Housing microfinance consists of small, nonmortgage-backed microfinance loans offered in succession to support the existing incremental building practices of low-income populations. While similar to the microenterprise loan, housing microfinance typically has some important distinctions. Housing microfinance involves larger investment amounts and therefore requires longer terms and a closer association with a need for savings. Adding to that complexity are the implications of land tenure and safe and durable construction methodologies. Housing microfinance, though, can be closely tailored to the construction practices and land formalization of the poor, who usually acquire property and shelter in incremental stages. And housing microfinance can be accompanied by housing support services such as budgeting, construction assistance, or guidance on good building practices. Since the target customers for these incremental finance products generally participate in the informal economy and do not have steady and verifiable income, additional analysis is used to evaluate the creditworthiness of a potential borrower.

Housing microfinance products also allow for alternative collateral, thus breaking the barrier established by mortgage loans, which require land title as collateral. Housing microfinance shows promise, both as a nimble tool to address substandard housing and as a viable product diversification opportunity for financial institutions serving low-income populations. T his Shelter Report makes the case for applying the principles that made enterprise microfinance successful to housing. Given that efforts to provide new housing in the developing world are limited, and that existing bankers and lenders rarely serve lower-income people, we need to encourage market solutions such as housing microfinance to support high-quality incremental building. Housing microfinance (including savings, credit, remittances and insurance services), bundled with basic housing support services, can lead to scalable, replicable and sustainable solutions to the problem of poverty housing.