December 04, 2003
From Pallet Shacks to Cinderblock Homes: Microfinance Loans on the Mexican Border
by William Baue
CHF/Mexico addresses an acute housing shortage by providing technical assistance and affordable
loans to low-income families.
Since the North American Free Trade Agreement (NAFTA) entered into force in 1994, Mexicans have
flocked from the interior to the US border to work in the maquiladora plants that have been
sprouting along the Mexico side of the US-Mexico border and now number about 2,700. US companies
typically ship domestic-made parts to the maquiladora plants for assembly by lower-paid
Mexican workers, and then ship the completed products back to the US for distribution.
The proliferation of maquiladoras has caused a serious housing shortage along the
border, with the housing deficit now numbering 280,000 homes in Mexican border cities such as
Ciudad Juárez, which is across the Rio Grande from El Paso.
"Ciudad Juárez experienced
massive growth, with an average of 50,000 people showing up every year--the equivalent of three
city blocks a day--and there was no housing," said Eric Adams. Mr. Adams is director of
CHF/Mexico, a national affiliate of Cooperative Housing Foundation (CHF) International, a microfinance provider founded in 1952 that
operates in nearly 100 countries worldwide. "The local government was overwhelmed, not only in
terms of housing but all infrastructure--roads, electricity, sewer, water, all the basic needs."
"In back of all the maquiladora plants are wooden pallets for use with forklifts, so
people strap those together, tack on plastic and cardboard for windows and walls, and call it
home," Mr. Adams told SocialFunds.com.
Later in 1994, CHF/Mexico initiated its Home
Improvement Loan Program (HILP) with a $50,000 Ford Foundation grant that helped finance the
building and improvement of 55 homes. The Ford Foundation rewarded this success with a $1 million
program related investment (PRI), a ten-year loan with a one percent interest rate aimed at
bringing the program to scale and make it self-sustaining. The program also received $300,000 in
corporate support from Cummins (ticker: CUM), Eaton (ETN), and Johnson & Johnson (JNJ).
|Gloria Freyre Galavíz, who works in the Cummins Engine
plant, received a 10,000-peso loan to build this one-room house, and repaid her loan in 24
In 1996, CHF/Mexico used this seed money to establish Fundación
Habitat y Vivienda (FUNHAVI--the Habitat and Housing Foundation), a local organization that
provides microfinance loans to low-income individuals for home construction. Since then, FUNHAVI
has extended over 3,700 loans to more than 3,200 families (or an estimated 17,500 people) for home
improvements valued at $5.5 million. Almost three-quarters of FUNHAVI clients work in one of the
city's 400 maquiladoras, and have a monthly wage ranging from $250 to $600.
workers have regular, stable incomes, which means they are credit-worthy," said Mr. Adams.
The borrowers also make good on their loans, with a repayment rate of 97 percent.
loan program consists of three basic elements: information, including an affordability analysis
that estimates payments at 25 percent of net income; design and cost projection, including a site
visit by one of FUNHAVI's three staff architects; and the loan itself.
philosophy is that, with these three elements, anyone anywhere in the world can build a home," said
"We try to set people up for success, so our architects work with families to
complete projects," he added. "We want to give families homes that positively affect their health,
their safety, and their esteem."
Nearly a third of first-time borrowers live in
jacalitos, or "wooden shacks" that offer little protection from health hazards such as
airborne dust carried by desert winds. In 2000, CHF/Mexico commissioned a scientific study by the
Pan American Health Organization and the Center for Border Health Research comparing the health
status of children living in sub-standard housing with those living in improved housing.
CHF/Mexico architects administered a survey focused on respiratory diseases such as asthma and
water-borne illnesses such as diarrhea to residents of 30 homes in poor condition and 30 in
"It surprised the analysts that even this small study found a significant
improvement in health in children in the improved home, including a reduction in diarrhea, which is
the leading cause of death in children under age one here," said Mr. Adams.
program's success shows promise for replication elsewhere along the border
works, and it's quickly sustainable--we've expanded to Nuevo Laredo, made our first loan within two
months of arriving there, and did a half-million dollars in loans in the first year," explained Mr.
Adams. "In September, we received $200,000 from the Alcoa Foundation to support a new office in
"We want to maximize our impact without overextending ourselves," he