Habitat for Humanity’s MicroBuild Fund: Investments at the Housing Microfinance Frontier

Published: Monday, November 26th, 2012 by Lenora

Habitat for Humanity International (HFHI) has launched an innovative vehicle for financing housing improvements for lower income households in developing economies through microfinance institutions (MFIs). Launched in July 2012, the MicroBuild Fund has an investment mandate and a development mission to mobilize capital and technical assistance to build the practice of housing microfinance. With investments in twelve countries already in the pipeline, the MicroBuild Fund is well on its way to pioneering one of the first sector-specific, international and impact-first investment experiments.

Laying on a Solid Foundation. For over 35 years, HFHI has been helping poor families gain access to housing by leveraging its private sector affiliate networks, partnerships with families and communities and armies of volunteers. Among its initiatives, the MicroBuild Fund emerged from Habitat’s work with microfinance institutions. Habitat had been leveraging its balance sheet, primarily through philanthropic contributions, to enable MFIs to lend at subsidized rates for incremental housing improvements. Habitat’s work with MFIs not only enables low income families to build incrementally as they are economically able without becoming over-indebted but also aims to build MFIs capacity to develop home improvement lending businesses.

Responding to a Structural Need. Filling this gap in lending for housing improvements is critical because most poor families in the developing world simply cannot buy a new home. Neither financing nor supply exists outside of public housing programs, which still leave millions unserved and a legacy of failed, abandoned, ill-planned projects. In overcrowded slums worldwide, community residents are vulnerable to diarrheal, respiratory, mental and other communicable and vector-borne illness, security and fire hazards and climate disasters, not to mention having scant space or light for children to study or home-based entrepreneurs to work.

As a result, for more than 1 billion people worldwide in slums, incremental housing improvements leads to real human impact. Stabilizing housing can actually move families along the trajectory to improved human and economic well-being by giving lower income households healthier and more productive living conditions for entire families.

Filling Gaps Among MFIs. Despite the promise of housing improvement lending, MFIs have failed to capitalize on this exceptional opportunity. Products have not been widely developed nor has necessary technical assistance been mobilized to either the institutions or to borrowers to ensure prudent and appropriate use of funds, risk assessment and ongoing monitoring. Given robust growth in mainstream microenterprise loans, MFIs have not developed the incremental technical and business capacity to lend for incremental housing improvements. Even so, MFIs have been taking this risk passively: conventional wisdom suggests that 20%-30% of MFI enterprise loans are estimated to be used for housing improvements, only some of which explicitly support home-based enterprise.

Constructing Investment Innovation. The MicroBuild Fund represents the first effort ever to finance housing microfinance in the form of a private investment fund vehicle. Not surprisingly, that complex effort has involved a range of stakeholders and impact investment trendsetters. In 2010, Habitat worked with the Clinton Global Initiative to establish the fund and its structure. For the first phase, the  fund has raised $5 million in equity, with majority ownership by HFHI; Omidyar Network and Triple Jump are the other two partners.. HFHI has also committed 10 per cent of the total fund capitalization towards  technical assistance to shore up investees’ capacity to implement and grow the housing microfinance business over the longer term. With the fund’s equity enhanced by philanthropic first-loss guarantees, HFHI was able to leverage the equity up with $45 million in debt from the Overseas Private Investment Corporation (OPIC) (1). Over the course of next 3-4 years, the fund is expected to grow to  $100 million.

The fund vehicle is managed by Triple Jump, a responsible investment management and advisory firm specializing in microfinance investments since 1998. Over the fund’s ten-year term, it will make medium to long-term debt investments with a four-year average investment cycle with options to renew based on performance and the investee’s prospects. The investment objective of the fund is to mobilize financing to increase the availability of housing loan products. However, the fund’s mandate is sufficiently broad that it can embrace rural, urban, large and small institutions and every permutation in between subject to criteria listed below.
Co-Habitating Managers and Other Innovations.The MicroBuild Fund’s structure is experimenting with conventional private investment fund practice in ways that will be the subject of exploration and evaluation into the future. First, Habitat for Humanity and Triple Jump in the MicroBuild Fund are cohabitating as managers to a certain degree as Habitat “sources deals” from among Habitat’s partner MFIs – entities with which the organization has worked closely on rolling out housing microfinance products.Triple Jump manages the investment process, portfolio risk management and capital management. The Triple Jump team ensures a formal due diligence process on the investees, with Habitat’s input, and recommends investment actions, including a debt structure that corresponds to the opportunity, risk and capacity of the investee organization. This arrangement minimizes the potential for conflicts of interest and builds Triple Jump’s capacity as fund manager.The investment committee was constructed to ensure best-in-class inputs to investment decisions. Finally, the loan is paired with a plan for delivering technical assistance to the investee to reinforce effective implementation and long-term capacity.

Stepping Into the Wardrobe. As with innovator E+Co in the energy space, it remains to be seen what happens in the course of this experiment. The challenges of investing in financial development-plus-technical assistance by sector specialists have been explored extensively, but with varying degrees of investment discipline and transparency about return on invested capital, by development finance institutions and organizations like Accion International.

When entities provide investment capital as well as management support, there is ample potential for both successes and pitfalls. On the plus side, promoting solid governance and organizational development in investees can help build winning organizations, potentially the game changers of the future, and a healthy institutional ecosystem.  The delicate institutional dance of being an investor and an advisor simultaneously can also create pitfalls, among which from conflicts of interest and governance and oversight challenges.

In this case, MFIs who have been running subsidized housing microfinance products presumably will aim to build self-sustaining business lines. Yet, experience with housing microfinance is mixed. The economics of housing microfinance may not yet be robust enough. A variety of factors can affect how housing improvements are executed, like local market conditions for materials and labor,  the base quality of the housing stock and the supply of inspectors, among others. These factors are still being explored with little systematic work to draw on so far. (2)

Building a Brighter Future. Even so, a successful MicroBuild Fund will advance the ongoing efforts of Habitat and other international development organizations, with the positive glow extending beyond housing microfinance. Organizations with deep sector knowledge and advisory businesses may be able to raise investible fund vehicles to secure sustainable financing for program activities and advisory clients while simultaneously building emerging social business sectors.

If the MicroBuild Fund illustrates to other impact and mainstream investors that capital can be deployed capably towards large-scale, mission-aligned and specific investment objectives, like building housing microfinance, sector-specialist funds are likely to gain further credence vis-a-vis more opportunistic, multi-sector social impact and sustainability vehicles. Given the urgent and massive need for improved housing, the effort and innovation are most welcome.


(1) OPIC is the US government agency charged with mobilizing development finance for emerging markets in cooperation with the US private sector. The agency has embarked on recent efforts to promote impact investment as a development finance tool.

(2) One initiative in this realm, HFHI’s Center for Innovation in Shelter and Finance (CISF) is actively promoting and carrying out applied research and knowledge management for shelter finance. Accion and HFHI co-authored a seminal note on housing microfinance (available here), Insight #21: Getting to Scale in Housing Microfinance.