New home loan scheme for low-income earners

Dar es Salaam. A new initiative is underway to help Tanzanian low-income earners to access housing loans after a new study identified challenges that majority face in borrowing to build homes.

Global nonprofit organisation Habitat for Humanity International (HFHI) and Tanzania Mortgage Refinance Company (TMRC) said yesterday that they had partnered to identify potential financial institutions which will deliver a pilot programme for housing microfinance.

Officials of the two organisations were speaking during the launch of the Housing Microfinance (HMF) research report, which assessed the current state of the market and explore demand for new products while identifying how local financial institutions can develop and participate in Tanzania’s fledgling housing microfinance market.

TMRC chief executive Oscar Mgaya said the research aims to mobilise funding to support the diversification of the company operations to include housing microfinance and other similar products.

“We target low and middle-income earners to access small and medium loans for renovation and expansion of homes,” he said.

According to him, the study has worked on the assumption that the most suitable target borrowers for HMF products in Tanzania are low and middle-income households that earn between Sh80,000 and Sh1.5 million per month.

He said low and middle-income households face several housing challenges, including accessing housing finance, facing difficulties servicing outstanding loans, insufficient housing supply, overreliance on insecurity, inadequate self-built informal housing, rising building materials costs, and irregular income, making it harder to plan for housing-related spending.

Habitat for Humanity International associate director for housing finance in Africa Daniel Mhina said more than 70 percent of Tanzanians build their homes temporarily, and some take up to 18 years.

“We have also found out that there are small housing problems that Tanzanians need to solve, for example, to repair the galvanised steel, paint, and repair the windows. An ordinary Tanzanian needs to get these services from financial services,” he said.

According to him, the challenge they saw through the research was that financial service providers do not have loans that match the needs of majority of Tanzanians.

He said that in the launch, they have called banks and credit institutions to see what the challenges are and to look at the areas that they can use as opportunities to come up with services that are in line with the Tanzanian situation.

“In collaboration with TMRC, we will look for two or three stakeholders to work with to create loans for low and middle-class people to show the market that it is possible,” he said.

The research was conducted by Altair Consultancy and Advisory Services Ltd (Altair) which was engaged by the two organisations.

Altair project manager Patrick Goldie said the research aimed to find affordability estimates that would produce a provisional target user range of low- and middle-income households.

He said issues of affordability, credit risk, cultural stigma regarding borrowing, and the unreliability of housing work contractors could negatively affect the prospects of housing microfinance.

“Amongst financial institutions on the supply side, low levels of awareness about HMF, particularly regarding how it differs from traditional housing finance products like mortgages, low levels of technical capacity, and a lack of long-term, affordable funding could hamper the expansion of HMF,” he said.

He said creating a specialised HMF fund for Tanzania; a programme of awareness-raising financial education activities and technical capacity building could help to overcome the challenges.