LESSONS FROM THE REPUBLIC of Georgia
In the piece below, Monica Raskin from Habitat for Humanity’s Terwilliger Center for Innovation in Shelter describes the outcomes from an internal assessment of the systemic impact of their financing efforts. The post lays out some interesting outcomes that they identified from the assessment. In reading it, an important systems-thinking concept stood out for me as needing to be raised. Systems change over time is tied to the when/how certain signals or feedback emerge as either more or less influential. As Monica points out, microfinance organization to microfinance organization signaling, at least related to this segment, has had very little influence on the overall financial service system. It would be very interesting to learn more about why this firm-to-firm feedback is not influential, including how the Fund could amplify such internal signaling.
Habitat for Humanity’s Terwilliger Center for Innovation in Shelter launched the MicroBuild Fund in August 2012 to increase access to affordable housing finance products and services for low-income households globally. The fund bundles capital and technical assistance to financial institutions to demonstrate housing microfinance’s value to the broader industry. In doing so, the Terwilliger Center aims to shift the global portfolio allocation for housing finance from 2 percent to 10 percent of the general gross loan portfolio, among microfinance institutions (nationwide) in the countries where MicroBuild has investments.
As of July 2020, the fund had disbursed USD 136.9 million to 55 institutions across 32 countries, and helped nearly 930,000 households improve their shelter. Additionally, MicroBuild has seen success with many investees scaling up their housing portfolios after receiving capital and technical assistance from the fund.
While the fund has accomplished much to date, in 2019 the center decided to assess whether it was creating true market systems change. Specifically, we wanted to understand if MicroBuild’s investments in financial institutions were resulting in non-MicroBuild financial institutions adopting and scaling housing microfinance products. And, we wondered, was such a strategy to encourage broader product adoption the best way to scale housing microfinance offerings in a given country?
A three-week field study last year in the Republic of Georgia provides one answer. Habitat for Humanity’s Terwilliger Center selected Georgia for many reasons: the high country exposure within the MicroBuild Fund portfolio; substantial market share held by investee institutions; growth of local investees’ housing microfinance portfolios; and the high degree of openness to obtaining microfinance data. Further, the fund had been invested in Georgia for many years. It invested in JSC Credo Bank in 2013 and in JSC MFO Crystal in 2016. Finally, both MicroBuild investee institutions were market leaders within Georgia’s microfinance sector and thus potentially influential to other institutions within the country.
The field visit produced several key findings:
MicroBuild Fund’s two Georgian investee institutions had successfully scaled their housing microfinance portfolios. This demonstrated that housing microfinance products were working in Georgia when an investment was made. Further, as market leaders in Georgia’s microfinance sector, these institutions could scale their housing microfinance portfolios and ramp up housing microfinance lending at a national level. However, at the time of the report’s original release in October 2019, the spread of housing microfinance across Georgia was strictly due to MicroBuild investees scaling up their housing microfinance investment, rather than the crowding-in of additional players.
Non-MicroBuild financial institutions were aware of housing microfinance products but did not understand the specific terms or features of these products, nor had they adopted such products. The center had hypothesized that investing in market leaders that successfully scaled their housing microfinance portfolios would result in smaller players subsequently creating such products. But this was not the case in Georgia. Furthermore, microfinance institutions tended to emulate competitors of a similar size. In other words, smaller institutions weren’t likely not take their cues from those MicroBuild investees that were market leaders in the sector.
Increased awareness and understanding of housing microfinance may not result in the scaling of housing microfinance among financial institutions. Countrywide, Georgian microfinance institutions determined loan type by client income source or collateral (versus loan purpose/loan use). Even with greater understanding of housing microfinance, they had little appetite to introduce dedicated loan products of any kind, including dedicated housing products. Further, institutional capacity to develop dedicate housing products was low among many institutions interviewed.
Regulatory changes impacted the sector. Beginning in 2017, the National Bank of Georgia introduced an interest rate cap on microfinance lending at 100 percent per annum, followed by subsequent regulations to further restrict interest rates, tighten liquidity ratios, and reduce payment-to-income ratios. The center’s interviews showed that such regulations had consumed much of institutions’ operational energy and strategic focus. Therefore, developing dedicated housing products would not be feasible in the near term.
These findings, while offering specific insights into the Georgian market, also have informed the Terwilliger Center’s global approach to scaling the MicroBuild Fund and achieving market systems change. Based on the findings, the fund adjusted its scaling strategy to a more nuanced approach in certain markets where a small subset of financial institutions held the majority of the microfinance sector’s market share. In such countries, the fund would aim to either scale exclusively through MicroBuild investee(s), or by also crowding in a limited number of other financial institutions (in markets where approx. three to five institutions held over 70 percent market share). For countries where scale would be expected beyond MicroBuild investees, the center is now looking to develop a sector influence strategy to ensure that program initiatives provide clear, actionable information to target institutions on how to develop, refine and scale housing microfinance products.
In doing so, the Terwilliger Center can pursue a more nimble (and often more efficient) means of scaling housing finance within MicroBuild’s countries of investment to reach 10 percent of the general gross loan portfolio nationwide. Finally, the center will continue to make the case to the broader financial sector to further crowd in capital in countries and institutions where MicroBuild has proven that housing microfinance can be a good investment.
Read the full report from Habitat for Humanity’s Terwilliger Center here, under the title Exploring the adoption of housing microfinance within the Georgian market.
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