Why the Best Road to Take in Microfinance Is the One Less Traveled
If you’re in the business of changing lives, you have to say “yes” to an open mind.
When the foundation first began working in India, we didn’t plan to enter the housing market. In fact, it wasn’t even in our consideration set. But over time as we learned what it’s like to live and work in urban slums, we realized, we needed to look at a sector we’d never even considered: Affordable housing.
Making the Leap
How did we make the leap? Spend any time in India’s urban slums, and it becomes immediately clear that living conditions have a profound impact on children’s health and learning. Instability of housing and poor sanitation are directly linked to childhood illness, school attendance and academic achievement.
At some point in its lifecycle, every organization interested in social change will be challenged to step outside its comfort zone to achieve core goals. Our objectives are to improve childhood health and educational outcomes. But as long as children live in slums, where whole families are jammed into cramped spaces with limited access to sanitation and clean water, we cannot be so lofty as to ignore these conditions. India’s affordable housing shortfall, estimated to affect 18.5 million households, can easily be framed as one main cause of childhood disease and dropouts.
Opportunity Came Knocking
Starting in 2006, we had begun investing in a series of promising microfinance institutions (MFIs) to deliver new financial services to the urban poor. A year later, one of our earliest partners, Janalakshmi Financial Services, came to us with the idea of better supporting their clients through establishment of a new entity, Janadhar, which would build affordable homes. Janalakshmi would develop a new financial product in the form of micromortgages to help clients purchase their own home.
Although not an investment we would have considered at the outset of our work, the proposal had many appealing aspects. Janadhar wouldn’t just build affordable homes; it would help show housing developers that this was a great business opportunity and sustainable business model. We trusted Janalakshmi’s acumen and instincts, and we liked the idea of a micromortgage product, because it was a creative extension of the work we were doing in financial services for the poor. It was strongly linked to our objectives around driving better family economic stability. Janalakshmi already had a system in place for vetting loan risk among customers who worked in informal jobs as maids, rickshaw drivers and street vendors. Providing similar customers with a new form of loan felt like a valuable expansion.
Embracing the Bigger Picture
Saying “yes” to a single investment outside your core may not make sense unless you have a strategic plan that leads you back to that core.
Frankly, this was a difficult project, and the road we traveled with Janadhar was not easy. Together we overcame the seemingly limitless obstacles to construction. But the payoff was being invited into the new home of a proud, first time homeowner and seeing the difference it was already making in their lives.
This project was our only home construction project. It was a success because it helped prove out a way to build a more affordable housing supply in India, but it was our complementary investment in developing a micromortgage product that became a core part of our continued focus on financial services for the urban poor.
For the foundation, saying “yes” to affordable housing meant creating new opportunities for families to own their own homes and to help their children escape poverty. Our investment in Janadhar wasn’t only opportunistic; we saw a chance to open previously untested markets that would improve children’s lives and outcomes.
In 2009, we built on that investment by providing seed funding to Micro Housing Finance Corporation (MHFC), a micromortgage company focused on serving customers who had an income from $200 to $400 a month. Since that time, MHFC has provided 3,000-plus families with micromortages and has proved that it’s possible to serve this part of the market in a sustainable way. By 2018, that number is expected to grow more than tenfold.
India’s affordable housing market is still in its infancy, but since we ventured into the space there has been substantial movement. By late 2013, a dozen new players had begun offering low-income mortgages, and developer participation was likewise on the rise. And for each family that gets a home, the change in quality of life is truly staggering.
Never say never—even when you have clearly defined organizational goals. In the end, accomplishing those goals may mean going places you’d never anticipated.
- BLOG POST: Birth of a market: A new housing sector takes root in India
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- GIVING REPORT: Micro Housing Finance Corporation