Housing Microfinance and the 6 S's: Structure
“Structure is the building,” states Stewart Brand in How Buildings Learn: What happens after they’re built.  The structure is composed of the foundation and load-bearing walls. It is situated on the site and sets the parameters for skin, space and services. When low cost house construction is undertaken by the dwellers themselves, how structure is built depends upon what materials and skills are both readily available and affordable as well as cultural factors. Even a cursory survey of a settlement can determine what is readily available, affordable and acceptable to low incomes households simply by observing the materials in most frequent use in the structures and what is being sold where people with low incomes are building. How structure is most commonly built in a given locality and the lending institution’s position on it affects housing microfinance design.
My posting in September titled a product-environment mismatch was essentially about structure. The prevailing structures in northern Malawi where a housing microfinance product was implemented were mud walls or waddle and daub (mud and pole) with no foundation, but the product required a burnt brick structure with a 60 cm foundation. This made for a slow and expensive start-up, because the effective demand was low based on the low number of households with eligible structures (which was much lower than the number of households in need of improved housing or interested in a home improvement loan). In such cases a decision must be made whether to design the product to work with houses having the prevailing type of structure, to require potential clients to build a different kind of structure prior to receiving a loan (as was done in the example) or to allow the loan to be used to build a structure to the desired standards. This is a decision that combines an institution’s housing ideology and its approach to lending.
The first option of working with the prevailing structures is perhaps the most market-oriented. In the northern Malawi example discussed in a product-environment mismatch, roofing was locally considered to be the biggest housing challenge and people wanted better roofs. Working with the prevailing structures might have meant allowing clients to use a home improvement loan to put a durable roof on a house with walls made of mud or mud and poles. From one housing perspective, putting better roofs on existing houses could be viewed as a significant improvement in living conditions. From another perspective, the houses may still be considered sub-standard, semi-permanent and undesirable to the lending institution. From the market perspective, effective demand for this type of product would be people who could afford a loan for a roof, wanted a better roof and desired to take a loan for roofing. Roofing sheets were locally available, so this may have captured the largest effective demand at lowest cost to both the client and the institution.
The second option of requiring potential clients to build a new structure to higher standards may also have some advantages for the lender. From a social perspective, the lender may have a role in improving the
built environment by encouraging more durable building methods. When a household builds a new structure, it also shows a high level of commitment to putting resources into their housing. This can be an indicator of reduced risk for the lender. In the northern Malawi example, however, the demand (for roofing loans) moves to households who can afford a loan for a roof, want a better roof, desire to take a loan for a roof and are willing to rebuild their home using a different technology in order to be eligible. There may be a multitude of reasons that people are using the current methods of building structures. Changing this could be challenging and result in low effective demand with high costs and challenges to the lender in reaching sustainability.
The third option of supporting the structure with the loan could be in the form of cash disbursements for the purpose of building a foundation and walls or the institution actually overseeing the construction. This could result in quality structures, although in practice it is easier to assess the quality of an existing structure than to ensure the quality of a proposed one. The challenge of cash disbursements for structure is that it is difficult to gauge the household’s commitment to their housing process when looking at an empty space on a plot of land. There is a higher risk of loan diversion than when working with a household that has already put their own resources into a structure. When the institution oversees the construction, delivery becomes more expensive and complicated for the lender. It is a possible option, but it is perhaps the most challenging of the three from a lending perspective.
In my current work in Dar es Salaam, Tanzania, we have decided not to support structure with our loan and only work with pre-existing structures. Because of the sandy soil in the city, the prevailing material used for building structures is cement blocks. The advantage to this is that the material used is resistant to rain and can be collected on site and structures stand unroofed for long periods of time. When matched with a difficulty in financing roofing, this results in a market for roofing loans on existing structures. The quality of the structure can be viewed prior to approving a loan for its improvement. A household that has brought a structure to roofing level has both invested significant resources that show some level of commitment and it has learned a lot about building their own home as they have sourced materials and worked with builders. At least that is both our espoused theory and theory in use so far.
As Brand said, structure is the building. Lending institutions make decisions, at least implicitly, on their approach to structure through their housing microfinance product design. An understanding of the types of structures built locally, why they are built that way and what are the possible product design alternatives and their implications should be a prominent feature in housing microfinance product development.
 Brand, S. (1994) How Buildings Learn: What happens after they’re built. NY: Penguin. p. 13.
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