The Economist - USA (2019-07-20)

62 Finance & economics The EconomistJuly 20th 2019

1

W

henevermichaeljjogaearnssome

moneyfromhisweldingbusiness,he

buysa bagofcement.Brickbybrickhehas

builta two-roomedhouseforhisfamilyon

landheclearedhimselfinWakisodistrict,

incentralUganda.Anotherhousestands

half-finished nearby until he collects

enoughironsheetstomakea roof.Across

thegladea chorusofbleatsdriftsfroma

crumblinghut, shapedfromthatch and

earth.Heusedtoliveinit;nowitshelters

hisgoats.

By 2025 some1.6bncitydwellerswillbe

livingwithoutdecent,affordablehousing,

according to consultants at McKinsey.

Manymorepeoplelackadequateshelterin

thecountryside.Whilegovernmentsand

privatedevelopersfallshort,peoplelikeMr

Jjogaarebuildinghousesthemselves.They

constructinstages,overyearsorevende-

cades,preferringtobuya stackofbricks

thantoputmoneyina bank.Somemovein

wellbeforecompletion.Lenderslongover-

lookedthisself-helpmodel,butfinancedit

unwittingly:perhapsa fifthofmicroloans

tobusinessesarethoughttobediverted

into housing.

Now some lenders are starting to target

this market directly. Conventional mort-

gages are rare in developing countries: in

Uganda, which has 40m people, there are

only 5,000. Instead, banks and microlen-

ders offer smaller housing loans, paid back

over shorter periods of 1-3 years. A family

might borrow for a cement floor, and then

for an extra room. Two-thirds of the firms

offering housing microfinance entered the

sector in the past decade, according to a

global survey in 2017 by Habitat for Hu-

manity, a non-profit organisation.

Many borrowers lack land titles to use

as collateral. Swarna Pragati, an Indian

microlender, gets around the problem by

establishing de facto ownership through

village meetings. Select Africa, which oper-

ates in east and southern Africa, offers un-

secured housing loans to salaried workers,

deducting repayments from their pay

cheques. Centenary Bank in Uganda ac-

cepts untitled land as security. Robert Can-

wat, its microfinance manager, says at-

tachment to home makes the whole family

monitor repayment. “Everybody becomes

your recovery officer,” he smiles. Most

lenders report that housing loans are paid

back more reliably than other products in

their portfolio.

Houses built incrementally by local ar-

tisans are often shoddy. Some lenders try to

improve them by providing technical sup-

port, such as sample plans or an engineer’s

advice. Others help borrowers buy appli-

ances such as solar panels and water filters.

One promising innovation is iBuild, an

Uber-like app in parts of Africa and Asia. It

connects households to builders and sup-

pliers, allowing them to compare quality

and price as well as to apply for loans.

Finance also comes directly from sup-

pliers. cemex, a Mexican cement giant, of-

fers credit through its Patrimonio Hoy pro-

gramme. Customers pay a weekly fee. In

return they get technical advice and ad-

KAMPALA

Borrowingtobuild,nottobuy

Microfinance

Onebrickata time

In on the ground floor

I

n the wee hours of June 24th 2016 the

pound plunged. The unexpected victory

of the Leave campaign in the Brexit referen-

dum meant sterling lost 7% in a single day.

Three years later the pound is falling once

again. It is now at a two-year low, having

fallen by 5% against the dollar since April—

and 1% in the past month, the worst perfor-

mance of any big currency (see chart).

Many Britons ascribe any movement in the

pound to the twists and turns of the Brexit

saga. The cause of its recent slide is, how-

ever, more complicated.

Sterling has been weaker since the ref-

erendum because the prospect of Brexit

has led economists to cut their forecasts

for economic growth. It reached a low in

October 2016 when Theresa May, the prime

minister, promised a “hard” Brexit. Yet it

appreciated fairly steadily in 2017 and 2018.

This was in part because the economy

was surprisingly strong. gdp grew only

slightly more slowly in 2016-18 than before

the referendum. Unemployment fell to

multi-decade lows. Despite Mrs May’s best

efforts, traders came to believe that the

most likely outcome was a “soft” Brexit—

that is, a customs union with the European

Union and membership of the single mar-

ket—and thus less economic harm.

The pound’s recent fall started in April,

shortly after the eu agreed to delay Brexit to

October 31st. Some traders worried that it

would brook no further delay. Yet global

factors played a greater role. Around May

traders began to panic about the effect of a

trade war between America and China on

global economic growth. That prompted

“derisking”—moving assets out of coun-

tries highly reliant on inflows of foreign

capital. Britain, which runs a large current-

account deficit, saw its currency depre-

ciate. But so did Australia and New Zea-

land, points out Kamal Sharma of Bank of

America Merrill Lynch. Both countries also

run large current-account deficits.

Since then worries about the trade war

have eased—to be replaced by a fresh con-

cern, the health of Britain’s economy. In

June the statistics office alarmed analysts

by revealing that gdp had fallen in April by

0.4%, although May was better. Other sur-

vey data suggest that Britain registered no

economic growth in the second quarter of

the year (see Britain section). Together with

a series of data releases showing that mea-

sures of domestically generated inflation

are soft, that makes it less likely that the

Bank of England will raise interest rates.

Sterling’s fall has accelerated in the past

week, as the two contenders to replace Mrs

May have vied to sound more macho on the

need to leave the euon October 31st, with or

without a withdrawal deal. Even now, few if

any analysts believe that a no-deal exit is

the most likely outcome. But many are on

the brink of changing their mind. If no-

deal starts to be priced in, the pound will

have much further to fall.^7

The pound’s slide is about more than

just Brexit

Sterling

Global Britain

Brexit means ditch it

Source:Bloomberg *To July 16th 2019

Currenciesagainstthedollar*,%changesince

-20 -15 -10 -5 0 5

Euro

Yen

Canadian dollar

Mexican peso

New Zealand dollar

Australian dollar

Brazilian real

British pound

June 23rd 2016 (Brexit vote) June 16th 2019