Housing Finance and Financial Inclusion

Abstract

This chapter locates international housing finance within the emerging focus on financial inclusion in developing countries. It does this by collecting and analyzing indicators of the extent of access to housing finance in a sample of developing countries, with a special focus on lowincome borrowers. A top down view of the reach of the traditional mortgage instrument is complemented by a bottom-up view of the use of financial instruments for housing purposes by low-income households. Using measures of depth, affordability and completeness, the chapter shows that, while mortgage finance has been growing rapidly in many developing countries over the past decade, its reach is limited in developing countries: at most, a third of households in typical middle-income countries has access to mortgages. This proportion is much lower in low-income countries. While housing microfinance is increasingly hailed as a vital solution for those whom mortgages cannot reach, its scale remains limited in most places, although it is growing along with microfinance in general. In practice, poor people mainly finance their housing using savings. Despite increased availability of datasets which enable the measurement of access in developing countries, there is still a shortage of consistent, reliable indicators about housing finance markets and about the performance of housing finance portfolios over time. Using the lens of access, the chapter demonstrates that it is possible to segment the population into different groups with different potential to be reached by different instruments. At very least, this analysis should clarify that the housing fi- system alone cannot solve problems of lack of income or of affordability. However, in the future, the success of a housing finance system should be measured not only by the volumes of lending alone but also by the extent that access expands to appropriate forms of housing finance.