From shacks in the shanty towns of Lima, Peru, to tin-roofed mud huts in the slums of Gujarat, India, insecurity of tenure and uneven income streams force the poor to build their homes tentatively, one wall at a time. Yet the poor lack access to financial institutions and financial products tailored to the way they build. This, despite the fact that in so many developing cities around the world a majority of the population lives in slums—60 percent of Nairobi’s population, 82 percent of Lima’s population—and that most housing is built informally and progressively. The Cities Alliance launched the Shelter Finance for the Poor Initiative to focus on the still nascent practice of financial institutions providing housing finance to poor clients on commercially viable terms. These loans are distinct from mortgages in that they are typically not for the purchase or construction of new units, but rather for home improvement and progressive building.

They are being offered as a new product line largely by a generation of microfinance institutions that built their success on providing working capital loans to the urban poor, and are now looking to expand and diversify their products. To date, few of these experiences had been viewed through the prism of scale and sustainability. This is the framework applied to five case studies examined under this initiative: Mibanco in Peru, SEWA in India, FUNHAVI in Mexico; a wholesale fund facility in Ecuador, and the enabling environment for shelter finance in Kenya. This synthesis paper identifies emerging policy recommendations on taking housing finance for the poor to scale. The objective of the Series is to look at shelter financing in practice through the prism of scale, sustainability, and outreach to the poor, and learn about best ways to encourage and promote this emerging practice. This paper makes three central points: I) There is strong demand from poor people for housing finance services tailored to the way they build. II) Lessons are emerging in large part from microfinance institutions building on earlier successes with working capital loans, and innovating with new housing loan products. III) The large potential for achieving scale and sustainability can be realized if financial institutions, governments, and donor agencies work in concert.