SPECIAL REPORT: Why Microfinance Institutions Offer Unprofitable Housing Loans

On November 14, the closing day of the European Microfinance Platform’s (e-MFP’s) European Microfinance Week, Wilson Twamuhabwa, CEO of Uganda’s Ugafode Microfinance Limited, explained that his organization began to offer housing loan products partly because its clients were using 30 percent of their loans for housing anyway. Suresh Krishna, the managing director of Indian microlender Grameen Financial Services Private Limited (often referred to by the name of its subsidiary Grameen Koota), said that: “Once clients trust you with a service; they ask for more things. This has often been [related to] housing: a roof, a toilet, wall repair.”

While Mr Twamuhabwa and Mr Krishna noted that their housing loans carry annual interest rates of 24 percent and 22 percent, respectively, Renan Marques of Honduran microlender Cooperativa de Ahorro y Credito Intibuca (CACIL) jolted the crowd by divulging the 8 percent rate CACIL offers. This steep difference is possible because CACIL lends from its customers’ deposits rather than wholesale commercial loans. CACIL pays interest of 2.2 percent on deposits denominated in US dollars.

The discussion of interest rates led to a discussion of profitability, and all of the presenters stated that their housing loans were not directly profitable. Mr Twamuhabwa said that his institution considers offering housing loans to be part of its social mission. Mr Krishna argued that improving his clients’ housing situations improved the odds that the clients would be able to repay their other loans, due to factors such as improved health.

This content is sponsored by e-MFP, the organizers of European Microfinance Week. It is one in a series of articles covering the proceedings of the event, which took place in Luxembourg from November 12 to November 14. MicroCapital reported on the sessions onsite throughout this time.

Additional Sources and Resources:

MicroCapital Special Report; November 14, 2013; Overcoming Barriers to Agricultural Microfinance

MicroCapital Special Report; November 14, 2013; Women Microfinance Clients Often Save More, Are More Loyal to Lenders

MicroCapital Special Report; November 13, 2013; Michael Chu: “Disrupt this Old Model to Unlock the Potential of Microfinance”

MicroCapital Special Report; November 12, 2013; “Making Microfinance Investment Responsible” Group Wrestles with Inconsistent Data Reporting at European Microfinance Week

MicroCapital Special Report; November 12, 2013; Youth Financial Inclusion Group Tackles Business Training, Scaling-up, Dormant Accounts, Program Indicators, Self-sufficiency at European Microfinance Week

Microfinance Event; September 24, 2013; European Microfinance Platform (e-MFP) to Host European Microfinance Week 2013, Luxembourg, November 12-14, 2013, With On-site Coverage Provided by MicroCapital

MicroCapital Special Report; November 15, 2012; Sanjay Sinha of M-CRIL Calls Overexuberant Growth “Recipe for Disaster” at European Microfinance Week Opening

MicroCapital Universe Profile: European Microfinance Platform (e-MFP)

MicroCapital Universe Profile: Grameen Koota

MicroCapital Universe Profile: Ugafode Microfinance

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