Microfinance : a strategy for facilitating low cost housing in Nigeria

Providing financing options for low income earners is one of the most complex challenges faced by developing countries worldwide. Low income earners require finance to meet their basic needs one of which includes housing. However, in developing countries, this remains a critical issue and many households struggle with obtaining finance for housing purposes. Nigeria is no exception and has over the years grappled with huge housing deficit with the situation going from bad to worse and the continuous and rapidly growing population in Nigeria requires an additional one million housing units per year to reduce the housing deficit in order to avert a housing crisis in the country. One way which has been identified over the years to overcome this housing deficit is by scaling up innovative products like housing microfinance, which have been successfully adopted by other countries with similar macroeconomic indices. These countries have been seen to recognise the role and importance of microfinance and though Nigeria’s financial sector is more developed and diversified compared to many other countries in Sub-Saharan Africa, its microfinance sector is still at an infant stage with very few operators of significant scale. Nigeria despite having over 900 microfinance banks spread across the country, has only 7 national banks which have been identified as having the capacity to provide finance for housing specific activities. This therefore means that the vast potential of housing microfinance to be used as an avenue to facilitate housing is still not being explored and very little emphasis has been placed on the role which microfinance institutions can play in achieving this objective therefore, housing microfinance still exists on a very small scale. The research adopts a case study approach to explore the perspectives of stakeholders involved in the provision of housing microfinance so as to gain an in-depth understanding of their perceptions, opinions and experiences in the research area with the aim of identifying the problems and challenges militating against the scaling up of housing microfinance. An extensive review of literature on the challenges microfinance banks face that deter them from scaling up their housing finance portfolio was done, with the research focusing on the providers of housing microfinance in the form of some identified stakeholders. This research identified the factors mitigating against the expansion of housing microfinance and identified the critical success factors necessary to achieve scale. Content Analysis and descriptive analysis was used to expatiate the most crucial factors that deter microfinance banks from scaling up their housing portfolio and the results obtained identified constraints related to three main variables namely Government Policies, Bank Processes and Public perception. It is recommended that the government implement policies that recognises incremental building through housing microfinance as the option available to low income earners to finance their housing needs and design a housing policy that will recognise this. This will in turn reflect on the processes the banks go through in processing housing loans and influence the perception that the general public have towards housing microfinance. This will enable microfinance banks to scale up their housing finance portfolio and reduce operational cost for the banks thereby translating into lower interest rates being charged and more low income earners being offered housing loans