Microlending for housing in the United States. A case study in colonias in Texas

Applying the concept of microlending to housing is gaining momentum as a practical alternative for those who are on the margin of mainstream financial services. Microlending has been widely researched in the context of developing countries, but less is known about how – and if – it works on marginalized groups in developed countries, specifically in relation to housing. Using the case of South Texas colonias, this paper explores a microlending program for home improvements and its capacity to impact the local economy. Basic data comes from the Nuestra Casa lending program database (609 clients) and from face to face interviews with a randomly selected sample of 138 clients. Our findings show that this program targets and serves clients from the unbanked population, who do not have access to other lending alternatives; further, 70% of the current clients are living below the poverty threshold; defaults rates are found to be low, indicating a capacity to pay loans based on income-to-debt instead of loan-to-debt ratios; and finally, it positively impacts the local economy, since labor and materials necessary to implement the improvements, are purchased locally. These findings should give us policy guidelines to evaluate lending programs that attached to local economies and are suited to serve the target populations.

Research highlights
► Low-income clients can be good payers but are often left out of the financial system. Successful programs are based on income-loan instead of debt/loan ratios.
► Micro lending programs reduce the risk taken by funding agencies; are easy for local staff to manage and simple for clients to understand; and do not create a big burden on the applicant.
► The investment in housing improvements results in local purchases of both labor and materials benefiting communities where they happen.