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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

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
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 months.

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.
"These 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.

The 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.

"CHF's basic philosophy is that, with these three elements, anyone anywhere in the world can build a home," said Mr. Adams.

"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 improved homes.

"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.

The loan program's success shows promise for replication elsewhere along the border

"The model 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 Ciudad Acuña."

"We want to maximize our impact without overextending ourselves," he concluded.


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