Abstract
ABSTRACT Purpose: This study proposes to map the barriers to scaling the microfinance industry in the U.S., as it pertains to home maintenance and improvement for low-income households. The selected context of analysis is the American city of Baltimore, due to the city’s high need for housing repair and large percentage of residents with limited access to finance. Originality/Value: Most research has discarded microfinance as a viable option for a housing market solution in the U.S. This paper discusses how the market of microfinance for housing repair could improve its financial sustainability seizing the smaller dollar value of repair loans, relative to housing purchase, and the high and recurring need for repair. Design/methodology/approach: Qualitative research was conducted on how microfinance for housing repair works in Baltimore City, leveraging secondary government and private research, along with interviews with lenders and borrowers. Data were analyzed through PESTEL framework, describing the macro-environmental context. Findings: The market for Housing Microfinance (HM) loan products in Baltimore matches the academic literature. Similar market demands exist as they relate to an increasingly aging housing stock. Lender supply of financing seems “healthy”, but it is mostly from philanthropic or government sources favoring “affordability” over financial sustainability.
Highlights
In 2003, the U.S Department of Housing and Urban Development (HUD, 2016) estimated that the United States needed $1.3 trillion in rehabilitation of aging housing stock, but that 40% of that funding was unaffordable without some measure of government subsidy or other means of support (e.g., “Sweat equity” or staggering improvements over time) (Listokin & Crossney, 2006)
The key assumption this paper makes is that the microfinance for housing repair market might be more financially sustainable in the U.S due to the smaller dollar value of repair loans, relative to housing purchase, and the high and recurring need for repair that is unlike microloans to businesses
How can microfinance be applied to housing repair in Baltimore? The main assumption this paper makes is that microfinance for housing repair in the U.S would be more financially self-sufficient due to its recurring, cyclical need that is unlike microloans to businesses
Summary
In 2012, the U.S microfinance industry served about 361,460 people with a total loan volume of $366 million, while the Brazilian industry – a country of comparable population, for example – served over 3 million people with a volume of $2.5 billion (FIELD, 2015; Microfinance Information Exchange, 2016) When it comes to microfinance for housing in the U.S, the sector is virtually non-existent. This is largely due to housing being more expensive to build and maintain, as a result of the U.S debt-heavy model requiring homeowners to buy their entire house upfront (i.e. not allowing incremental or “progressive” building) This fact alone makes microfinance services less economically feasible for the poor, who would have to take out larger loans, and for MFIs, who would have to provide larger loans to a riskier clientele.
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