EVALUATION
Save & Build Community Housing Program
Habitat for Humanity International Nepal
September, 2009
Jan Maes
Microenterprise Development Consultant
Westmoreland, New Hampshire (USA)
Table of Contents
Executive Summary
Evaluation Objectives and Approach
Save & Build Community Housing Program
Habitat’s housing solution continues to evolve while adhering to core principles
Save & Build – a savings-led approach to housing solutions for the poor
Nepal’s Save & Build Community Housing Model in a nutshell
Program Rationale
Program Implementation
Program Impact
Impact of S&B program on Village Banks
Home Partners
Program Evaluation
Affordability and Other Demand-Side Loan Features
Poverty Outreach
Leveraging Existing Village Banks and Savings and Credit Cooperatives
Cost-Efficiency and Scale
An integrated housing solution
Recommendations
Annexes
Annex 1 Evaluation Objectives
Annex 2 Individual Interview – S&B Home Partner
Annex 3Group interview with members of village banks or S&B groups
Annex 4HFHI Rating Tool for Non-MFIs
Annex 5Habitat for Humanity Housing Finance Best Practices
Executive Summary
The objective of this evaluation is to document and analyze a pilot program of the Save & Build(S&B) model in Nepal, an innovative approach to providing housing for low-income people by combining building-in-stages with a savings-led housing microfinance model.
The main objectives of the Save & Build Community Housing Model are:
a. To enable lower-income families to own a house;
b. To make repayment affordable through building in stages and manageable through peer pressure as well as peer strength;
c. To make the program community-owned through its active involvement; and
d. To build more houses with less capital inputand make the program more financially sustainable.
The new approach distinguishes itself from a more traditional Habitat model in three ways: 1) building homes in stages; 2) shorter loan duration; and 3) required savings contribution by home partners. All three features result in a significantly reduced loan burden, thereby making the housing financing solution more attractive to households belonging to the lowest income strata.
How it works
In order to be eligible for a S&B loan, women are required to be a member of a village bank (VB) or Savings and Credit Cooperative (SCC). Village Banks also admit new (temporary) members in order to make them eligible for S&B loans and support. In target areas where such groups do not exist, women are required to start their own Save & Build (S&B) group (typically consisting of 12 members). Anyone participating in the S&B program is required to save on a regular basis and accumulate at least the same amount in cash as the requested loan amount. HFH-Nepal does not implement the loan program directly but through local partner agencies, which in turn provide bulk housing loans to S&B groups, VBs and SCCs.
Most existing VBs and SCCs participating in the program have been in existence for many years (as most of them were established during PACT’s Women’s Empowerment Program a decade ago) and are able to implement many of the housing loan program functions by themselves, such as screening potential home partners, providing training on savings and loans, administering home loans and collecting payments.
Consistent with Habitat’s emphasison the active involvement of home partners themselves, they are also expected to provide sweat equity working not only towards their own house construction but also towards that of their neighbors. Home partners also contribute a significant amount of the building materials themselves. HFHI promotes the use of local materials and adoption of traditional building approaches, intended to furtherreduce the cost of house construction and promote environmentally sustainable building practices.
New homes (first stage) range in cost from approximately Rs. 50,000 to 85,000 (USD 600-1,000 at nominal exchange rates), of which on average 38% is financed by the S&B loan (ranging from Rs. 20,000-25,000). For a Rs. 20,000 loan, a home partner repays Rs. 720 each month (for a 30 month loan at a 6 % annual interest rate). Some home partners invest much smaller amounts to build the first stage of a new house or to improve an existing house, with S&B loans as low as Rs. 4,000 (USD 50). Each household is required to pay back the loan (representing roughly one third of the required capital) over a period of 30 months.
Program rationale and expected results
The S&B model is a way to increase width (scaling up) and depth (reaching down) of outreach through a more sustainable housing microfinance model. This implies housing microfinance products that are demand led (appropriate for and affordable by poor people) at interest rates that more closely reflect the cost of providing the loan product and more in line with existing market microfinance interest rates. Given some existing involvement by VBs and SCCs in community development activities (literacy, education, income generation, healthcare, rights awareness…) the S&B approach can be an integrated housing solution that also includes access to non-housing livelihood opportunities (such as income-generating activities, healthcare and education).
The program anticipates the following results:
- More households served by available HFHI-Nepal budget (reduce dependency on external funds)
- Increased outreach to lower-income households
- Increased awareness about cost-effective building and increased cost-effective housing construction practices
- Near 100% repayment rate of S&B loans
- Attract new members to existing VBs and SCCs through S&B loan appeal
In the longer term, this model is expected to enable the village banks and women saving groups themselves to finance and build houses even in absence of HFHI support.
Program Implementation
There are several different versions of the S&B model, which relate to the type of group to which home partners belong:
1)Save and Build through VBs. Home partners either already belong to an existing VB or SCC, or -as is often the case- become temporary members of an existing VB/SCC to access S&B loans. This model is implemented with partner agencies Samjhauta (a VB capacity building NGO spun off from PACT’s WEP and Habitat’s biggest partner in the S&B program), Sahara Nepal Cooperative (a 322 member SCC, consisting of 17 VBs), Lumanti, World Vision, ADRA, SOS Children’s Village, and Community Development Center.
2)(New) Save and Build Groups. Home partners do not belong to an existing savings and credit group and form their own S&B group consisting of 6 to 12 members. S&B group members start by saving on a weekly basis and receive matching loans when the group has saved enough to finance the first house building. S&B groups are formed with the sole purpose of access to better housing and home loans, unlike existing VBs and SCCs which have been involved in other microfinance and non-microfinance activities before participating in the S&B program. This version of S&B is implemented mainly in partnership with Samuhik Hatemlo Sewa Samuha.
3)S&B for microfinance clients. Home partners are existing clients with a microfinance institution (Sahara Nepal, a Grameen replicator) who are offered an S&B loan as an additional product to existing microfinance products. These microfinance clients are typically less poor than VB/SCC members.
Local partner agencies identify target areas for the S&B program, and select existing village banks or form new S&B groups to participate. Home partners are selected directly by participating village banks or by partner agency staff in case of formation of new S&B groups. Only women can apply and their eligibility is based on need (existing housing condition) and ability (based on income) to save and repay an S&B loan. Savings capacity of Rs. 500 per month is typical, but depends on the loan requirement, which can be higher or lower. Type of building materials is a compromise based on environmental considerations, local availability, cost, and consumer preferences. Besides promoting cost-efficient environment-friendly building materials, HFHI-Nepal is also actively involved in producing such materials, especially bamboo.
The loan needs to be matched first by an equal amount of cash saved by home partner, and can only be used for home construction. Maximum loan size is currently set at Rs. 22,000 (approx. USD 300), while average loan size is targeted at Rs. 15,000 (approx. USD 200). The loan has to be paid back at an annual interest rate of 6% in 30 equal, monthly payments. A Rs. 15,000 loan, for instance, needs to be paid back in 30 equal monthly payments of Rs. 540 (approx. USD 7).
Program Impact
In addition to program outcomes at the level of home partners, this evaluation also considered the impact of S&B implementation on participating village banks, given their potential role as a cost-effective delivery mechanism.
Habitat Nepal opted to work with existing village banks, because they already had a certain capacity to manage funds and disburse loans responsibly among their own members, and also because their members had already established a regular savings habit. Interestingly, the S&B housing loan product is targeted predominantly to non-members rather than to their own VB members (most of whom wouldn’t qualify as they already live in decent houses). As a result, S&B loans are more important as an income activity for the VB than as a useful service targeted at its own members. When asked why they decided to adopt S&B within their village bank, members cited several reasons: 1) they see S&B as a means to improve housing by the poorer members of their community; 2) implementing this program is empowering to them as it leads to real and visible changes in the community and enhances their status with the rest of the community; 3) through this program home partners learn to save regularly; and 4) the S&B product provides a significant and relatively risk-free income source for the VB and helps grow the loan fund.
VB members reported a few negative outcomes as well. Members of one VB did not like to play a policing role with their fellow community members in case a home partner did not pay back the loan, and those in another VB complained that they are not receiving additional training and support, which they say they need to upgrade their financial management and bookkeeping skills in order to keep up with the increased volume and complexity of their financial transactions.
Outcomes at the level of home partners and their households were obtained through individual interviews with thirty-four home partners as well as from analyzing existing monitoring data on the same households. The majority of home partners are farmers (with own land), followed by agricultural laborers, and small shop owners. Client intake data show an average household income of Rs. 57,000 and ranging between Rs. 25,000 to Rs. 90,000.
The average cost for the new house or house improvement is Rs. 67,000, of which just over one fourth (Rs. 19,000) is financed by an S&B loan. Sixty-eight percent of home partners were able to improve their roof, fifty-six percent to improve the walls, and fifty-three percent to lay a cement floor. Twenty-six percent also built a toilet. By the end of the first S&B construction cycle, virtually every home partner has an improved roof, usually made out of corrugated iron; four out of five have improved walls (bamboo plastered with mud or cement, or burnt brick walls); and three out of five have an improved floor (cement instead of mud).
Program Evaluation
The S&B housing finance approach matches the needs of poor people by facilitating access to shorter-term (30 month), smaller loans, used for financing consecutive stages of an incremental house-building process rather than a complete new house. The size of S&B loans is matched to a home partner’s own savings contribution towards the financing of the (incremental) house building. These innovations combine to increase both the width (number of households reached) and the depth (poverty level of households reached) of outreach as compared to HFHI’s traditional model.
Affordability. The monthly repayment capacity required for S&B loans has decreased significantly from the earlier HFHI loan terms in Nepal. Before S&B a typical loan amount was Rs. 120,000 for 10 years at 10% flat interest rate. This resulted in monthly repayments of Rs. 1,100 (120,000 x 110% / 120 months). A S&B loan of Rs. 15,000 at 6% annual interest results in 30 monthly repayments of Rs. 540. Client satisfaction with the S&B loan features is high. All but one respondent said that repaying the S&B loan has been easy and that they were planning to take another loan after paying of their current one.
Poverty Outreach. Selection of new home partners is based on need (which is determined by considering the current home condition). At the same time, however, new home partners also have to demonstrate that they will be able to set aside a sufficient amount of savings every month to repay their loans. Average annual savings capacity for the 34 interviewed S&B home partners was calculated (as part of intake data collection) at Rs. 12,743 (approx. USD 160 or close to USD 0.50 a day), which is an amount that only the economically active poor can save.
Leveraging Existing Village Banks and Savings and Credit Cooperatives. One key program feature that distinguishes the Nepal S&B model from the earlier Sri Lanka model is that many new home partners are reached with housing loans and technical assistance through existing village banks, with has certain benefits and some potential negative implications as well.
One advantage of working with community-managed savings and loan groups would be that their members already have a regular savings habit and accumulated substantial savings that can be used as the home partner’s contributions towards financing new, improved homes. However, most S&B clients are not members of existing VBs, but instead other (poorer) community members who become temporary members in order to qualify for a S&B loan. Another advantage of working with VBs is that they in effect become the delivery mechanism for S&B. VBs screen and select creditworthy households living in substandard housing conditions, train them to save regularly and provide them with a safe place to deposit their savings (in the VB revolving fund). After that the VB is in charge of most S&B loan activities, such as verifying home partner’s savings contribution and stock of building materials, disbursing loans, monitoring their proper use, and collecting monthly payments. A construction committee within the VB has been trained by a local partner agency to perform these loan activities, to provide technical assistance for the planning and design of new homes, and facilitate bulk purchase of building materials at lower cost.
Linking community-based savings and credit groups to external sources of capital has the potential to change the existing structure and dynamics of these groups. For instance, access to cheap external sources of funds might diminish their existing savings culture. Whether this will actually take place is too soon to tell, but so far there seems little evidence of VBs/SCCs reducing their savings requirement after becoming involved with S&B. The injection of external debt in the VB fund has also increased the complexity of the bookkeeping and members of the VB management committee themselves have asked for additional training to cope with these new challenges. The on-lending of external capital to their own members and especially to non-members also increases the riskiness of the group fund, because the VB provides the guarantee to the lender that loans are paid back in full. In reality, VB members know most of the community members very well, and they have been very effective at screening creditworthy S&B applicants. Since the start of the S&B program in Nepal, repayment rates have been nearly perfect.
Cost-Efficiency and Scale. Width of outreach has increased significantly as a result of the combination of smaller loans (due to lower housing cost and required savings match by home partner) and shorter loan cycles (30 months), but scale-up continues to rely on donated or subsidized funds, which are finite. A new agreement with UN-Habitat will provide USD 500,000 of new loan capital (at a 1% annual interest rate), half of which has to be paid back in three years. Such funds cannot be counted on for large-scale expansion, however. As long as access to long-term capital remains scarce, supply of S&B loans cannot meet demand. Other program costs (not related to the revolving loan fund) also remain subsidized. The average program cost per home partner (for the four years during which S&B has been implemented) has been $370.
HFHI charges only 0.8% for its loan funds, which is far below what the private sector (banks) would charge to VBs, SCCs or individual mortgage borrowers (market mortgage rates are between 9 and 12%, available only to middle-class households with collateral). At this low cost of capital, VBs and SCCs have no difficulty charging only 6% for S&B loans, which is much lower than typical interest rates charged on microfinance loans (which are in the range of 18-24%).
Recommendations
The following recommendations for the S&B model are formulated in line with Habitat for Humanity’s Housing Finance Best Practices (see Annex 5).