Saving for a Home: When Commitment is Too Much and Too Little (Part 1)

In the first for a two-part blog series, FAI affiliate Daniel Rozas discusses housing microfinance and his experience with the Citi-Habitat Home Improvement Microsavings Pilot Program.  

Few objects signal middle class like housing. More than a car, more than clothing or other life accoutrements, there’s nothing like owning a modest home to send the message that the family has achieved this near-universal dream.

In wealthier countries, the issue of housing is largely seen through the lens of ownership – families who own their homes are likely to see their assets grow far more than families who rent, even if their incomes are identical. Home ownership (or lack thereof) is the reason why the wealth gap is so much greater than the income gap.

In developing countries, the emphasis is more on the home itself than its ownership, since many poor families already own their homes, even if in various degrees of formality. The primary concern of these households isn’t ownership, but the quality of the home. Does it have space for a growing household? Does it have sewage and running water to help stave off disease? Does it have electricity to keep food fresh and allow children to study in the evenings? Is it resilient to severe weather, and thus able to preserve the household’s assets? And when the home is also a place of business, can its infrastructure support the productivity needed to increase earnings?

As with their counterparts in wealthier countries, having better homes in itself brings higher returns – in health, education and even income. The path is arguably self-reinforcing, but just like saving for a first home, getting on this path in the first place can be challenging. The physical improvements needed to bring the home to that level are costly, sometimes even prohibitive.  That suggests a role for financial institutions.

In 2012 Habitat for Humanity, the world’s largest housing NGO, embarked on a program to help poor families save for home improvement. Having spent years developing expertise in housing microfinance – loans that help families improve and, over time, build their homes – Habitat wanted to see if a savings product could do the same for families that were reluctant to borrow or could not qualify for a loan.

Armed with funding from the Citi Foundation, Habitat launched three Housing Microsavings pilots in Thailand and the Philippines (disclosure: Habitat retained me to analyze and document the results of the pilot). In every case, the product was some variation of commitment savings – after all, for the past several years, commitment savings has gone undefeated in study after study, besting traditional savings in every match.

Until now.

For more on these pilots, please download Habitat For Humanity's new report, Saving Up, available here.