HOUSING MICROCREDIT: THE FRENCH EXPERIENCE
Perrine Lantoine e Julia Faure e Julia Faure
Housing microcredit is a rising issue in France, driven by the commitment of Caisses d’Epargne.
A key example is the partnership signed in 2013 with one of main actor in fighting poor housing, the Fondation Abbé Pierre, with the objective to allow access to finance to vulnerable owners-occupiers.
This partnership tackles two main issues: increasing the energy efficiency and reducing unhealthy housing through an upgrade to legal standards. The main innovation consists in a customized approach combining social situation, housing conditions and household’s budget diagnosis. It supposed a close collaboration between many stakeholders, with complementary expertise.
Although housing microcredit is still in early development, the current experimentation opens a new field of thought, discussion and collaboration for banks, NGOs and public authorities. It highlights an increasing social need, which calls for solutions at a wider scale, the current experiment being a laboratory for innovative approaches.
In France, up to 300,000 poor owners-occupiers live in unhealthy housing and at least 3.8 million households face fuel poverty. Fuel poverty refers to households who are not able to afford to keep warm their housing at a reasonable cost. It is a major and growing issue in Europe, as many people have difficulty in paying their energy bills due to their low income. The result can be unpaid energy bills, or arrears, self-disconnecting, disease linked to the cold, dampness and/or mold problems…
Improving housing conditions requires works that are partly covered by means-tested benefits delivered by public agencies (Agence Nationale de l’Habitat), municipalities, pension funds… But despite these supports, it is difficult, for low-income households, to complete the financing of the refurbishment works: finding an adequate financing can be an insurmountable obstacle. Dedicated financial institutions used to provide interest-free loans for this target group until autumn 2012. But they have been progressively dismantled and Caisses d’Epargne got increasingly solicited by local partners, to finance refurbishment works through personal microcredit.
Caisses d’Epargne are indeed leading actors of personal microcredit in France. They provide around 4,500 personal microcredits per year, through a network of associations called Parcours Confiance. Parcours Confiance mission consists in giving access to finance to people excluded from mainstream banks. Whereas nowadays most banks rely on highly industrialized processes, using automated credit scoring, the philosophy of microcredit is to assess clients’ creditworthiness through a customized and in-depth budget and social analysis. Parcours Confiance work in close collaboration with social partners (non-profit, social workers...), which operate a pre-selection of relevant demands and bring their expert knowledge of social inclusion. The Caisses d’Epargne propose an affordable interest rate, around 3% (fix interest rate). There are no – or very low – fees and the beneficiary gets a free support service.
In response to increasing solicitations, a local Caisse d’Epargne in the Bretagne Pays de Loire region launched in 2013 an experimentation to design a new product called “housing microcredit” for poor owners-occupiers. Then all 17 Caisses d’Epargne got involved.
The amount and duration of the microcredit had to be adapted to the new typology of projects financed. Housing microcredit has a maximum amount of 10,000 euros, whereas other personal microcredits are limited to 5,000 euros. The duration can be up to 72 months, which is longer than traditional personal microcredits. A specific agreement was negotiated between the FNCE and the national public bank Caisse des Dépôts et Consignations (CDC), which manages the national guarantee fund for personal microcredits. According to this agreement, housing microcredits are eligible to public guarantee even if the amount is above 5,000 euros.
In 2013, the Fondation Abbé Pierre took contact the Fédération nationale des Caisses d’Epargne in order to develop housing microcredit. Both institutions signed a national partnership in October 2013. Through this new agreement, the Caisses d’Epargne have a new guarantee line for housing microcredit up to 25,000 euros.
Created in 1990 and recognized as promoting the public interest in 1992, the Fondation Abbé Pierre aims to act “in order for the most underprivileged to be sustainably housed in dignity, regardless of their income or social status”. It pursues many objectives:
fighting for each and everyone to have a roof or a dignifying life;
hosting and orienting persons in difficulties without conditions;
rising against all forms of injustice and discrimination in housing;
participating in the social debate, constantly reminding those in power about their responsibilities in legislative, economic and social terms.
The Foundation Abbé Pierre is present all over France and works on daily basis against bad housing: its headquarters are located in Paris and it has 9 territorial agencies. All in all, the Foundation boasts 129 employees and 250 volunteers distributed over 13 sites.
This new partnership tackles two main issues: increasing the energy efficiency (building’s insulation, boiler’s replacing…) and reducing unhealthy housing through an upgrade to legal standards (on-site sanitation, ventilation, electrical installation…). As for traditional personal microcredit, eligible clients are financially excluded, namely people who can-not get credit from mainstream banks: low-income people; people without credit history or bad credit history; social difficulties; unemployment, precariousness…
The main innovation of housing microcredit consists in a customized approach combining social situation, housing conditions and household’s budget diagnosis. It supposed a close collaboration between many stakeholders, with complementary expertise. In particular, there is a strong implication of local operators specialized in poor housing, which identify and qualify eligible demands. Their diagnosis is essential for the credit assessment, as they confirm the relevance of the works to be done, but also the motivation, commitment and reliability of the borrower.
Up to now, 250 housing microcredits have been provided. The first months of experimentation confirmed that housing microcredit respond to a growing need. Finding partners and eligible projects to finance resulted relatively easy. The main challenge is to make these new partnerships efficient: combining financial, housing and social expertise requires specific know-how. That is why the program took time in developing at an early stage. Once the partnerships operational, the acceptance rate seems to be superior to classic personal microcredit: around 80% of the demands are accepted.
The first lessons learned are the following:
At this stage, most applicants are elderly people, over 50 years old.
Alleviating fuel poverty is the activity line which developed more rapidly whereas upgrading insalubrious housing appears to be quite prohibitive and difficult to finance through microcredit: in many cases it is difficult to match the high level of works necessary, and the low reimbursement capacity of borrowers. To really develop these financing, it may be necessary to find new financial supports, whether private or public (guarantees, grants...).
Loss and default ratios are lower than other personal microcredits. It seems that housing microcredit target a more stable population.
One innovative aspect of this experiment is the partnership with new actors, such as fuel suppliers or insurance companies.
Although housing microcredit is still in early development, current experimentation opens a new field of thought, discussion and collaboration for banks, NGOs and public authorities. It also illustrates the flexibility of personal microcredit as social inclusion tool.