Urbanisation and Slums

There are growing pressures to solve the housing crisis in African cities. Due to the rapid growth of urbanisation the world over, there is a steady increase of migration to cities for economic opportunity. The World Bank predicts the urban population will double over the next 25 years with about 40 percent of Africa’s one-billion people already having lived in towns and cities.

The report, Stocktaking of the Housing Sector in Sub-Saharan Africa, published by the World Bank also notes that the rate of people living in slums is growing in Africa despite slum populations in other regions declining.  This means that the majority of people in African cities will be living in slums.

As urbanisation continues to grow so too does the demand for adequate, affordable housing, both for rental and purchase. Microfinance will play a key role in increasing the supply of housing to those who so desperately need it. According to experts, by granting small loans to low earners in Africa’s rapidly growing cities this will help them build their own homes and could help solve a looming housing crisis.

Why people need microfinance

It is estimated that currently 1.6 billion people around the world live in substandard housing this is due to a variety of factors amongst them, the high rate of household indebtedness and insufficient supply of affordable housing. Low-income families are afforded little to no opportunities to receive traditional financial assistance. This is because the banks view most low-income families as unreliable prospects. However, even if they were not viewed in this way, it might be difficult for them to produce the title deed for a property. Most traditional avenues require collateral – which most poorer borrowers cannot provide. The cheapest houses purchasable with mortgages are still difficult for low-income borrowers to access due to strict building codes and requirements.

According to Sandra Prieto, Global Director of Operations and Financial Inclusion at home-building charity Habitat for Humanity, “It could take up to two generations for people to build their home incrementally if they don’t have financing”. The lack of financing results in low-income earners being forced into illegal slums and other informal housing as they cannot afford to buy, build or renovate homes.

Microfinance as upliftment

Housing microfinance is, by definition, developmental credit. This can assist in the upliftment of individual homes but also has the ability to develop and uplift entire communities that would otherwise be excluded because of traditional financing. It is unrealistic to expect wide-scale mortgage finance to be the solution, rather a financing system that accommodates the financial capacities and needs of the majority is critical. Moreover, as tensions between rich and poor are being exacerbated by expanding slum dwellings and land grabs, it is of utmost importance to place weight on housing development of the poorest in South Africa.

Inadequate housing affects every aspect of a person’s life. It is bad for physical health and mental wellbeing. It infringes upon people’s ability to earn a living wage and their children’s capacity for education. Substandard housing is more often than not unsafe and does not provide basic services like water, electricity and sanitation.

More than just housing

Beyond uplifting the poorest communities and the other obvious benefits of adequate housing for societies, economic growth comes hand-in-hand with an improving and well-functioning housing sector. As Urban Specialist Jonas Parby of the World Bank puts it, we can “improve livelihoods, create jobs and expand the market for goods and services”.

The construction surrounding housing not only benefits families but also others in the industry. So for every house built, there are at least five jobs created as the construction will make use of masons, carpenters, electricians and other trades. Other small businesses will also benefit as building supplies and materials will be purchased. So with a more broad and holistic strategic approach to the housing sector, it would be possible to encourage private investment in the region.

Ultimately, to solve the burgeoning housing crisis in African cities, it is required to have dynamic and sustainable institutions that are willing to invest and find other ways of creating collateral. If you are such an institution and are looking for ways to improve the management and growth of your microlending business, get in touch with Delter today about all your software needs.

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