GP Corner

01. Habitat for Humanity is a not-for-profit organization focused on helping people acquire new homes, rehabilitate and/or repair them across the world. Given the longstanding investing experience of Habitat’s Terwilliger Center, how easy or challenging has it been to achieve your impact goals in India compared to other regions in Asia Pacific?

Habitat’s vision is of a world where everyone has a decent place to live. One of the ways we pursue that is through impact investments in housing, including our MicroBuild Fund and Shelter Venture Fund. It can be difficult to bring foreign capital into several countries in the Asia-Pacific region. Repatriation of capital is a further challenge unless a fund is registered as an entity in the country.

The MicroBuild Fund was the first housing-focused microfinance investment vehicle dedicated to helping low-income families. Since launching in 2012, fund has disbursed US$144.6 million to 56 institutions in 33 countries, serving 207,243 households and unlocking over US$425 million in net funds. As a demonstration investment vehicle, it was not feasible to pursue local registration in every country. Thus, with the fund we have taken a very bottom-up approach – if there is a demand for housing finance in a particular country, and if the regulatory environment is conducive, then the fund will make every effort to provide both financing and technical advisory services to support institutions grow their affordable housing finance portfolios. Although as a demonstration fund, MicroBuild Fund has already surpassed its projection model and we continue to see a growing demand for access to affordable housing finance across Asia-Pacific.

We recognize that housing finance is not the only intervention required to improve affordable housing markets. Habitat’s Shelter Venture Fund catalyzes and expands the affordable housing markets by investing in shelter entrepreneurs operating in the “pioneer gap”. In the past three years, the Shelter Venture Fund has invested approximately 3 million USD in 11 startups, including three based in India.

02. Habitat for Humanity’s MicroBuild Fund is unique in supporting microfinance institutions (MFIs) in providing housing finance to low-income families. Could you walk us through your journey and operations in the Indian impact investing market?

Habitat for Humanity International launched the MicroBuild Fund in 2012, closing the first phase of US$50 million in August of that year. The second phase closed in May 2016, bringing the fund to US$100 million. The MicroBuild Fund is capitalized by US$10 million of equity and US$90 million of debt from the Overseas Private Investment Corporation, now called the U.S. Development Finance Corporation (DFC). As the sponsor of MicroBuild, Habitat has a majority equity stake of 51 percent; other investors include, Omidyar Network, MetLife Foundation and Triple Jump, which is also the fund manager. Additionally, Habitat through the support of its high-net-worth donors, provides guarantees equivalent to 10 percent of the total fund size through letters of credit issued in favor of the DFC as a first loss credit enhancement. Habitat has also committed 10 percent of total fund capitalization, or US$10 million, to provide technical assistance through our Terwilliger Center.

At the time of launching the global MicroBuild Fund, Habitat was also working to set up a separate housing finance company in India called MicroBuild India with a different structure, which was operationalized in 2013. Because of local registration challenges, MicroBuild India was able to begin lending in-country before the global fund. But the two funds also faced different regulations on size and tenor of the loans they could offer to MFIs, with the global investment vehicle ultimately able to offer larger loans, up to $5 million to a single MFI for up to six years via non-convertible debentures.

To date, the global MicroBuild Fund has supported three institutions in India – one each in the states of Odisha, Karnataka and Haryana with disbursement totalling approximately US$9 million, serving 41,160 households and nearly 206,000 individuals. More importantly, since MicroBuild Fund investment, these three institutions have further unlocked US$37.6 million of additional capital to grow their housing finance portfolio, a testimony to MicroBuild Fund’s catalytic impact. Additionally, MicroBuild India has funded US$20.2 million across 31 MFIs, directly serving nearly 50,000 families.

03. MicroBuild Fund’s current portfolio includes Annapurna Microfinance and Ummeed Housing Finance. How has growing urbanization impacted the number of MFIs lending home loans to low-income people?

India faces a significant housing gap both in terms of quantity and quality. An assessment by the Ministry of Housing and Urban Poverty Alleviation identified a housing deficit of 19 million units in urban areas, in addition to housing stock in need of substantial repairs. And yet, mortgages remain a privilege for the few. Only 20 percent of households in developing countries have access to the formal financial sector. To make ends meet, low-income families depend on informal mechanisms for savings and credit from MFIs. But most MFIs remain focused on income-generation or small business loans even though practitioners estimate that 10 percent to 20 percent of total microfinance loan disbursements are used for housing.

This enormous gap between demand and supply presents a sizeable business and social impact opportunity for financial service providers to develop new products and services that enable housing finance for low-income families. We are seeing more and more traction in this space among MFIs, as they begin incorporating housing products into their business plans as part of portfolio diversification and risk management strategies. Such products also allow them to maintain high social impact standards, as safe and secure housing unlocks various socio-economic outcomes for families that further contribute to their overall well-being.

In India, affordable housing finance companies also provide mortgage solutions to people from informal segments using innovative and field-based underwriting criteria. This is a game-changer for low-income families as they continue to be unbanked from mainstream financial institutions. A study from FSG highlighted that such affordable housing finance companies grew from a combined loan book of close to ₹1,000 crores ($200 million) in March 2013 to over ₹27,000 crores ($4.1+ billion) in December 2017, at an average loan ticket size of ₹9.3 lakhs ($14,350), and have facilitated the ownership of more than 230,000 affordable homes.

04. Within housing, Habitat for Humanity is looking at finance, advocacy, weather proofing, disaster risk reduction and preparedness, technical training, environmentally sustainable and low-cost construction technologies, and water and sanitation projects. Do you see any emerging unexplored sub-segments in the housing space in India and worldwide?

One of the biggest challenges to safe and liveable housing for low-income families globally is the absence of appropriate design services for those who build their homes themselves incrementally. These incremental builders represent an estimated 70 percent of all urban housing in emerging economies and are often an invisible segment within the wider housing market. The absence of design services for these low-income families is driven by a lack of supply – architects and the institutions that train them do not see this population as profitable – and a lack of demand – families think the services will be too expensive and that their local mason can replace a trained architect. When families do not have access to professional design services in planning or construction their resulting building costs can increase significantly and the home can also be less habitable due to poor lighting and ventilation. Additionally, structural defects that are not caught early can make it impossible to expand the home as the family grows or require early demolition of the home.

Habitat’s Terwilliger Center is working to nurture new strategies and business models to reach low-income families with appropriate and affordable design services. We are currently collaborating with universities, architecture firms, skilling agencies, and shelter entrepreneurs, and are actively running pilots through our Shelter Venture Labs in Mexico, Peru, Kenya, the Philippines and India. Our Labs also offer provides catalytic funding for projects to test and scale up promising interventions.

05. As a non-profit, Habitat for Humanity seeks to capture the impact the organization has had. What are your thoughts on aligning impact measurement and management practices with international best practice or standard like GIIN’s IRIS+ or the UN SDGs?

Global targets and standards can be helpful both for measuring and communicating a program’s impact. We believe in aligning with international best practices as much as possible in order to facilitate sharing and learning with other organizations, as well as contributing to a global evidence base on what works. When designing the impact measurement framework for Habitat’s ShelterTech platform, for example, we did a deep dive into international standards and indicator libraries, including IRIS+ and the UN’s SDGs prior to finalizing metrics. Ultimately, we pulled from the relevant metrics of these global standards while also seeking to capture the uniqueness of our programming and respond to the need for additional disaggregation and information.

The impact measurement framework maps to a number of SDGs, including SDG 1 – No Poverty, SDG 5 – Gender Quality, SDG 8 – Decent Work and Economic Growth, SDG 11 – Sustainable Cities & Communities, and SDG 13 – Climate Action. As a result, our indicators include things like the number of women-owned businesses we support, the number of jobs created by those businesses, and how many low-income families our entrepreneurs reach with their products and services. We are also collecting data in alignment with IRIS+, such as the satisfaction ratio of our entrepreneurs, the price of products and services sold, and the number of households improved. We have plans to expand our indicators to include the savings and satisfaction of households who purchase the products and services of the businesses we support.

06. With the growing acknowledgement and awareness of climate change, and the need to take immediate action, how successfully have you integrated environment-related consciousness in your process and end-products? Could you please elaborate.

Sustainability is an important issue for us as a housing organization as the building sector is one of the largest emitters of greenhouse gasses, accounting directly and indirectly for 38 per cent of global energy-related CO2 emissions (UNEP 2020). This offers a key opportunity to support and encourage innovations in low-carbon and circular building solutions, as well as construction practices that reduce emissions and waste.

Many promising entrepreneurs are heeding the call to respond to a changing climate and start-ups are increasingly interested taking sustainability-focused approaches to their product or service. But support from the impact investment ecosystem is needed to drive change in this slow to move sector. Through our innovation and entrepreneurship portfolio, Habitat’s Terwilliger Center seeks to support and invest in high-impact and sustainable solutions to accelerate affordable housing. Environmental sustainability and gender are two of the lenses we use when deciding how to expand our portfolio. In India, both of our Shelter Venture Fund investments are in companies offering sustainable housing innovations. ReMaterials is an Ahmedabad-based start-up that manufactures modular roofs from agriculture and cardboard waste. EcoSTP, a start-up from Bangalore, treats sewage water without power and chemicals, using biomimicry principles.

We view our role as helping start-ups understand the positive and negative impacts they might be having on the environment and to positively direct to them become more sustainable and/or more impactful over time, while addressing the housing needs of low-income families. We also track the climate impacts of our portfolio through the amount of CO2 diverted from to the use or uptake of a given product or service, utilizing the guidance of the Greenhouse Gas Protocols.

07. Habitat for Humanity has partnered with accelerators/incubators like Villgro to support social enterprises in raising funds through iPitch 2021. How has your experience been? Are more investors around the world also looking to support and/or fund housing related investable options?

Although we are beginning to see more interest in the sector from both entrepreneurs and investors, low-income housing is not yet a mainstream theme in India’s start-up ecosystem. Habitat’s 2018 ShelterTech India accelerator, run in partnership with CIIE, was the first such program to focus specifically on this theme. Even PropTech, which deals more broadly with the construction and property sectors, was still an emerging area of investment. Because of this lack of exposure, we built into the program a significant amount of outreach to founders, mentors, partners and investors.

 

After the first accelerator, we have seen early signs of change, including increasing interest from incubators and accelerators to take up shelter as a core theme. One example is the Brigade Real Estate Accelerator Program (REAP), which added low-income housing as a focus area in their 10th cohort that launched in July 2021. We also partnered with Villgro for iPitch in 2020 and 2021. Through this platform, we have seen increasing collaboration, as well as grant and small-ticket investment support from the ecosystem for housing start-ups. We have also seen good interest from others, such as Selco Foundation, and Social Alpha, to invest in and support start-ups working in the housing sector. Investors are increasingly recognizing the connection between housing and the many horizontals they focus on, including climate change, circular economy and green practices. We will continue to work with accelerator programs to identify and nurture early-stage start-ups and foster a more vibrant innovation ecosystem that will in turn attract even more impact investment into this space.