The first half of this chapter concentrates on highlighting the lessons learnt from recent housing finance programmes that sought to reach lower income groups in the South; the second half reviews the scale and nature of finance from donor agencies to housing, infrastructure and services. This concentration in the first half of the chapter on such a narrow focus is for two reasons. The first is the fact that the last ten to fifteen years have brought considerable innovation in this field from many governments and non-government organizations in the South. The second is the limitations of space that prevent a more wide ranging review of recent trends and innovations in housing finance in both the North and the South. This means that many interesting and important innovations are not covered here.

Most of the housing finance programmes described in this Chapter include finance for some infrastructure and services so it is difficult to separate the discussion of housing finance from that of infrastructure and services. In most countries in the South, relatively few low-income households can afford to purchase a house with piped water and connection to sewers. Loans provided to individual households to build a new unit often have to cover the cost of installing water supply and provision for sanitation with no connection available to municipal or city water supply and sewage systems - or connections only available at a relatively high unit cost. The same is true for many loans provided to low-income households to improve existing housing units. The primary focus in this chapter is on housing and there is no discussion of loan programmes only for infrastructure and services.

In government housing finance programmes, there is a recognition that a large portion of the population cannot afford to purchase conventional housing but can afford to develop their own housing, if credit, technical assistance and services are available that match their needs and capacities to pay. There is also a recognition that new kinds of housing finance institutions are needed and that conventional housing finance or mortgage institutions that many governments set up or strengthened in the 1970s and early 1980s were not serving low-income groups. At the same time, it has been recognized that informal finance is being used for housing improvement or construction. Although differing in detail, many relatively new housing finance institutions have sought to provide subsidised credit to help finance (generally incremental) housing development for low-income communities. This section describes the experiences of some of these programmes: Mutirao (the National Programme of Mutual Aid Housing) in Brazil, the Community Mortgage Programme from the Philippines, the Urban Community Development Office from Thailand, FONHAPO in Mexico and Build-Together National Housing Programme in Namibia. It also includes details of some other programmes such as the Million Houses Programme in Sri Lanka and recent experiences in Colombia. It describes how these programmes enabled households and communities to obtain access to land, building materials and finance for housing, and support for housing production processes.

The government programmes for housing finance drew on earlier NGO experience in credit programmes that had successfully provided low income groups with small sums of credit for income earning activities. Such government and NGO programmes seek to address the fact that most low-income households cannot obtain credit for housing construction or improvement from conventional banks or housing credit institutions. Without credit, households have far fewer housing options. They generally cannot afford to purchase a secure land site legally and are generally forced to build incrementally, in ways which increase overall costs.

One Indian NGO calculated that the total expenditure incurred by a pavement dweller in Bombay in maintaining their shelter would be equivalent to the mortgage repayments on a small permanent dwelling. But, without being able to obtain a loan, 20 years expenditure is wasted and they are left with neither a secure home nor an asset. Such experiences showed the need for housing credit.

The lack of formal sector credit for low-income households arises for many reasons:

- a belief that the poor will not repay;

Many of these are similar to the problems faced by small entrepreneurs in obtaining credit for business investment. But in the case of housing, there are three further factors that reduce available credit: the longer loan periods; the larger loans needed; and the lack of increased income arising directly from the investment. Nevertheless, as the discussion in this Chapter shows, these programmes for low-income housing finance are similar in some aspects to informal and innovative credit programmes for micro-enterprises.