REPORT__Evaluating_the_potential_of_microfinance_for_sanitation_in_Tanzania_May_2013

As a result, sanitation-sector champions (such as Tim Ndezi) recommend treating sanitation
microfinance as a specific category rather than incorporate it into housing microfinance.
Although there are pros and cons for both approaches (and they are not mutually exclusive),
we would support supporting sanitation microfinance specifically, at least during the initial
few years when both housing microfinance and sanitation microfinance markets need to get
established. Promoters of sanitation microfinance (via a dedicated working group, for
example) should also argue for strict enforcement of building regulations, so that new
buildings constructed incorporate a sanitation solution To this end, stakeholders were asked
to consider develop a specific working group for sanitation microfinance. WaterAid Tanzania
could facilitate the establishment of such a working group, gaining from the experience of the
already functional housing microfinance working group mentioned above.
Box 7. Recent developments in the housing microfinance market in Tanzania
The need for housing microfinance products is direly felt in most developing countries (including in
Tanzania), where mortgage products are usually only available for the wealthier customers and there
are no financing sources for incremental housing improvements. According to CGAP (2004), “Housing
microfinance consists mainly of loans to low-income people for renovation or expansion of an existing
home, construction of a new home, land acquisition, and basic infrastructure (e.g., hooking up to city
sewage lines). As of 2004, CGAP indicated that most of the successes in this then new field had been
with home improvement loans, whereas land acquisition and new housing construction are still
dominated by subsidies, rather than financial services.
In Tanzania, a number of financial institutions have recently started developing and promoting
housing microfinance, partly with the support of the Financial Sector Deepening Trust, international
donors such as the World Bank or international NGOs such as Rooftops international.
Establishment of a housing microfinance working group. A housing microfinance working group
was set up in November 2009 and gathers institutions (13 in total so far) that are interested in
fostering the development of this market in Tanzania, including potential providers of housing
microfinance as well as the Bank of Tanzania (Central Bank) and international NGOs.
The working group placed its main outputs on a webpage (see: http://hmfwgtz.blogspot.com/), which
contains a wealth of information about their activities and about the market as a whole. Membership is
opened to any interested institution and free, in exchange for transparency about their products. As of
July 2011, working group members have jointly provided no more than 2,000 housing loans (with an
average value of TZS 1 million), whilst the potential demand is in the range of millions, the underlying
idea is that members should not treat each other as competitors but rather seek to work
collaboratively in order to develop the market.
The World Bank Housing Finance project. In March 2010, the World Bank initiated a 5-year USD
40 million project aimed at developing the housing mortgage finance market in Tanzania, including
initiatives to foster the development of a housing microfinance market. There are three components to
the project. The main component of the project is the development of the mortgage market, centred
on the creation and development of the Tanzanian Mortgage Refinance Company (TMRC) to provide
medium and long-term liquidity to mortgage lenders. The second component of the project is
development of housing microfinance. An initial study will assess the potential to develop this product
and examine how a Housing Microfinance Fund (HMFF) could help in providing longer term funds to
allow loans for up to five years or longer to be granted. Regulatory reform and capacity building
around this product will also be necessary to foster a safe lending environment. The setting up and
implementation of HMFF is likely to take place during the second half of the project. The third
component of the project is expansion of affordable housing supply. Work will be undertaken to
support the development of a private developer industry. A range of measures will be undertaken,
which includes: conducting a baseline housing market study, improving the capacity of the National
Housing Corporation (NHC), improving capacity of banks to provide real estate developer finance,
and promoting the use of lower cost construction technologies.
Sources: Interview with Stephen Wanjala; http://hmfwgtz.blogspot.com/ and World Bank’s website.
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