The World Bank recently approved a US$15 million in credit from the International Development Association (IDA), the World Bank’s program for the poorest countries, to help expand access to affordable housing in Djibouti where rapid population growth and urbanization have made it harder to own a home.

The project aims to expand the mortgage market to low-income households by widening the scope of an existing partial credit guarantee fund to mortgage loans, supporting housing microfinance and by converting rent-to-own contracts into mortgage loans. It will introduce innovative financing solutions to enable poorer households to build their own homes, while also supporting policy reforms to lower construction costs. Self-constructed homes will have to meet certain building standards to ensure resilience against climate-induced floods and fires.

“The lack of available finance has been a major bottleneck for lower income families who want to own their own home. This new credit, along with financing from private banks, will help people to build better lives for their families and communities,” said Boubacar-Sid Barry, World Bank Resident Representative in Djibouti. “Not only does a home offer security, it also provides collateral that can be leveraged to build other economic opportunities, which in turn lead to a rise in income,” he added.

Since the 1960s, Djibouti’s population grew around 4.2 percent each year and this rapid growth led to greater urbanization, with more than 78 percent of Djibouti’s population currently living in urban areas. This trend put increased pressure on the housing market, with low-income households largely shut out of the mortgage and home-building sector.

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“What’s important about this project is that solutions for the housing crisis are coming largely from the private sector. which is more sustainable in the long run and eases pressure on public funding,” said Caroline Cerruti, World Bank Senior Financial Sector Specialist.

The partial credit guarantee portion of the project (US$7 million) is expected to mobilize around US$70 million in private capital from banks to finance mortgages for homes, and about 2,000 low-to-middle income households are expected to benefit from affordable mortgage loans partially guaranteed by the guarantee fund. Some 450 poor households are expected to have access to finance to build homes themselves, and the project will also try to bridge the gender gap for mortgage finance and self-constructed homes.

The new credit complements other World Bank Group projects that are already addressing affordable housing issues in Djibouti. Another project, the Djibouti Integrated Slum Upgrading Project, works on land titling and other supply issues affecting poorer households.