International Journal of Housing Markets and AnalysisAccess to housing finance by the urban poor: The case of WAT-SACCOS in Dar es Salaam,TanzaniaAlphonce Kyessi Germain Furaha
Article information:To cite this document:Alphonce Kyessi Germain Furaha, (2010),"Access to housing finance by the urban poor", InternationalJournal of Housing Markets and Analysis, Vol. 3 Iss 3 pp. 182 - 202Permanent link to this document:http://dx.doi.org/10.1108/17538271011063861
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International Journal of HousingMarkets and AnalysisVol. 3 No. 3, 2010pp. 182-202# Emerald Group Publishing Limited1753-8270DOI 10.1108/17538271011063861
Received 2 February 2010Accepted 5 May 2010
Access to housing financeby the urban poor
The case of WAT-SACCOSin Dar es Salaam, Tanzania
Alphonce KyessiInstitute of Human Settlements Studies, Ardhi University,
Dar es Salaam, Tanzania, and
Germain FurahaSchool of Urban and Regional Planning, Ardhi University,
Dar es Salaam, Tanzania
Abstract
Purpose – Any attempt to improve housing quality goes concurrently with improvement of incomelevel and with economic development. The purpose of this paper is to assess the viability ofmicrofinance institutions (MFIs) in financing housing improvement for the urban poor.Design/methodology/approach – In order to understand in great depth the viability of MFIs inhousing finance for the urban poor in Tanzania, the case study strategy was applied, with five sub-cases, which form the smallest unit of analysis.Findings – Most housing financing initiatives carried out by governments and large financialinstitutions often end up benefiting the high/middle income segment. Administrative procedures,terms and conditions set up by the government and banking institutions exclude the poor due to theirlow affordability levels. As the poor cannot meet the set stringent conditions; the MFIs that aregrowing in numbers in Tanzania and other developing countries have been their alternative strategyfor housing finance.Research limitations/implications – Close linkage exists between the housing loans, housingimprovement and poverty alleviation among the urban poor in informal housing settlement.Practical implications – WAT-SACCOS, a housing MFI, has devised a repayment schedule, whichis viable, compatible and affordable for the poor. These types of institutions can be used asintermediaries between large financial institutions, including commercial banks and the poor, tomake it easier for the latter to access housing loans. Public-private and popular partnerships facilitatethe availability of financial services for the urban poor.Originality/value – The paper adds to the literature in that, whilst housing issues should continueto be at the top of development and political agenda, housing MFI assists in ensuring that the poorget access to housing, which is regarded as a poverty reduction asset.
Keywords Housing, Loans, Property finance, Poverty, Tanzania
Paper type Research paper
1. IntroductionHousing is considered as a key determinant of quality of life that can be measured atindividual, household and community levels and human rights in the cycle of humanlife (Magigi and Majani, 2006). It should be noted that poor urban housing conditionsreflect clearly income status of the owner and any attempts to improve housing qualitygoes concurrently with improvement of income level and with economic development(World Bank, 1993).
Most of the housing financing initiatives undertaken by governments of third worldcountries and large financial institutions often end up benefiting high and middleincome earners. This is supported by Vuyisani (2001) who argues that currentinitiatives in Ghana, Zambia and South Africa do not work for the low income earners.
The current issue and full text archive of this journal is available atwww.emeraldinsight.com/1753-8270.htm
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In Ghana for instance, the conventional mortgage lender is limited in its liability toserve low income people as they need small loans for incremental housing which areunprofitable. The Zambian housing finance focuses on the relatively ‘‘easy pickings’’ ofoffering mortgage to high net worth individuals, and automatically exclude the lowincome groups who are the majority of the population. Formal banking sector in SouthAfrica as other developing countries still finds it too risky to act in the market for lowincome groups, despite the concerted government efforts in solving housing problems.
Large financial institutions in developing countries including Tanzania oftenmarginalize the poor in various housing credit initiatives. For instance, the first everhousing bank in Tanzania which collapsed in 1995 did not address the poor. The sameapplies to other large financial institutions which exclude the low income group insociety claiming that they are incompatible with the banking requirements. Lugalla(1995) highlights that administrative procedures, terms and conditions set up bygovernment and banking institutions in Tanzania exclude the poor due to their lowaffordability levels. They poor cannot meet the set stringent conditions. The alternativeto the poor has now been the microfinance institutions (MFIs) that are growing innumbers in developing countries (Germain 2008).
Housing MFIs are those institutions granting housing loans for renovation orexpansion of an existing home, or construction of a new home, or land acquisition andinstallation of basic infrastructure and services (UN-Habitat, 2002a, b; UN-Habitat,2005). According to a study conducted in 2000 by the Center of Urban Development ofHarvard University, it was revealed that MFIs differ into housing products that theyprovide to poor people. These products are flexible loans, housing improvement orrepair loan, new housing construction loan, land acquisition loan and finallyinfrastructure provision loan.
In the last two decades, a number of financial institutions, non-governmentalorganizations and community-based organizations have emerged with innovative andsuccessful approaches to housing problems and sustainable development as a responseto unmet housing demands of low income people (Shelter Forum, 2000). Severalexamples from different countries exist that point to the high dependency of the poorupon non-mortgaged sources of housing finance. The characteristic of theseinstitutions is that they provide small scale lending for housing improvement,infrastructure installation and construction of new housing units, which fit to theneeds of low income people for their incremental building and housing improvement(UN-Habitat, 2005).
This paper presents an assessment of the viability of MFI in financing housingimprovement for the urban poor in Tanzania. The paper goes on analysing how theurban poor have accessed housing loans and its impact on poverty reduction. Thepaper tries to answer the following questions:
(1) Why housing MFIs are operating for low income earners?
(2) Are housing MFIs capable of handling housing needs of the urban poor?
(3) What are the implications of the research findings on existing policies onhousing development?
2. MethodologyData and information used in this paper were collected from Hanna Nassif, one of thelargest informal settlements in Dar es Salaam city. The process followed involvedreviewing relevant literature; carrying out interviews with key informants such as
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officers from NGOs; interviewing households and loan beneficiaries; and, makingphysical observations, photographing, mapping and sketching the improved houses. Inorder to understand in great depth the viability of MFIs in housing finance for theurban poor in Tanzania, the case study strategy was applied whereby four sub-casesdiscussed in this paper form the smallest unit of analysis.
3. Theoretical and conceptual frameworksTwo theories may be applied to explain the issues pertaining to MFIs.
Organization theory is a modern theory of the firm which states that the goals andactivities of a firm are the results of its organizational structure. The theory calls for theunderstanding of the organization characteristic, which include structure, membership,leadership committee, members’ qualification, style of decision-making process appliedand how the organization ensures members commitment to the organization. Always theorganization structure is designed to ensure the purpose of the organization. Also,organization is a continuous process, where it refers to identification and classification ofrequired activities, and grouping of activities necessary to achieve some objectives. Thequestion raised here is how these housing MFIs are organized and to supervisesustainably their loan delivery programme? Since the organizational structure isdesigned to ensure the purpose of the organization, then it is very important to observe ifthe organization structure suits the purpose of the housing MFI. Also, since organizationis a continuous process, then re-organization is expected when necessary so as toimprove the managerial performance of the institution.
Social network theory looks at the behaviour through relation between actors such asorganizations, individuals, government, and land lords and the community. The theoryacknowledges the fact that in order to facilitate long-term behavioural change orenabling environment, one major aspect of developing supportive environment iscreating linkage between and among people, which allows information flow andlearning to occur across social networks. Spellerberg (2001) argues that social capitalrefers to relationship among actors that creates capacity to act for mutual benefits or acommon purpose. Social capital is the social resource that is embodied in the relationshipbetween people. It resides in and stems from the contact communication, sharing,cooperation and trust that inherent in ongoing relationships. This paper therefore looksinto the viability of housing MFIs financing housing needs for the urban poor. It alsolooks into how the local communities use their social capital in accessing loans from theMFIs such as WAT-SACCOS. Within this theory, all beneficiaries of the loans areexpected to work together in a coordinated manner so as to archive the intended goal.Social cohesion among the actors involved in housing development, especially among thesmall solidarity groups is one of the most important factors. Thus, social cohesion canonly be possible if there is good communication among all actors, the sharing ofinformation and ideas as well as instituting trust among each other. The questionsrequiring answers is: first, how social networks help to increase loan servicing? Second,how WAT-SACCOS is bringing together the Hanna Nassif community through the socialnetwork theory?
3.1 Conceptualizing housing MFIsIn order to assess the viability of MFIs in financing housing improvement for the urbanpoor, four variables have been identified. These include housing loan products, legalaspects, institutional factors and repayment factors (see Figure 1).
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The ensuing section presents the results and discussions of the findings from the caseof WAT-SACCOS and its sub-cases.
4. Results and discussions4.1 Microfinance institutions for housing in TanzaniaA survey undertaken by the Bank of Tanzania in 2005 updated the directory of MFIs inthe country and revealed that there are 1,899 MFIs which present a potentialopportunity that can be tapped for the housing products for the low and middle incomemajority. Based on their experience and use of the same infrastructure for dealing withloans for micro enterprises, some MFIs are willing to establish housing microfinanceprogrammes for the target market group. Currently, micro-finance services areprovided by various institutions in Tanzania which may be identified as follows:
. non-governmental organization MFIs;
. government and public sector-sponsored MFIs;
. Savings and Credit Cooperative Societies (SACCOS); and
. large formal financial institutions that offer micro credit services.
In addition, there are housing cooperatives offering micro-finance services which aregrouped into three main categories:
(1) housing cooperatives registered under the Cooperative Societies Act;
(2) cooperative-like organizations, i.e. those embracing the basic cooperativeprinciples and practices without being registered under the CooperativeSocieties Act; and
(3) community-based organizations also operating as housing cooperatives.
The microfinance industry in Tanzania is still young and it is estimated that all MFIsput together serve a combined client population of about 400,000 which is only about5 per cent of the total estimated demand (Kironde, 2006). Commercial banks includingcommunity banks account for another 50,000 client population while MFIs account foran estimated client population of 220,000 who are mostly urban poor or low income
Figure 1.Conceptualizing housingmicrofinance institutions
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earners. Although the majority of the MFIs are promoting economic development andsocial welfare especially among economically active urban poor, a dozen of them haveextended provisions for access to services such as housing, education and health(Kironde, 2006).
4.2 The WAT-Human Settlements TrustWAT-Human Settlements Trust (WAT) is a national, non-governmental, non-partisanand non-profit making organization established on 28 July 1989 and registered on 24October 1989. The name was changed from Women Advancement Trust (WAT) to WAT-Human Settlements Trust in 2005 by the Board of Trustees of the NGO as the first nameportrayed that the organization was for women only. WAT-Human Settlement Trustoverall goal is to empower low and middle income communities particularly women toparticipate fully and effectively in all aspects of human settlement development. Herprogrammes focus on gender, affordability and secure tenure for low and middle incomecommunities for the purpose of improved livelihoods. The vision of WAT is to see asociety living in improved human settlements as a result of her activities in low andmiddle income areas by 2025. Its mission statement is to promote adequate andaffordable shelter tenure of low and middle income earners particularly women:community mobilization and sensitization, awareness creation, empowering individuals,housing groups and cooperatives, capacity building through provision of technicalsupport and lobbying and advocacy. Figure 2 displays in full the organization structureof the WAT-Human Settlements Trust.
WAT is composed of a board of trustees and two board sub-committees. The boardof trustees, the directing body, appoints members of its sub-committees and developsgeneral policies. It approves yearly work plans and budget, audited accounts. It also
Figure 2.WAT-Human SettlementsTrust organizationstructure
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monitors implementations of activities through quarterly and annual reports preparedby WAT staff. The board also appoints and supports and assesses performance of thechief executive who is the secretary of the board. The management team consists of thechief executive and heads of units. The structure shows the various units and theirinter-link with the SACCOS. Its core programmes and their related projects are
. Administration and Finance Unit;
. Information, Communication, Advocacy and Lobbying Unit; and
. Housing Development Unit with three sub-units: housing groups, housingfinance/SACCOS and women groups/informal settlements.
4.3 WAT-SACCOS, a micro-credit institutionIn 1997, a Savings and Credit Co-operative Society (WAT-SACCOS) was establishedwith the objective of, inter alia, promoting a sustainable self-help financial solution forits members, that effectively improves their living conditions; and linking savings andcredits for income generation and housing development. WAT-SACCOS is structuredusing a social, rather than business approach to savings and credit by establishing aShelter Loan Revolving Fund. The WAT-SACCOS members use the profits to upgradetheir houses by transferring the savings account to the Shelter Revolving Fund withthe objective of facilitating loan accessibility. Savings that a borrower makes to theSACCOS are used as evidence of one’s saving discipline and her/his economiccapability. It should be noted that the SACCOS is used as a vehicle for facilitatinghousing loan repayment, but not as a source of fund for housing development. TheShelter Revolving Fund is a special fund established in 2004 by the organization forhousing development of low and middle income earners.
The fund started with an amount of Tanzanian Shillings (TShs) 30 million from itsinternational funding partner NBBL, Rooftops Canada, which was used to assist itshousing groups that had set up the WAT-SACCOS. Currently, WAT-SACCOS has TShs. 40million in share capital and has paid out TShs. 39 million in housing loans. Some tangibleoutputs of housing loan products are found in Hanna Nassif, one of the largest and oldestinformal settlements in Dar es Salaam city where the study was conducted (see Figure 3).
4.3.1 Housing loan products. WAT-SACCOS offers three housing loan products to itsbeneficiaries which are housing improvement, housing construction and landacquisition. By May 2008, a total of 60 housing loans had been issued, which weredivided into 22 loans for housing upgrading, 20 for housing construction and 18 loansfor land acquisition (see Table I). Housing upgrading was done in Hanna Nassif whileland acquisition and house construction were done in the peri-urban of Dar es Salaamthat include Chamazi, Toangoma, Buyuni, Mivunoni, Mwanagati and Magowe.
A borrower joins a local saving group and becomes an active member by havinggood record on saving discipline at least for three months. Membership is voluntarybut requires a purchase of one share. Monthly saving is set and agreed upon by thegroup as a whole which is determined by the saving capacity of each individualmember; the minimum saved by each group member is TShs. 15,000 and the maximumis TShs. 50,000. This is supported by an economic saying slogan that stipulates that:‘‘saving is service of income and saving comes from income’’. This forms the basis forWAT-SACCOS to decide whether each member of the group can service a minimumloan of TShs. 200,000 per year. So far loan disbursement ranges between TShs. 150,000and 3,000,000 margins in all the three housing loan products offered by theorganization. The lending model is based on the following characteristics: a member
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must save for three months; to obtain a loan, two guarantors are required who must beWAT-SACCOS members; and many members borrow 25 per cent of the amount saved.The repayment period of equal installments is 18 months with a monthly interest rateof 1.5 per cent on the outstanding loan balance.
Figure 3.Location of Hanna Nassifin Dar es Salaam city
Table I.Housing loan products
S/N Housing products Loans
(1) Housing upgrading/improvement 22(2) Housing construction 20(3) Land acquisition 18
Total 60
Source: Germain (2008)
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WAT-SACCOS organizes a number of workshops for awareness creation to preparethe loan beneficiaries on her lending policy, advantages and benefits derived fromsaving and housing construction and upgrading. Technical assistance provided to loanbeneficiaries include training on savings vs loans, the solidarity group concept, recordkeeping, eligibility, building design, affordability issues and budgeting. Onaffordability WAT-SACCOS officials advise loan beneficiaries to start a housing projectthat they would finish. Borrowers are trained before, during and after the loan is givenout. The borrower income or saving capacity determines the repayment arrangements.If someone is capable of saving TShs. 20,000 per month, it means she or he can servicethe same amount on a monthly basis. In order to attain the organization’s vision ofseeing a society that lives in improved human settlements as a result of its activities inlow and middle income neighbourhoods by 2025, WAT-SACCOS, the interest rates arecalibrated in a declining trend.
The housing finance officer and other colleagues from WAT-SACCOS pay regularvisits at the borrowers’ project sites. This close collaboration and supervision helps inensuring the projects are implemented and in timely repayment. For a period of threeyears, WAT-SACCOS had earned and received interest amounting to TShs. 10,901,048.In 2005, the organization managed to disburse loans to different housing groups asfollows:
. Nala Makazi housing group: TShs. 3,235,367;
. Makazi Bora housing: TShs. 10,685,000;
. Mkuhana housing upgrading: TShs. 2,237,290; and
. Individuals: TShs. 2,804,000
Total amount disbursed: TShs. 15,726,290For tracing repayment records and for the sake of this study, Mkuhana Housing
Group has been selected for in-depth study on WAT housing loan repayment(see Table II). 2005 was the first year of loan disbursement to the group. Borrowersserviced their loan on time and according to financial records of 2006 every one repaidthe 2005 loan which made the repayment to be 98.6 per cent. The default rate of 1.4 percent was due to unavoidable circumstances like a sickness or late repayment of few days.
According to the WAT Annual Report of 2005, the organization succeeded to make afollow up on loans as disbursed for all housing products i.e. Land acquisition, housingconstruction and housing upgrading where a total of TShs. 26,382,520 was collectedfrom its different groups i.e.: Magohe housing cooperative, Makazi Bora Housing Group,NalaMakazi and Mkuhana. According the organization, the repayment stood at 67 percent which was promising as compared to 33 per cent of late repayment and defaults.
In 2006 the organization disbursed loans worth TShs. 8,394,000 for housingconstruction and upgrading projects and TShs. 3,394,000 were allocated to upgrading
Table II.Loan repayment records
of Mkuhana members
S/N Item Amount in TShs. (%)
(1) Loan disbursed 2,237,290 100(2) Loan repaid 880,000 39(3) Balance 1,357,290 61
Source: Germain (2008)
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programme particularly in Hanna Nassif. In the following year, 2007, a total amount ofTShs. 32,157,861 was disbursed for the period of January to December for landacquisition, housing construction, housing upgrading and training activities. It wasreported that 27 per cent of the total amounts have been recovered, 3.83 per cent ofloans are in arrears and 69 per cent of loans are outstanding. From the total amountdisbursed in 2007, TShs 5,860,000 was primarily allocated to housing improvement.Table III highlights loans disbursed to Mkuhana housing upgrading group members inHanna Nassif. It should be noted that the loan is repayable in a period of 12 months andthis explains why the outstanding rate is very high compared to other previous years.The borrowers access loan at different time of the year and therefore their repaymentschedules are different. Currently, WAT accounts for 240 active members and morethan 80 per cent of its members are women. The following section concerns somehouses which were improved using the loan from WAT-SACCOS.
4.3.2 Presentation of sub-cases. Sub-case 1: Kenneth. Since 1970s the house was ofSwahili type, built in mud and wattle, there was no floor material, the structuralcondition was fair and roofed with old rusted corrugated iron sheets. The main housedesign was of four rooms with a pit latrine and a kitchen as shown in the Figure 4.In the same plot there were two other buildings of two rooms each with the sameconditions and building materials. His household size had six people with no tenants.Kenneth rebuilt or renovated his house while occupying the original house, as shown inPlate 1.
The first micro loan of TShs. 200,000 was used to renovate a wall at a time whileliving in the old house; commonly known in Swahili as ‘‘kujenga humo kwa humo’’. Afterfirst renovations, he secured a second loan of TShs. 400, 000 in 2006. The third loan ofTShs. 1,000,000 was secured early in 2007 which he serviced within two months and atthe end of the same year he obtained another loan of TShs. 600,000. However, the fourloans secured from WAT amounted to TShs. 2,200,000 were not enough to complete thehousing renovations. To continue with the renovation process, he rented in tenants whopaid rentals in advance so that he could finish the renovation process before they couldoccupy their rooms. There were three rooms to rent separate from the main house whichunderwent renovations at the same time. He received TShs. 720,000 as rentals. Hesupplemented the loans and rentals with his pension and the monthly salary of his wife.In total, the housing improvement has cost him around TShs. 10,000,000.
During the period of the study, it was revealed the renovation process was not yetcomplete and required more funds. An estimate of TShs. 2,300, 000 would be needed. Ithas been noted that Mr Kenneth used rentals from his four rooms and his wife’smonthly salary to service the loan. WAT accepts the repayment according to theborrower’s capacity of saving.
It is observed that Mr Kenneth retired after 40 years of service before constructing ahouse. At retirement period, Mr Kenneth had no tenants due to poor housing
Table III.Loan repayment recordsfor Mkuhana upgradinggroup
S/N Item Amount in TShs. (%)
(1) Loans disbursed 5,860,000 100(2) Loans recovered 3,550,000 60.6(3) Outstanding loans 2,310,000 39.4
Source: Germain (2008)
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Plate 1.Early start of demolition
and upgrading process ofthe main house
Figure 4.Before and after
upgrading the house
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conditions, and then there was no income from the property. Today, he receivesmonthly rentals of TShs. 80,000 for the four rooms occupied by tenants. Themicrofinance loan was small, but without it he could not have thought about housingrenovation. Figure 5 shows that 74 per cent of the total cost was covered by his ownsources. The lessons drawn here is that despite the size of the secured micro loan, itacted as the catalyst for housing upgrading and was the source of the increase inhousehold monthly income, from zero to TShs. 80,000 rental fees. From a Swahili typeof house built of mud and wattle and roofed with rusted corrugated iron sheets to animproved ‘‘modern’’ structure built of cement bricks with new iron sheets (see Plate 2).When asked to comment on the loan from WAT-SACCOS, Mr Kennth said: ‘‘my familyand I have been removed from both housing and income poverty by the micro-loan’’.
Sub-case 2: Mwanaidi. The owner of the house is an entrepreneur and innovativewoman who improved the housing conditions and the income of her household. She hadbeen living in the house since 1970s when her husband bought the plot. The main house,in Plate 3, was a Swahili type of six rooms with an outer separate house of two bed roomsbuilt of mud and wattle, roofed with old corrugated iron sheets (see Plate 3 and Figure 6).Before improving the house one room was rented at TShs. 5,000 per month. At that time,the household had six people, father and mother with four children.
Figure 5.Proportion of financialsources
Plate 2.Current house appearance
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Plate 3.The main house before
renovation
Figure 6.Before and after
upgrading
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The house total cost up to the level it is now, the expenditure was estimated at TShs.3,700,000 but only TShs. 900,000 was borrowed from WAT. When interviewed on loansufficiency, the respondent replied: ‘‘The loan is not enough, but it gives me a challengeto reach the next step so that I can complete the upgrading process. For instance, Ispent the second loan just buying only grilled doors, windows, floor materials andplastering’’. But when asked about her fear and capacity to service the loan, she repliedthat she was willing to take more loans because after upgrading the two separaterooms, she uses rentals to repay the loan. Currently, there are 13 people living in theplot and she is earning 40,000 per month for her rented rooms.
The respondent is one of the famous women entrepreneurs in the settlement. Shegenerates income from her two bed rooms and selling vegetables at a kiosk near herhouse, as shown in Plate 4. The philosophy of WAT-SACCOS is to service the loanaccording to the saving capacity of the borrower or loan beneficiary. The repayment isdone according to the loan given, for the TShs. 200,000, 300,000 and 400,000 therespondent serviced or paid TShs. 20,000, 30,000 and 40,000, respectively.
Figure 7 shows proportion of housing finance sources.More than 30 years, from 1970s to 2005, the household was living in a traditional
Swahili type of house of mud and wattle building materials. Few years before theupgrading, one room was rented for TShs. 5,000. It is just after the access to WAT housingloan, the house has changed and the size is bigger than the former, the roofing materials,design and the heights have changed. One room costs now TShs. 20,000 per month and thehousehold number has increased to 13 members. The loan received from the organizationis too small compared to total expenditure involved in the upgrading process. The otherthing interesting is that all people upgrading their houses use fundi (local masons inSwahili language) and themselves provide guidance as structural engineers.
Sub-case 3: Sikitiko. The owner bought the plot in 1970s. She managed to replaceincrementally her first six room house of mud and wattle to a ‘‘modern’’ house built of
Plate 4.The current house afterupgrading
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cement blocks using a loan from Hanna Nassif Community Development Association(CDA). She used the ‘‘humo kwa humo concept’’, that is constructing house a wall at atime while living in the same house. In other words, the house grew a room after theother. It took her seven years (1996 to 2003) to complete the six bed room Swahili type ofhouse with poor building materials. The upgrading process cost almost TShs. 2,000,000and 80 per cent of the cost came from CDA loan programme. The interesting part of thissub-case is that the respondent used the loan from WAT to construct a new house insteadof upgrading an existing one. The respondent joined Mkuhana and formed a small groupof three people who agreed to save TShs. 15,000 each per month for three months. Thegroup obtained their first loan of TShs. 150,000 each, with which she started theconstruction of a new two bed-room house. The second and the third loans of TShs.200,000 and TShs. 500,000, respectively, facilitated the completion of the house in 2007.The two bed room cost is estimated at TShs. 1,500,000 out of which TShs. 850,000 wasborrowed from WAT-SACCOS. Seven of the eight rooms are used for renting and eachone costs 15,000 per month, giving a total of TShs. 105,000 per month. ‘‘I live in this citydepending on the rental fees that I collect from my improved house. My monthly incomehas increased due to the micro credits without which my urban life would be miserable’’,said the owner.
Different from other sub-cases, the respondent generates income from six bed rooms.Each room cost TShs. 15,000 which amount to 90,000 per month; enough for servicingthe loan. As other borrowers, she repays the loan following the saving discipline.
Figure 8 shows proportion of housing finance sources and Figure 9 is a sketch of ahouse built with a WAT-SACCOS loan.
Figure 7.Proportion of housing
finance sources(sub-case 2)
Figure 8.Proportion of housing
finance sources(sub-case 3)
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The respondent owns two buildings through micro loans from local institutions. Theloans have facilitated her to have homeownership in ten years although incrementally;she collects more than TShs. 100,000 per month or 1,200,000 per annum from the sevenroom rentable. Another lesson drawn from this sub-case is that someone who does notown a dilapidated house for upgrading can start a new housing development project andfinish it through the small loans from WAT-SACCOS (Plate 5).
Sub-case 4: Fatma. As other housing loan beneficiaries in Hanna Nassif, theinterviewee joined the housing upgrading group with the aim of renovating parts of herhouse especially the height of the walls, replacing ceiling board, roofing and painting theinternal parts of the house. In 2005 she obtained a loan of TShs. 200,000 and extended theheights of the wall, but with addition of TShs. 1,000,000 from her own sources. She
Figure 9.Sketch of the house builtwith WAT-SACCOS loan
Plate 5.The houses built/improved with a loanfrom WAT-SACCOS
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borrowed the second loan of TShs. 300,000 and added up an extra TShs. 800,000 forroofing. The third loan of TShs. 400,000 with additional own resources amounting TShs.600,000 was for replacing the ceiling board. Before she borrowed the first loan, one roomfor rental accommodation cost TShs. 7,000 per month but upon completion of upgradingprocess one room is charged TShs. 20,000 per month and there are three rented roomswhich gives a total of TShs. 60,000 per month. Total cost was estimated at TShs.3,300,000 but only TShs. 1,500,000 came from WAT and the rest of the money wasgenerated from informal and own sources. The respondent owns three extra bed-roomswhich generate income for loan servicing. Each month she collects TShs. 60,000 for thethree bed-rooms that enable her to repay the loan and the interest of the lender.
The house in Plate 6 was upgraded by extending the height of the walls, roofing,plastering and painting. Although 55 per cent of the total cost came from her ownsources and only 45 per cent was borrowed from WAT, the beneficiary confirmed thatthe loan gave her confidence to upgrade the house and find other options of raisingother additional funds to complete the renovation work. ‘‘Nilipata ujasiri wa kuendeleana uboreshaji wa makazi yangu, mara tu ya kukopeshwa na WAT, bila shirika hiliwala nisinge thubuti kuboresha nyumba hii’’. The Swahili statement can be translatedas ‘‘I was confident of upgrading my house after receiving a loan from WAT, before thisorganization borrowed me the funds I never thought about housing improvement’’. Thestatement confirms how vital the small loans offered by Women Advancement Trustis, although borrowers meet most of the cost themselves. As other beneficiaries, thehousehold income has improved.
Figure 10 shows proportion of housing finance sources.
4.4 Summary of discussionsWAT and WAT-SACCOS has invested enough resources in mobilizing and creatingcommunity awareness in Hanna Nassif. The study assessed the viability of the organizationfocusing on institutional factors, lending requirement or policy framework, housingproducts and the repayment factors.
Plate 6.The house whose walls
were renovated
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The organization has been operational in the field of human settlement for almost twodecades now, since 1989, handling housing needs for the low and middle income peoplein Tanzania. The study revealed that WAT established the Shelter Loan RevolvingFund after receiving a grant of US$39,000 from its international partners, theNorwegian Federation of Cooperatives Housing Associations (NBBL) and RooftopsCanada. The terms and conditions of the loan are that the interest rate is 1.5 per centper month or 18 per cent per annum. The WAT housing finance department worksclosely with the WAT-SACCOS on loan process. One remarkable factor that attractsvarious housing groups and individuals is the interest rate which is repayable in equalinstallments over a period of 18 months. The interest rate is charged on the outstandingloan balance. In three years (2004-2006) the trust earned and received interestamounting to TShs. 10,901,048. Each WAT unit is headed by qualified personnel whofacilitate and smoothen the execution of the programme.
The organization spends enough resources in building the capacity and technicalassistance to borrowers so that they can make right decisions on housing improvementproject design by understanding their level of affordability and repayment schedules.Due to workshops, the organization is disbursing the same funds received from thedonors, NBBL and Rooftops Canada since 2004. As the fund is revolving, repaymentrate makes the programme sustainable.
WAT examines the socio-economic profiles of the loan applicants which enable theassessment of the eligibility and their level of affordability. To qualify for housingupgrading loan, one to own a residential house, she/he should be an active member of ahousing upgrading group (e.g. Mkuhana), bind by ‘‘upatu’’ loan lending system andfinally the borrower should attend workshops and understand WAT philosophy, roleand responsibilities. WAT promotes the concept of affordability in the housingdevelopment programme, which refers to the requirements of the housing developmentthat relate to the cost of housing construction/upgrading both at initial stage and overestablished timeframes. According to the experience, affordability requirementsdepend on the cost, size and the nature of the house-assisted activity (i.e. constructionof homeownership or housing upgrading). The organization uses savings and housinggroups as a guarantee/collateral for accessing a loan and currently more than 240members have been registered and it has so far disbursed more than 60 loans.
WAT provides three types of housing loan to low and middle income people inTanzania, namely land acquisition loan, housing construction loan and housingimprovement loan. For the sake of this study, housing improvement loan was selectedfor investigation. The borrowed loan is repayable in one year’s time. For housingupgrading, the records show that more than 90 per cent of loan debt is paid back.Technical assistance is provided to loan beneficiaries before taking the loan, during theloan delivery and after the loan is disbursed to ensure that it is used appropriately.
Figure 10.Proportion of housingfinance sources(sub-case 4)
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The loan disbursed is small compared to the total housing improvement cost. Thefindings show that more than 60 per cent of the funds come from other sources differentfrom the loan of WAT-SACCOS. People use money from petty trading, remittances,rentals and other sources to supplement their housing improvement projects. The loanplays the role of ‘‘catalyst’’ which encourages and gives people confidence and take actionon improvement. After having started the borrowers find that the loan is not enough,what follows is creativity and innovation to finish the renovation process.
While Center for Agriculture and Rural Development in the Philippines uses houseindex and the means test in selecting the potential members, WAT examines the clients’capacity to repay the loan by analysing economic profile and the savings capacity. Theorganization is ready to lend up to the completion of the housing upgrading, if theborrower demonstrates saving and repayment discipline regularly. On the upgradingprogramme, WAT did not set the ceiling loan or limit of borrowing. The repaymentperiod is relatively short – one year which fit in incremental building of low incomepeople. Incremental building system is not supported by the formal finance institution.Group membership and the savings are the substitutes to formal collateral.
There is close relationship between the loan offered, housing improvement andpoverty alleviation. The research findings show that most loan beneficiaries earned eitherless than TShs. 5,000 or nothing before improvement from the rental accommodation. Butupon completion, all the sub-case respondents were happy to say that their monthlyincome has increased up to TShs. 20,000. Figure 11 shows the relationship between theloan, housing improvement and poverty alleviation or income generation. The findingsreveal that low income people have the capacity to renovate their houses. What their needis awareness creation and that capacity to be supplemented. More than 61 per cent of thetotal cost is met by borrowers own resources while the loan is used as a challenge – acatalyst for change of the housing process.
5. ConclusionsThe research findings show that Tanzania has an important growing number of MFIsaiming at empowering economically small entrepreneurs, which is a market potentialfor housing microfinance. Furthermore, MFIs for housing seems to be the only optionthat suits the characteristics of the urban poor who develop their houses incrementally.These MFIs are capable of mobilizing financial resources, disbursing and recoveringthe loans through capacity building and setting a reducing balance type of interestrate. Although the loans are small, the contributions of MFIs for housing are
Figure 11.Emerging model from
the study
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remarkable and prove a success in improving the living conditions of the urban poor.‘‘Small loan is beautiful, but big one is often the practice’’.
There are several factors that can favour housing development in Tanzania, whichinclude variety of financial sources, favourable policies and social cohesion. Despite aconducive environment of good government policies and regulatory framework, it hasbeen observed that until recently there was a lack of commitment and sound politicalwill in dealing with housing needs of the urban poor. Therefore, it has been suggestedthat housing issues pertaining to the urban poor should be included in the urbandevelopment and political agenda. Politicians and urban development activists shouldinclude housing issues in their manifesto and programmes, respectively. Housingissues should be advocated as other human rights and at equal level with genderequality and other development issues.
The research findings have shown that there is close relationship between the loandisbursed, housing improvement and improved living conditions or povertyalleviation. Stakeholders in the housing delivery chain are urged to consider a house asan instrument/asset in poverty reduction. MFIs for housing can be used asintermediaries between large financial institutions including commercial banks andthe poor to ease the latter to access housing loans. The government has adoptedenabling approach and remains the policy maker; the private sector plays a leadingrole in national development and has enough resources while the civil societies havetechnical expertise and they are competent in dealing with community issues.
References
Germain, F.A. (2008), ‘‘Viability of housing microfinance institutions for the urban poor inTanzania: the case of WAT-SACCOS’’, unpublished BSc dissertation, Ardhi University, Dares Salaam.
Kironde, J.M.L. (2006), ‘‘Insights into micro-finance institutions in Tanzania and their potentialrole in poverty alleviation’’, Journal of Building and Land Development, Vol. 14 No. 1,pp. 77-93.
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Further reading
Cities Alliance (2000), ‘‘Cities without slums’’, Shelter Finance for the Poor Series, available at:www.citiesalliance.org
Ferguson, B. and Haider, E. (2000), ‘‘Mainstreaming microfinance of housing’’, Journal of theInternational Union for Housing Finance.
Gardner, D. (2007), ‘‘Access to housing finance in Africa: exploring the issues in Zambia’’,FinMarket Trust, available at: www.finamrk.org.za
Global Urban Development Magazine (2006), Financing Urban Housing, available at:www.globalurban.org/GUDMag06Vo/2/ss1/MagHome.htm
Kironde, J.M.L. (1995), ‘‘Access to land by the urban poor in Tanzania: some findings from Dar esSalaam’’, Urbanization and Environment, Vol. 7 No. 1, pp. 77-95.
Kothari, C.M. (1994), Research Methodology. Methods and Techniques, New Age International (P)Limited, Publishers, New Delhi.
Kyessi, A. (2002), Community Participation in Urban Infrastructure Provision. Servicing InformalSettlements in Dar es Salaam, Spring Centre, Technical University, Dortmund.
Lupala, J.M. (2002), ‘‘Urban types in rapidly urbanizing cities. Analysis of formal and informalsettlements in Dar es Salaam, Tanzania’’, doctoral thesis, Royal Institute of Technology.
Mahanga, M.S. (1998), ‘‘Securitisation: the essence for creating secondary mortgage markets forhousing finance in Tanzania’’, MSc finance dissertation, University of Strathclyde, Glasgow.
Nguluma, H.M. (2003), ‘‘Housing themselves: transformations, modernization and spatialqualities in informal settlements in Dar es Salaam’’, PhD thesis, Royal Institute ofTechnology, Stockholm.
Norman, K.D. and Yvonna, S.L. (Eds) (1994), Handbook of Qualitative Research, SagePublications, London.
Payne, G. and Majale, M. (2004), The Urban Housing Manual – Making Regulatory FrameworksWork for the Poor, Earthscan, UK and USA.
Satterthwaite (2001), ‘‘Reducing urban poverty: constraints on the effectiveness of aid agenciesand development banks and some suggestions for change in rethinking aid to urbanpoverty reduction: lessons for donors’’, Environment and Urbanization, Vol. 13 No. 1,pp. 137-58.
Serageldin, M., Driscoll, J. et al. (2000), Housing Microfinance Initiatives, Regional Summary:Asia, Latin America, and Sub-Saharan Africa with Selected Case Studies, Center for UrbanDevelopment Studies, Harvard University Graduate School of Design for USAID BestPractices.
Sheuya, S. (2004), Housing Transformation and Urban Livelihood in Informal Settlements.The Case of Dar es Salaam, Tanzania, Spring Series, Dortmund.
Sheuya, S. (2007), ‘‘Reconceptualizing housing finance in informal settlements: the case of Dar esSalaam, Tanzania’’, Urbanization and Environment, Vol. 19 No. 2, Sage Publications, London.
Tomlinson, M.R. (2007), A Literature Review on Housing Finance Development in Sub-SaharanAfrica, FinMark Trust, South Africa.
Tomlinson, M. and Merrill, S. (2006), Housing Finance, Microfinance and Informal SettlementUpgrading: An Assessment of Tanzania. USAID and African Union of Housing Finance,The Urban Institute, Washington, DC.
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UN-Habitat (2003), Community-based Housing Credit Arrangements in Low Income Housing:Assessment of Potentials and Impacts, Proceedings of the Expert Group Meeting, UN Office,Nairobi.
UNCHS (Habitat) (1991), Housing Finance Manual for Developing Countries. A Methodology forDesigning Housing Finance Institutions’’, Training Materials Series, UNCHS (Habitat),Nairobi.
URT (2003), TOT Manual on Poverty Policy Analysis, Vice President’s Office – Division ofPoverty Eradication, Government Printers, Dar es Salaam.
URT (2007), Draft National Housing Policy, Ministry of Lands, Housing, and SettlementDevelopment, Dar es Salaam.
World Bank (2007), World Development Report, Washington, DC.
About the authorsAlphonce Kyessi, PhD, is a Senior Research Fellow, Institute of Human Settlements Studies,Ardhi University, Dar es Salaam, Tanzania. Alphonce Kyessi is the corresponding author andcan be contacted at: [email protected]
Germain Furaha is a Masters Student in Urban Planning and Management in the School ofUrban and Regional Planning, Ardhi University, Dar es Salaam, Tanzania.
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