The lack of access to housing finance remains a major obstacle to home ownership in countries such as Malawi, especially among low-income earners. This paper explores the experience of lending for housing to low-income households, the performance of housing finance management tools and the development of alternatives. It draws on discussions with leaders and members of the Malawi Homeless People’s Federation, its support NGO (the Centre for Community Organization and Development – CCODE), stakeholders in the housing sector and lawyers working to resolve problems related to non-repayment of housing loans. Section I introduces the discussion. Section II provides more information on the development of housing options and shelter finance in Malawi and on the emergence of the Mchenga Fund that is the particular focus of this paper. Section III discusses these approaches within the broader context of housing initiatives in the global South, discussing the failure of many approaches to housing and the subsequent attempts to shift from supply-led to demand-led modalities, including shelter microfinance and community savings. Section IV describes the history of the Mchenga Fund and Section V discusses the difficulties facing the initiative. Section VI presents solutions that have been identified and tested in recent years and Section VII concludes. The annexes show the records and agreements developed by the federation, CCODE and Mchenga staff to manage the process and demonstrate transparency to all involved.

In the absence of any formal finance system to support housing, a group of 50 women savers in Mtandire informal settlement in Lilongwe initiated a community savings approach to shelter development in 2003. The approach has grown rapidly and the savings groups now have more than 15,000 members. The consolidation of savings groups into the Malawi Homeless People’s Federation and the subsequent formation of a support NGO (CCODE) have supported the efforts of these women to address their shelter needs. By the end of 2010, federation groups had negotiated successfully for land for more than 3,000 members in a number of urban centres, with the first development of 222 plots taking place in Lilongwe in 2003.

Shelter microfinance offers solutions for those with secure tenure and who are able to take on the risks associated with individual borrowing; but it cannot finance collective investments in upgrading, infrastructure or new-build. Such investments have to be collective because this is the only way they are affordable by low-income households. However, without secure tenure, the risks are too great for microfinance agencies to take on. To facilitate the development of shelter on land they had obtained, the federation members and CCODE established the Mchenga Fund, which is capitalized by community savings and donor funding. The federation manages the allocation process and subsequent lending-related and shelter construction activities. Between 2007 and 2010, about 750 houses were constructed by members, financed by Mchenga. However, the development of loan management skills and capabilities has not been straightforward and the federation has had to learn from its mistakes as there was a very high default rate from the first project it undertook. This paper describes the learning process for managing collective shelter finance. The federation recognized that scaling up financial mechanisms that include the lowest-income residents requires community level management. Only decentralized management can ensure that interactions with borrowers are sufficiently sensitive to real affordability constraints and can negotiate difficult financial pressures. Only local groups are able to support appropriately and effectively those who face difficulties. At the same time, groups have to recognize problems such as some community members who sought to exploit the process for their own benefit, politicians seeking to establish clientelist rel