visuals in video below). This is one of the most tangible forms of development that I’ve ever seen. When economists toss around metrics like GDP growth and human development indicators a lot of these concepts are abstract and not tangible. Seeing sturdy concrete homes sprouting up like wild flowers in the Rocky Mountains is very visible and real. The housing boom in Mozambique is primarily being financed by microcredit. In 2008 Hluvuku-Adsema disbursed 1470 housing loans, accounting for 44% of their total disbursed loans. Around 120 of these loans were funded by Kiva lenders!
In promoting home construction Hluvuku has encountered unique cultural issues and taboos. Before the Mozambican civil war ended it was thought that if you lived in a home made of conventional materials you would die an early death*. After the war refugees returning from neighboring countries, having seen the way that other people live, began to dispel this belief and started building homes. 14 years later housing is booming. Here is a short video with further information and insight about the housing market and boom in Mozambique.
Update: *This myth was originally propagated by Portuguese colonizers and further fomented by the white South African and Rhodesian financiers of the civil war opposition as a way to discourage proper development amongst the indigenous populations. (source: conversations I’ve had with people at my MFI)
Cameron Morris is a member of KF8 working with Hluvuku-Adsema in rural southern Mozambique. He enjoys attending Mozambican weddings, eating Mozambican seafood and playing hide-and-seek in the Maputo Elephant Reserve. To learn more about Hluvuku-Adsema join their lending team here.