​The COVID-19 pandemic has completely upended the life that Arfel Aljohon, a carpenter, worked so hard to build for his family in the heart of the Philippines. 

In late March, all of Cebu island was put under "enhanced community quarantine," an almost total lockdown, including the temporary closure of non-essential shops and businesses. These restrictions, while necessary to minimize spread of the deadly virus, meant the pipeline of work he had lined up came to an abrupt halt, and with it the $8 to $10 he expected to earn daily. One of his daughters was a teacher at a private school, and she also contributed to the family purse. When the school closed, her salary stopped too. 

Overnight, Aljohon and his family went from feeling comfortable to wondering how they were going to survive, let alone support their four aging parents and other relatives near their home in Bogo City, Cebu Province.  To make matters worse, Aljohon was about to complete repairs on their house but now can’t afford to, so the family feels particularly vulnerable to COVID-19.

Aljohon’s ordeal is tragically common,  not only across the Philippines but also in the other middle-income countries where Habitat for Humanity works to improve the resilience and inclusiveness of housing markets and help people gain access to a decent place to call home. So as governments and development organizations around the world consider how to prevent an economic and social catastrophe, it’s extremely important that they understand how local building and local housing markets really work.

Many of the 1.6 billion people who lack adequate housing  make do by building and repairing their homes incrementally as family finances allow. Houses built in this way comprise from 20 to 70 percent of housing stock, depending on the country, in the Global South. The informal housing markets that caters to these builders are massive as well. 

But shocks to the housing sector produce far-reaching ripple effects, starting with informal businesses like Aljohon’s. They are some of the most vulnerable to the effects of COVID-19. We are already seeing low-income families worldwide postponing construction projects and using the money for even more basic needs, such as food and medicine. 

As a result, masons and carpenters stop working. Demand for materials decreases, hitting local building material retailers. Upstream, this affects construction materials manufacturers, with paralyzed supply chains disrupting the flow of raw materials. The disruption spans the entire construction supply chain. With manufacturing halted in many countries, critical building materials are unavailable to households. So even if and when families are ready to improve their homes, they are unable to do so.

Similarly, the financial sector also is in lockdown. Banks are deemed essential businesses but the microfinance institutions that most low-income homebuilders turn to for external funding are not. Without regular repayments, their survival is in jeopardy. 

Fortunately, there is an upside to this complicated web of interdependence. A well-functioning housing market can serve as the foundation to the economic recovery needed to create prosperous and resilient societies. Under normal circumstances, the construction sector, of which housing is an important segment, is one of the largest in the global economy, representing $10 trillion in spending annually and employing millions of people such as Aljohon. Many governments, from the Philippines and Peru, realize this. They are already using investments in the construction sector, of which housing is a part of, as a driver for economic recovery from COVID-19. 

But the devil is in the details. Incorporating housing into relief packages will mean little if those plans overlook the needs of low-income homebuilders and households. Three actions, in particular, will keep them at the center and truly strengthen the resilience and inclusiveness of housing markets:

First, as governments begin to invest in the housing sector in order to spur economic recovery, they must design bailouts with the informal sector in mind. In addition to working with large or mid-size developers focusing on new construction, they must ensure that funds flow to small-scale developers and businesses or microfinance institutions that can channel capital to people seeking to upgrade or expand existing homes. 

Second, it is crucial that aid does not displace local market actors—including construction material companies, hardware stores, training providers, media entities and financial institutions—who will be irreplaceable in providing those services and products into the future. Financial relief should be channeled through these local housing market actors and when possible, through cash-based programming to make their homes safer during the pandemic.

Finally, as governments take steps to designate construction and housing as essential services, we must focus on the safety of the people who will be building back our communities and our economies. Construction laborers need access to personal protective equipment and training in how to use it. They also must be familiar with appropriate physical distancing guidelines and good hygiene habits to keep themselves, their clients and their own families safe. 

Taking action now will help ensure the survival and resilience of informal housing markets that are so crucial to economic recovery. More importantly, they can help reverse the fortunes of families such as Aljohon’s who can once again feel secure in their own homes. That will allow them to begin building back their neighborhoods and, along with it, the hope that everyone in their community can house themselves safely, securely and sustainably. 

COVID-19 has dramatically altered the landscape of international development. As the world grapples with how to address this crisis, resource shortages hamper many potential responses. These gaps can shift national priorities, altering the trajectory of the development sector along the way. Host governments, development donors, the private sector, and everyday citizens are all struggling to balance the immediate need to quell the spread of disease with long-term development goals. Given this lens, the development community must adopt innovative approaches to sustain pre-COVID efforts. Now more than ever, it is crucial to leverage private sector investment to complement public resources. 

Using Pay-for-Results Competitions to Strengthen Resilience

With an emphasis on engaging the private sector, motivating innovative solutions, and strengthening linkages between market actors, Pay-for-Results (PfR) mechanisms can be a powerful tool in the coming months and years as the development sector moves forward in the wake of COVID-19. PfR approaches, such as AgResults’ prize competition model, help build resilience because they tackle problems with contextualized solutions and encourage local actors to develop linkages with others along the value chain. Rather than providing funding up front, PfR prize competitions incentivize private sector actors to develop and deliver solutions to market challenges that disproportionately affect vulnerable populations such as smallholder farmers. As they achieve prescribed criteria, these “competitors” receive prize payments. The result is economically driven changes in behavior that provide vulnerable populations with access to resources that they could not previously afford. 

Although PfR prize competitions do not work directly with vulnerable populations, they engage the private sector to interact with these groups to drive long-term shifts in behaviors. During crises, vulnerable populations are often the hardest hit, and it often takes the longest time for them to fully recover. By encouraging solutions that increase farmers’ access to new markets and strengthening relationships along the value chain, prize competitions can strengthen resilience – an important outcome during a crisis like COVID-19 and in the long run. In this way, prize competitions have the potential for critical short-term and long-term development impact. 

Encouraging Sustainable Value Chain Linkages in Kenya

AgResults’ successful work in Kenya to drive smallholder farmers’ uptake of on-farm storage technologies shows how an approach that engages the private sector can effectively address a market failure and encourage resilient linkages. The competition, which incentivized companies to develop, market, and sell on-farm storage devices to smallholder farmers, had significant economic and food security benefits: More than 300,000 farmers benefited through sales of 1,390,777 devices that created 413,265 MT of improved storage capacity. Looking through a lens of market systems development, the competition encouraged private sector actors to invest in new relationships with vulnerable populations, strengthening the overall market. The stakeholders who participate in these value chains are now better positioned to deal with future food security threats or other crises in coming years.  (AgResults plans to examine the long-term sustainability of this competition through its External Evaluator in the future.)

Boosting Farmers’ Ability to Respond to Economic Shocks in Vietnam

In Vietnam, AgResults’ aim to reduce greenhouse gas (GHG) emissions by incentivizing improved cultivation practices in rice production is strengthening the value chain and farmers’ resilience to economic shocks. The competition incentivizes grain traders, seed producers, and input suppliers to implement innovative agronomic practices, such as advanced irrigation techniques, with specialized inputs to increase productivity while lowering GHG emissions. Initial results from the first two growing seasons have been scaled up in Seasons 3 and 4 to reach over 20,000 smallholder farmers. Broadly, the competition is cultivating new linkages between the private sector and smallholder farmers, changing long-term behaviors so these populations can better respond to climate change and other threats. 

COVID-19 has rattled the entire global system, with economic impacts cascading into developing markets and hitting vulnerable populations especially hard. When designed to intervene in the right contexts, PfR prize competitions can effectively target market failures and motivate new types of relationships that strengthen the whole system. As the development sector reflects on its new role in the wake of the COVID-19 pandemic, exploring newer development financing approaches such as Pay-for-Results may carve out opportunities that drive both immediate response and longer-term resilience. 

​Rodrigo Ortiz is the lead consultant for the AgResults program. He has worked in 86 countries and draws upon over 30 years of development experience.

Based in Dhaka, a densely populated city of nearly 22 million, Chaldal is the largest online platform for grocery delivery in Bangladesh, capturing roughly 80 percent of the country’s market shares of online grocery and retail sales. When the COVID-19 crisis hit Dhaka in March, more households relied on grocery delivery services to social distance and prevent the spread of the virus. Chaldal’s average deliveries rose from 3,000 to 15,000 per day.  

This growth opportunity also presented a dilemma. While the company already sourced rice and grain products from wholesale markets, the fivefold increase in demand for their products from urban customers meant they needed to significantly grow their supply without sacrificing quality. They did this by sourcing aromatic rice, pulses, and oilseeds from aggregators who procure from farmers supported by Feed the Future. New warehouses, an expanded workforce, and additional motorcycles for deliveries boosted their operational capacity, but this alone wasn’t enough. 

Technical support from the Feed the Future Bangladesh Rice and Diversified Crops (RDC) Activity aided Chaldal in developing a more agile supply chain and new products. Recognizing the market opportunity, Chaldal developed a “know your rice” campaign to highlight the benefits of locally produced premium rice varieties. The campaign allowed Chaldal to market its products sourced from rural Feed the Future areas to urban areas. It also allowed Chaldal to expand its supply chain portfolio, ensuring food availability for the urban poor, with a focus on marketing nutritional products, such as zinc rice, to women and children. Existing customer databases allowed the company to target these market segments with promotional campaigns through bundling fast-moving consumer goods and promotional packets of nutritional products.

The RDC Activity, which is funded by USAID and implemented by ACDI/VOCA, helped the company fast-track their hiring process using virtual trainings for new delivery employees. The RDC Activity also helped Chaldal develop a network of procurement agents and millers, set up stricter hygiene protocols, supply employees with face masks and soap, and impose regular cleanings of its vegetable sourcing, processing, and packaging facility. As a result, Chaldal is on track to meet delivery demands. The company plans to use this supply chain infrastructure to create trade efficiencies and expand its sale of fresh vegetables and perishables. Although Chaldal had the resources to make this transition on its own, the RDC Activity’s support redirected the management of these resources and made them a priority for the business to adapt and respond to COVID-19.

The successful shift in business operations shined a light on how global development entities should engage with the private sector. To increase the agility of enterprises to adapt to market shocks, development organizations must understand  the context of the problem, co-create a solution with the company, adapt to rapid changes, and use data to inform responses for both the donor and the enterprise.   

Adjusting how we think about partnerships requires major behavioral shifts and acceptance of that fact that there will be failures. In 2019, USAID launched a policy that began the process of institutionalizing private sector engagement as a core part of its operating model. ACDI/VOCA’s own private sector engagement approach explores how to incentivize the right enterprises in the right ways to weather a storm — not only for their own gain, but also to strengthen the broader market systems. 

Understanding the Problem

Understanding how and why businesses behave the way they do is the first step toward engaging the right partners to strengthen local economies and contribute to development objectives. It is an approach that begins with analyzing the market to discover the root causes of poorly performing sectors. Better understanding can come through identifying business and decision-making norms, highlighting gaps in financing, defining problems or opportunities rooted in gender and social inequalities, or gauging openness to inclusive business methods. 

The RDC Activity drew upon its previous Chaldal partnership, which focused on marketing, as well as its COVID-19 analysis to identify ways in which the company was already resilient and to determine the new challenges it faced. This created an opportunity to develop a mutually beneficial partnership focusing on expanding opportunities targeting the urban poor with nutritional products. Through this process, the RDC Activity also helped Chaldal identify promotional campaigns at schools where mothers pick up their children. This proved to be a very effective channel for push marketing.

Co-Creating the Solution with the Private Sector

When a development organization approaches a company with a predetermined plan for how to partner, the company can only accept or reject it. By shifting the conversation to say “Here is what we are seeing on the ground. What are you seeing?” we open up the terms of engagement and increase the likelihood of partnership. Through this process, there is an opportunity to collaborate and co-create with the private sector. 

The RDC Activity started working with Chaldal in 2019 to promote fine and aromatic rice varieties through innovative marketing. This involved facilitating meetings to introduce Chaldal to millers and procurers of rice. Based on this previous experience, it was clear to Chaldal that the opportunity to source its products from the Feed the Future zone would add value to their market in Dhaka. The RDC Activity brainstormed with Chaldal’s CEO on how to respond to the increasing demand, while also meeting the mandatory safety protocols of warehouse and delivery systems. Based on this discussion, Chaldal co-created the proposal with technical assistance from the RDC Activity. 

Responding to Rapid Changes through Adaptive Management 

Investing time, energy, and trust-building resources into partnerships with the private sector allows for more flexibility when changing circumstances, such as COVID-19, disrupt supply chains and business models. 

Since the COVID-19 crisis began, ACDI/VOCA programs around the world have been helping enterprises pivot through adaptive management. As was the case in Bangladesh, sometimes that means lowering the barriers and simplifying the process for engaging with enterprises to become more agile.

In an article published by USAID, Anar Khalil, the RDC Activity’s agreement officer’s representative at USAID’s Bangladesh Mission said, “We looked at past programs and realized that the traditional design process — from the moment we put together a concept idea to procurement — takes 18 months to two years. So, by the time the project is awarded, these ideas are old.”

For the RDC Activity, adaptive management meant quickly moving forward with applications that had the most potential to create both immediate and long-term solutions resulting in more resilient systems that are better equipped to cope with shocks. This flexible approach allowed Chaldal to address self-recognized pain points and make a quick pivot to its business model. It also allowed the company to expand its capacity to increase sourcing and offer farmers market opportunities in the middle of unprecedented shocks in demand for their products. The RDC Activity’s streamlined grants process identified key evaluation criteria and removed barriers to participation. Recognizing the urgency of addressing COVID-19 constraints, USAID waived its one-to-one fund matching requirement for sub-grants related to COVID-19 responses. This allowed the RDC Activity to pivot its approach and turn applications around much faster. The RDC Activity co-created their final agreement with Chaldal to ensure any proposed solutions were realistic and could address the challenges the company faced. 
 
Measuring and Learning from Results

Data informs both companies and programmatic decision making. Based on their learning from annual performance surveys and rapid situational analysis, the RDC Activity was able to better understand which business models and interventions could lead to systemic changes in the agriculture market system. This informed how the RDC Activity worked with Chaldal, especially supporting the company’s ability to decide where to expand and to focus on the investments needed to meet demand. Mutually beneficial data increased the capacity of Chaldal to identify, prioritize, and allocate resources more broadly into their supply chain operations.

Agile Responses Lead to Systemic Change 

ACDI/VOCA’s portfolio approach to private sector engagement recognizes the needs to shift thinking beyond firm-level investments and, instead, to look at the broader group of firms supported and their contribution to a stronger system. The RDC Activity’s systems approach is predicated on collaboration within the market system through facilitating connections between enterprises and creating incentives for multiple firms addressing a common challenge. Its partnerships are also linked to the activity’s systemic change objectives. 

This has resulted in a stronger supply chain and distribution model that is improving the competitiveness and resilience of the agricultural market system. For example, the RDC Activity facilitated connections between agriculture mechanization providers and rice companies to develop branded “franchise service operators” who provide services to thousands of farmers in their network. That led to continuous maintenance support, established farmer databases, and scheduling and training programs for equipment operators with new companies entering the market. 

Chaldal’s aggregators target these farmers as part of their increased sourcing from the Feed the Future zone. The company intends to increase rice procurement from rice mills that are dependent on a pool of farmers, including female farmers, who produce single variety rice. This will happen once they establish quality and pricing standards and develop partnerships with regional seed input providers. 

The RDC Activity is making the inclusive business case for Chaldal to invest in women both as producers and consumers. To date, the RDC Activity has invested in 37 enterprises with 54 unique interventions, resulting in $3,182,462 in sales and procurement to 344,654 farmers who have accessed improved services. 

From the private sector perspective, having the ability to adapt and innovate during challenging times leads to more inclusive, sustainable, and agile responses. 

“When the COVID-19 crisis hit, we were flooded with orders,” Chaldal CEO Waseem Alim said in an interview. “USAID and RDC came in with COVID-19 emergency support, which was used to help adapt and expand our business operations while ensuring continued safety of our employees.” 

Adaptive approaches lead to increased sales and a strengthened ability of firms and the broader system to not only increase food security but also respond to future crises. The result is more sustainable and scalable opportunities benefitting farmers. ​

Habitat for Humanity’s Terwilliger Center for Innovation in Shelter launched the MicroBuild Fund in August 2012 to increase access to affordable housing finance products and services for low-income households globally. The fund bundles capital and technical assistance to financial institutions to demonstrate housing microfinance’s value to the broader industry. In doing so, the Terwilliger Center aims to shift the global portfolio allocation for housing finance from 2 percent to 10 percent of the general gross loan portfolio, among microfinance institutions (nationwide) in the countries where MicroBuild has investments. 

As of July 2020, the fund had disbursed USD 136.9 million to 55 institutions across 32 countries, and helped nearly 930,000 households improve their shelter. Additionally, MicroBuild has seen success with many investees scaling up their housing portfolios after receiving capital and technical assistance from the fund. 

While the fund has accomplished much to date, in 2019 the center decided to assess whether it was creating true market systems change. Specifically, we wanted to understand if MicroBuild’s investments in financial institutions were resulting in non-MicroBuild financial institutions adopting and scaling housing microfinance products. And, we wondered, was such a strategy to encourage broader product adoption the best way to scale housing microfinance offerings in a given country? 

A three-week field study last year in the Republic of Georgia provides one answer. Habitat for Humanity’s Terwilliger Center selected Georgia for many reasons: the high country exposure within the MicroBuild Fund portfolio; substantial market share held by investee institutions; growth of local investees’ housing microfinance portfolios; and the high degree of openness to obtaining microfinance data. Further, the fund had been invested in Georgia for many years. It invested in JSC Credo Bank in 2013 and in JSC MFO Crystal in 2016. Finally, both MicroBuild investee institutions were market leaders within Georgia’s microfinance sector and thus potentially influential to other institutions within the country.
 
The field visit produced several key findings:

• MicroBuild Fund’s two Georgian investee institutions had successfully scaled their housing microfinance portfolios. This demonstrated that housing microfinance products were working in Georgia when an investment was made. Further, as market leaders in Georgia’s microfinance sector, these institutions could scale their housing microfinance portfolios and ramp up housing microfinance lending at a national level. However, at the time of the report’s original release in October 2019, the spread of housing microfinance across Georgia was strictly due to MicroBuild investees scaling up their housing microfinance investment, rather than the crowding-in of additional players. 
• Non-MicroBuild financial institutions were aware of housing microfinance products but did not understand the specific terms or features of these products, nor had they adopted such products. The center had hypothesized that investing in market leaders that successfully scaled their housing microfinance portfolios would result in smaller players subsequently creating such products. But this was not the case in Georgia. Furthermore, microfinance institutions tended to emulate competitors of a similar size. In other words, smaller institutions weren’t likely not take their cues from those MicroBuild investees that were market leaders in the sector. 
• Increased awareness and understanding of housing microfinance may not result in the scaling of housing microfinance among financial institutions. Countrywide, Georgian microfinance institutions determined loan type by client income source or collateral (versus loan purpose/loan use). Even with greater understanding of housing microfinance, they had little appetite to introduce dedicated loan products of any kind, including dedicated housing products. Further, institutional capacity to develop dedicate housing products was low among many institutions interviewed.
  
• Regulatory changes impacted the sector. Beginning in 2017, the National Bank of Georgia introduced an interest rate cap on microfinance lending at 100 percent per annum, followed by subsequent regulations to further restrict interest rates, tighten liquidity ratios, and reduce payment-to-income ratios. The center’s interviews showed that such regulations had consumed much of institutions’ operational energy and strategic focus. Therefore, developing dedicated housing products would not be feasible in the near term.

These findings, while offering specific insights into the Georgian market, also have informed the Terwilliger Center’s global approach to scaling the MicroBuild Fund and achieving market systems change. Based on the findings, the fund adjusted its scaling strategy to a more nuanced approach in certain markets where a small subset of financial institutions held the majority of the microfinance sector’s market share. In such countries, the fund would aim to either scale exclusively through MicroBuild investee(s), or by also crowding in a limited number of other financial institutions (in markets where approx. three to five institutions held over 70 percent market share). For countries where scale would be expected beyond MicroBuild investees, the center is now looking to develop a sector influence strategy to ensure that program initiatives provide clear, actionable information to target institutions on how to develop, refine and scale housing microfinance products. 

In doing so, the Terwilliger Center can pursue a more nimble (and often more efficient) means of scaling housing finance within MicroBuild’s countries of investment to reach 10 percent of the general gross loan portfolio nationwide. Finally, the center will continue to make the case to the broader financial sector to further crowd in capital in countries and institutions where MicroBuild has proven that housing microfinance can be a good investment. 

Read the full report from Habitat for Humanity’s Terwilliger Center here, under the title Exploring the adoption of housing microfinance within the Georgian market.
Stay in touch! Follow the Terwilliger Center on Twitter at @TerwilligerCtr and sign up for the center’s quarterly newsletter here.