Access to affordable housing can have a big impact on a person’s well-being. A safe, secure home can improve health, hygiene, and educational opportunities by ensuring access to clean water, safe toilets, electricity, and a respite from heat and disease-spreading insects. In fact, adequate housing is linked to reduced poverty and increased wealth for individuals and families, and more jobs, economic growth, and social stability for nations, according to research by International Housing Solutions.
Deploying a combination of upstream engagement, investment, and advisory activities, the World Bank Group has been implementing a sequenced and complementary program to expand housing finance markets. Through the International Finance Corporation (IFC) and tools like the International Development Association’s (IDA) Private Sector Window (PSW), the Bank Group is helping to create and strengthen mortgage refinancing companies in emerging markets.
“On average, housing represents 50 percent of household wealth in most developing countries. Strengthening the housing sector and making affordable housing financing solutions available is key for long-term, sustainable development outcomes,” says Samuel Munzele Maimbo, Director, IDA Resource Mobilization and IBRD Corporate Finance, World Bank Group.
Making Mortgage Lending More Affordable
Despite rapid urbanization and an increased demand for affordable housing and housing finance in Tanzania, many lower and middle-income families were forced to spend years living in poor or unfinished houses or renting with little hope of saving enough money to build or buy their own home. To increase access to decent and affordable housing, the government created the Tanzania Mortgage Refinance Company (TMRC). The innovative, IDA-funded Tanzania Housing Finance Project supported the TMRC, allowing it to provide medium and long-term liquidity to mortgage lenders—making it easier for them to give loans to families to improve their existing homes or purchase new ones.
Following on the success of the project, IFC invested in TMRC with the support of the IDA PSW, further boosting affordable mortgage lending to help more people realize their dream of owning a home. These interventions worked together to expand the housing finance market seven-fold, meaning banks could extend mortgage repayment periods, lower interest rates, and ultimately make loans more affordable for Tanzanian families.
From Substandard Housing to Homeownership
In Kenya and Pakistan, which both suffer from severe affordable housing shortages, the Bank Group is following a similar model. IFC and IDA PSW are supporting the Kenya Mortgage Refinance Company (KMRC) to provide long-term housing finance via primary mortgage lenders, and ultimately reduce the number of Kenyans living in informal settlements. It is expected that 500,000 new formal housing units will be delivered by 2022, helping to create 350,000 jobs. IFC’s support to the Pakistan Mortgage Refinance Company Limited (PMRC) is helping to increase the overall availability of mortgage financing for homeowners. Half of IFC’s investment is supported by the IDA PSW, allowing primary mortgage lenders to offer new mortgages in frontier and traditionally underserved areas, such as Khyber Pakhtunkhwa, and its newly merged districts (Ex-FATA) and Baluchistan.
“By addressing the absence of long-term funding to primary mortgage lenders, IFC is helping to facilitate private sector investments in the sector and contributing to the development of regional capital markets,” explains Federica dal Bono, Private Sector Development and Strategy Expert for the World Bank, who leads the IDA PSW Secretariat. “The IDA PSW’s support to the IFC helps extend that financing into the riskiest markets and to traditionally disadvantaged groups.”