Uganda’s housing dream is built one stage at a time

OPINION | ANTHONY KIVUMBI | Drive out of Kampala on any road you like. Take the road to Naggalama, where I went to school. Somewhere beyond the last trading centre, you will likely see a plot with a ring beam but no roof. The blocks are well laid. The windows have been bricked up to keep away thieves. Grass is beginning to grow where the sitting room will eventually stand.

We look at such a plot and call it a stalled project. I have come to see it differently.

That house is not stalled. It is being built on a payment plan — one designed by its owner and one that no bank in Uganda wrote for him.

He bought the plot after three years of saving and selling a piece of family land. He put up the foundation in the year his kikuubo business performed well. The following year, he completed the walls. The roof is waiting for him to get through another school-fees season.

Ask him when he expects to finish and he will probably say, without embarrassment, “We are still building.”

He may continue building for eight years. At the end of that period, however, he will own a house outright, with no mortgage, no default and, in many cases, no bank involved in the process.

This is how the majority of Ugandan homes are built. Not by large developers. Not through mortgages. They are built by households, one stage at a time, over several years, using income that arrives when it is available.

Uganda’s housing deficit is estimated at about 2.4 million units. The country produces roughly 60,000 housing units annually against demand of about 200,000.

These figures are regularly cited at conferences, often before someone unveils another state of two-bedroom houses selling for $60,000 each.

The problem is that the formal housing finance system is designed around a market that barely exists at the scale required.

Mortgage lending in Uganda has remained below one percent of GDP for years, while interest rates remain in the high teens. A mortgage typically requires a registered land title, yet about 80 percent of Uganda’s land is held under customary tenure.

It also requires a payslip, yet most working Ugandans do not have one. And it demands a 15-year commitment from borrowers whose incomes may be predictable for only a few weeks at a time.

As a result, formal housing finance largely serves the small segment of the population with a registered title, a payslip and a long-term income horizon.

Everyone else has found their own financing system. It is the hardware dealer in Nateete who allows a customer to take 20 bags of cement and pay at the end of the month. It is the savings group. It is the SACCO. It is the family member who provides a little money when it becomes available.

In many ways, that hardware dealer is one of Uganda’s biggest housing financiers, even though he does not have a banking licence.

For a large part of my career, I sat on the bank’s side of the desk and said no to people whose biggest problem was not that they lacked money, but that their money arrived in a form our traditional lending models did not recognise.

Over the past few years, I have worked on lines of credit dedicated to what the sector calls incremental housing.

These are relatively small loans, mostly unsecured or lightly secured, that a household can repay within 12 to 24 months and which are linked to a specific stage of construction.

That stage could be putting up a roof, plastering and flooring a house, adding two rooms that can later generate rental income, installing a water tank or connecting a home to the electricity grid.

One such facility was implemented by Housing Finance Bank, using both our branches and the Microfinance Department for deployment. It reached more than 8,400 households, with an average loan tenor of about 18 months. Roughly a quarter of the borrowers were women.

Some of the lending was also extended through a boda-boda association, whose members represent exactly the type of customer that traditional bank credit policies have often been designed to exclude.

Two things about that portfolio changed how I think about housing finance.

The first was repayment. People repay money when they can see the result sitting above their heads as a roof. Delinquency in this type of lending has been consistently, and sometimes surprisingly, better than in some of the more “bankable” parts of the loan book.

The risk we assumed existed was, to a large extent, a product of how we measured borrowers rather than the actual risk they presented.

The second was speed. A shilling lent for 18 months comes back and can be lent again.

The same money can therefore help house several families within the period when a single mortgage is still in its early stages of repayment.

If the objective is to increase the number of households housed per shilling deployed, incremental lending should not be viewed as the poor cousin of mortgage finance.

It may be the more efficient instrument for the reality of Uganda’s housing market.

There are three things we should reconsider. First, we need to underwrite cash flow rather than simply a payslip.

The income of a boda-boda rider, small trader or informal-sector worker can be more visible today than it was 20 years ago. Mobile money records, fleet platform data, SACCO statements and supplier ledgers can provide evidence of income.

What is missing is the willingness to recognise that data as evidence of a borrower’s capacity to repay.

Every bank in Uganda says it wants to serve the informal sector. Yet very few have changed the fundamental credit-policy requirements that continue to exclude many informal workers.

Second, the collateral should match the size of the loan. A Shs4 million roof loan should not require a land title and a valuation report that may cost a significant proportion of the amount being borrowed.

Regulation, credit committees and provisioning requirements still tend to push financial institutions towards secured, long-term and large-ticket lending.

Until the treatment of small, unsecured housing credit reflects its actual performance, pricing and lending appetite are likely to remain out of step with the market.

Third, we should stop thinking only about selling finished houses and start selling construction stages.

Developers and building-material manufacturers continue to wait for a mass market capable of purchasing completed housing units. That market is unlikely to emerge at the scale required to address Uganda’s housing deficit.

The market that already exists wants a roof this year and a floor next year. The company that develops a reliable stage-by-stage housing product — combining building materials, delivery, technical supervision and credit — will not have to create demand.

The demand is already there. Uganda will not close a 2.4-million-unit housing deficit through ribbon-cutting ceremonies in Kira alone.

A significant part of the deficit can be addressed by supporting the millions of quiet construction projects already taking place across the country and helping households complete them faster.

That requires banks, regulators, development partners and housing policymakers to accept an unglamorous but important reality: in Uganda, a house is not simply a purchase.

Our job should not be to replace that process with a foreign model. It should be to make the process shorter, more affordable and more efficient.

The man on the Naggalama road does not need us to build him a house. He is already doing that. What he needs is Shs6 million for 18 months, so that when the October rains arrive, they fall on iron sheets rather than on his ring beam.

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The writer is a Business Development Manager – Strategic Partnerships at Housing Finance Bank.