Thoughts on Developing a Pro-Poor Housing-Finance System


Access to adequate housing is a basic and fundamental right of human beings. Besides providing shelter and the space for the members of a household to live, it is also considered a point of reference for access to services and utilities, such as basic infrastructure, employment, education, medical services, or credit. The housing sector is a key driver of the economy with multiplier effects extending to over 600 other industries.

Urban areas in Mongolia present two very different and distinct patterns of residential development. The first involves planned areas based on residential-housing district planning practices and featuring multi-family housing surrounded by vaguely defined open space. The second involves “temporary” ger1 districts that are characterized by long strips of large, unserviced plots with wide roads on at least two sides, and which now dominate urban growth. Ger districts typically exhibit a mixture of very poor, poor, low-income, better-off, and middle-income people. Both types of layout are found in virtually all of the country’s urban settlements. From the early 1990s onwards, Mongolia experienced rapid urbanization, and, particularly since 1998, many rural families and herders have moved to the outskirts of Ulaanbaatar and the aimag centers, where they live in gers and low-cost self-built housing. About 59% of Mongolia’s 2.8 million population is classified as urban; more than half of the urban population is in the capital, Ulaanbaatar.

As a result, there has been a growing disparity in the provision of services between ger districts and formal housing developments. Over 90% of ger households in ger districts have electricity, but virtually none are connected to a central heating network. Instead they use individual coal, dung or wood-burning stoves for cooking and heating. Water is mostly trucked into ger districts and supplied through kiosks located up to 1 km or more from the farthest households. Having to carry water over such long distances, often in adverse weather, has limited the average amount of water used by ger district residents to between 4 and 10 liters per person per day, an amount that is well below the recommended health standard of the WHO. Moreover, the cost of water obtained from kiosks is as much as 20 times more than that paid by apartment dwellers for centrally-supplied water. For sanitation, virtually all of the households use primitive pit latrines that are not only inconvenient, but also a growing hazard to human and environmental health.

Infrastructure networks in the formal urban areas, while better than those in ger districts, are typically old and have deteriorated, particularly in the secondary towns. Not only is their technology outdated, but inadequate maintenance and repair work over many years have also reduced the efficiency of these networks and made them unsuitable for future urban growth. Therefore suitable housing conditions have become a very important issue for Mongolia.

For most people housing is their single most expensive purchase and their single biggest asset. The vast majority of households cannot pay such amounts up-front and are critically dependent on the availability of credit at affordable and easier terms. As is well-known, formal financial institutions prefer lending to clients with established credit records, a regular income and some collateral—prerequisites that most poor people cannot fulfill. Moreover, the poor tend to build, improve and expand their houses incrementally—as and when their incomes permit. They therefore often require a series of small housing loans that can be paid off easily, but which cannot be processed cost-effectively by formal housing-finance institutions. In order to deliver housing finance to the poor in spite of such limitations, non-governmental organizations and community-based organizations in several countries have developed micro-credit and community-based housing-finance systems, which are specifically adapted to the more informal lives of many poor communities. However, such housing-finance systems are often small in scale, reaching only a limited number of households.

Therefore, the stark discrepancy between the vast need for pro-poor housing finance and its actual reach need to be urgently addressed. While non-governmental and community-based organizations can provide sustained access to poor communities, the formal housing-finance sector can provide the necessary large-scale financing. One key approach is to explore possibilities for significant up-scaling of the micro-credit and community-based housing-finance sector by linking it with the formal housing-finance sector. The challenge is to find innovative, economically viable, win-win solutions, whereby more poor households have access to housing finance, and simultaneously providing the formal housing-finance sector with access to a vast, hitherto unreachable market of clients.

  1. The ger is the traditional circular felt tent of Mongolian nomads. Informal urban settlements, characterized by a variety of shelter types, predominantly ger tents, are referred to as ger housing districts. The majority of the rural and even 60% of the urban population are still living in gers.

 [Translated by ERINA]