Developing Incremental Housing Microfinance in Indonesia

Project Development Objective (PDO)

This project aims to help the government of Indonesia (GoI) have a clear vision and policy agenda for developing incremental housing microfinance for 2015–19. This development will catalyze further reforms to help increase access to finance for housing improvement for the low- and informal-income population.


Most of Indonesia’s unmet housing demand is for improving and expanding existing units. However, despite the significant demand, few intermediaries offer financial products tailored to home improvement or expansion. 
The Ministry of Housing’s (MoH) Incremental Housing Program (MP3KI), which consolidated the self-help housing grant (BSPS) and the quality improvement grant for slum housing (BSPK) in 2012, represents a significant investment of resources into housing improvement. The program has had an impressive reach, with enough funds transferred for 245,000 households to be upgraded. However, the program delivers full grants, thereby missing opportunities to leverage household and private sector participation to reach a larger number of beneficiaries and to achieve medium-term financial sustainability. 
Mortgage loan amounts and terms are usually not appropriate or affordable for most households. Low and informal incomes and requirements for formal title exclude more than 90 percent of Indonesians. Whereas microfinance is more widely accessible and the industry is well established in Indonesia, credit settings do not satisfy the conditions needed for home improvement or expansion. 
The housing microfinance (HMF) sector remains relatively unknown, with high, specific, and intrinsic risk, thereby limiting the leverage of the MoH’s Incremental Housing Program and the role of the private sector as provider of microloans for home improvement and self-construction. The HMF sector faces scarce liquidity to fund medium-term lending needed for housing and construction, especially for small institutions entering the market, jeopardizing the scaling-up process. Little Indonesia-specific knowledge exists on successful financial products and instruments to reach this segment. Market data of potential housing microfinance customers and financial models are underdeveloped, thereby limiting the ability to target government support.


The activities and outputs of the proposed project are as follows:
1.  Evaluate the existing GoI Incremental Housing and Self-Construction Program.
2.  Create a roadmap for the government’s development of the housing microfinance sector. 
3.  Recommend ways to implement the government’s strategy for housing microfinance
     development into the National Strategic Plan from 2015 to 2019.
4.  Develop a detailed savings-subsidy micro housing finance (SSMHF) product.

Expected Outcomes

The expected outcomes of the project include:
1.  A clear vision and policy agenda set by the GoI and adopted in the National Strategic Plan for
2.  A roadmap that enables housing microfinance by using a combination of regulations, carefully
     targeted subsidies, and the provision of public goods (that is, market information, credit bureaus)
3.  SSMHF policy and institutional arrangements adopted and a new scheme launched
4.  New funding mobilized
5.  New lending products for housing extension, renovation, and self-construction