Sustainable NGO Microfinance of Poor and Low-income Housing in Egypt A case study of Habitat for Humanity, Egypt

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1 By Robert J. LaTowsky Sustaiable NGO Microfiace of Poor ad Low-icome Housig i Egypt A case study of Habitat for Humaity, Egypt The Cetre for Affordable Housig Fiace i Africa (CAHF) is a ot-for-profit compay with a visio for a eabled affordable housig fiace system i coutries throughout Africa, where govermets, busiess, ad advocates work together to provide a wide rage of housig optios accessible to all. CAHF s missio is to make Africa s housig fiace markets work, with special attetio o access to housig fiace for the poor. We pursue this missio through the dissemiatio of research ad market itelligece, supportig cross-sector collaboratios ad a marketbased approach. The overall goal of our work is to see a icrease of ivestmet i affordable housig ad housig fiace throughout Africa: more players ad better products, with a specific focus o the poor. Executive Summary This case study presets the strategy ad approaches, structure ad parterships, clietele ad loas portfolio, ad microfiace performace of Habitat for Humaity Egypt s (HFHE) housig assistace to poor ad lowicome households. Sice 199, HFHE has successfully supported over 25,000 poor ad low-icome households i selected rural ad urba commuities by providig o-profit, oiterest loas for eeded housig improvemets, reovatios ad replacemet home costructio. I Egypt s emergig microfiace idustry, HFHE is the sole provider of micro loas that are exclusively targeted at housig related activities. HFHE micro loas are all short term loas; the average loa size beig EGP 7,000 (US$ 90), repayable i mothly istalmets over a moth period. The first istalmet is payable oe moth after receipt of the loa. All o-profit, o-iterest loas carry a iflatio adjustmet to help protect the value of HFHE s loa capital ad support the direct ledig costs of implemetig NGO parters. CONTENTS Executive Summary 1 Ackowledgemets 2 Part 1: Itroductio ad Overview 3 Part 2: Fiacial Performace 13 Part 3: Maagemet Challeges ad Opportuities for Growth, Sustaiability 19 Aex 1: A Sample Profile of HFHE Borrowers ad Loas 23 Aex 2: HFHE Criteria for the Selectio of Borrowers ad Poorest Households 25 Aex 3: Comparative Performace i Microfiace 29 Aex 4: Questios ad Exercises 31 Abbreviatios 34 Across Africa, practitioers are grapplig with the challege of creatig a eabled housig fiace eviromet. While these challeges may seem isurmoutable, there is a growig track record of ovel solutios ad iitiatives, pioeered by policy makers, fiaciers, developers ad households themselves, suggestig that there are ew opportuities for makig the housig fiace sector work for the poor i Africa. This case study is part of a broader series that CAHF has commissioed i order to support professioal developmet ad iform a broader research ad dialogue process. The case studies vary, addressig themes as diverse as housig microfiace, mortgage liquidity facilities, cemet blockbakig, home loa guaratees for the iformally employed, ad ifrastructure fiacig, highlightig experieces from coutries across the cotiet. We hope this series cotributes to more precise ad successful edeavours that realise the opportuities i this market. This case study was produced with the support of FSD Africa.

2 HFHE is a atioal itermediary NGO that does ot disburse loas directly. Istead, HFHE provides loa capital, techical support ad traiig, moitorig ad follow-up to parter NGOs ad participatig commuity-based orgaisatios (CBOs), who are the directly resposible for the maagemet of the loa. This distributed etwork of idepedet o-profit orgaisatios disbursed 2,393 HFHE loas, totallig EGP 20.2 millio (loa pricipal plus iflatio adjustmet, US$ equivalet - $2.6 millio) to eedy families i 22 rural ad provicial urba commuities i FY2015. HFHE uses two approaches whe makig housig microfiace loas, i.e. ormal ledig ad wholesale ledig. HFHE s parter NGOs ad participatig CBOs charitably assist poor households to make vital housig repairs ad improvemets. Each year they commit to aid a specific umber of poor families. This usually equates to 7% of the total umber of micro loas disbursed that specific year. HFHE has aided over 1,100 poor families with housig improvemets (at o cost to HFHE), ad sice 2006, has successfully assisted those who caot repay eve the smallest of loas. O stadard measures of microfiace performace, HFHE scores well to high. I its latest year (FY2015), more tha 9% of borrowers were curret with their repaymets, its gross loa portfolio rose 12.% to US$3.6 millio, its clietele grew 7.1% to 6,46 active borrowers, the umber of ew borrowers icreased 10.3%, oly 1.3% of its gross loas portfolio (GLP) was more tha 30 days late, total operatig expeses were 10.1% of GLP, write-offs of bad loas were less tha 0.05% of GLP, ad its GLP was over 3% of total assets (17% cash o had ad cash reserves). Ackowledgemets The ivitatio to research ad prepare this case study about housig microfiace, exteded by the Cetre for Affordable Housig Fiace i Africa (CAHF), came as I was researchig ad writig a exteral situatioal aalysis for strategic plaig by Habitat for Humaity Egypt (HFHE). These cocurret research projects afforded me the opportuity to closely appraise key cotexts, strategy, approaches, maagemet, participats, ad performace of HFHE s micro ledig for housig improvemets from differet perspectives ad i depth. It has bee a rich opportuity for shared learig, reflectio ad collaboratio. I wish to especially thak Ms. Felicity Kitchi at CAHF ad Ms. Fugai Mukorah at Habitat for Humaity Iteratioal i South Africa for facilitatig my participatio i this case study. Both this case study ad the exteral situatioal aalysis of HFHE programmig owe a debt of gratitude to Dr. Nabil Samuel Abadir, chairma of HFHE s Advisory Committee, who first proposed my ivolvemet. It is to the seior maagemet of Habitat for Humaity Egypt, Mr. Hay Kamal, Natioal Director, Mr. Ayma Awy, Fiacial ad Admiistratio Maager, ad Mr. Sherif Samir, Team Leader, that I am most sicerely grateful for their full ad ready cooperatio, their opeess ad trasparecy i sharig iformatio, their good cheer ad warm welcome, ad kee readiess to facilitate this research. Together, they have made this a effective ad successful collaboratio for which I am ideed appreciative. I hope that these aalyses ad reports will be of cosiderable use ad utility to them i growig HFHE s role ad sigificace for Egypt s poor ad low-icome citizes. 2

3 Part 1: Itroductio ad Overview Sice 199, Habitat for Humaity Egypt (HFHE) has successfully dispersed o-profit, o-iterest loas for eeded housig improvemets, reovatios ad replacemet home costructio 1 to more tha 25,000 poor ad low-icome households i selected rural ad urba commuities. I Egypt s ascet microfiace idustry, HFHE is the sole provider of micro loas which exclusively support housig improvemets. HFHE micro loas are all short term loas, the average loa size beig EGP 7,000 (US$ 90) 2, repayable i mothly istalmets over a moth period. The first istalmet is payable oe moth after receipt of the loa. All o-profit, o-iterest loas carry a iflatio adjustmet to help protect the value of HFHE s loa capital ad support the direct ledig costs of implemetig NGO parters. The curret iflatio adjustmet is 7% per year. These housig credits, disbursed as cash, are exclusively for housig improvemets by poor ad low-icome families. I its latest year (FY2015), its five NGO parters disbursed 2,393 HFHE loas totallig EGP 20.2 millio (loa pricipal plus iflatio adjustmet, US$ equivalet - $2.6 millio) to eedy families i 22 rural ad provicial urba commuities, chiefly i Middle Egypt (Bei Suef ad al-miia goverorates). The umber of ew borrowers i FY2015 rose by 10% over FY2014, ad was the secod highest i HFHE history. Over 9% of active borrowers are curret or ahead o their loa paymets. For those poor households that may be uable to repay eve the smallest of loas, HFHE leverages small grats from its parter NGOs ad assisted commuities to make essetial housig improvemets for them. Sice 2006, more tha 1,120 of these households have beefitted from this charitable housig assistace. This case study discusses: HFHE s strategy, objectives ad differet approaches to sustaiable housig microfiace for poor 3, low-icome 4 ad the poorest families 5 ; The role of NGO parterships, local CBOs ad their housig committees, govermet, ad HFHE maagemet of its loas; The busiess models, costs ad fiacig, loas portfolio ad risk maagemet, ad sustaiability of HFHE microfiace for housig improvemets ad reovatios; A profile of borrowers, beeficiaries, loa terms, ad their housig improvemet projects; HFHE s ofiacial techical services to borrowers ad their costs; Challeges ad opportuities for HFHE housig microfiace ad Priority issues, lessos leared ad leadig questios from this case study. I sum, this case study provides a broad uderstadig of the cotexts ad approaches of HFHE housig microfiace, a detailed uderstadig of how these approaches fuctio ad how they are maaged, ad lessos leared for the possible adaptatio or replicatio of key program elemets i other cotexts. Table 1: Key Features of HFHE Housig Micro Loas at a Glace Loa Sizes Loa Terms Iterest Collateral Delivery Method Growth of GLP ad Borrowers Miimum: EGP 2,000 (US$ 255), Maximum: EGP 12,000 (US$ 1530) Mea loa size: EGP 7,000 (US$ 90). Maximum duratio: 36 moths. Most loas: moths. Repaymet begis 30 days after receipt of loa. 7% aual iflatio adjustmet. All loa recipiets have loa guarator ad sig promissory otes for the full value of loa pricipal plus iflatio adjustmet. Cash disbursemet by itermediary parter NGOs ad their local CBO i each of 22 assisted commuities (rural ad provicial urba). Gross Loa Portfolio: EGP 2.2 millio. Total borrowers: 6,46 (Jue 30, 2015 US$ 3.60 millio). Year-o-year chage i: GLP: +12.% Borrowers: +7.1% Repaymet Rate 9.1% of Gross Loa Portfolio (GLP) curret (Jue 30, 2015) Arrears 0.6% of GLP less tha 30 days late. 1.2% of GLP over 90 days late. 3 Poor refers to those households/idividual borrowers who ear less tha EGP 00 per moth i.e. less tha US$ 3 per day. Poor households with steady icomes ca repay micro loas 4 Low icome refers to those households/idividual borrowers who ear mothly icomes of EGP The poorest households have o stable or depedable icome ad are uable to repay eve the smallest of loas. They are give grats for home improvemets. 3

4 Table 1: Key Features of HFHE Housig Micro Loas at a Glace Clietele Loa Purpose Poor self-employed, wage-workers ad micro-etrepreeurs able to repay loas ad low-icome households. Average mothly salary of borrowers: EGP 1170 (US$ 150). Married: 3%, Sigle: 15%, Widow: 3%. Geder: 36% female borrowers, 64% male. Residece: 56% rural, 44% provicial urba 6. Over 0% of loas are for home reovatios ad improvemets. 15% of loas are for demolitio of decrepit homes ad buildig ew oes. Less tha 5% of loas are repeat loas for icremetal costructio. 2 Other Services Small grats to poorest-of-poor for essetial home improvemets. Techical assistace to borrowers for home improvemet egieerig desig ad specificatio HFHE s Purpose ad Partership Approach to Improve Poor Housig Habitat for Humaity Egypt aims to alleviate poverty ad raise livig stadards amog poor ad low-icome households through improved housig: A simple, decet ad affordable home fulfills the basic eed of shelter ad directly affects the well-beig of families ad commuities, ecouragig stability i all areas of life. Their premise is soud: shelter is a basic huma eed, the home is a persoal asset that geerally appreciates i value over time, ad for may self-employed ad micro-etrepreeurs, their home is also a productive asset where goods are produced, ivetory stored ad busiess coducted. To achieve its purpose, HFHE collaborates with itermediary NGO parters ad their local, commuity-based parter orgaisatios ad loas committees i select commuities. HFHE does ot disburse loas directly. Rather, it provides loa capital to NGO parters exclusively for housig micro loas, specifically to assist poor ad low-icome households i selected commuities. I tur, its NGO parters assist ad supervise local, commuity-based orgaisatios ad loa committees to disburse ad maage these housig micro loas. HFHE provides traiig ad techical support to the parter NGO staff resposible for these loas, ad the participatig CBOs ad loa committee members i each commuity (see Figure 1). Figure 1: A Schematic of Participatig Orgaizatios i HFHE Housig Microfiace Commuity Based Orgaizatios Housig loa committees 6 Cliet profile averages ad percetages from stratified sample of all HFHE borrowers i FY2015. See Aex 1. 4

5 1.2. How HFHE Works with Parter NGOs ad Commuity-Based Orgaizatios i Housig Microfiace HFHE is registered as a Egyptia atioal NGO ad maitais a small office i Cairo with less tha 10 staff members. It does ot directly disburse loas to borrowers. Istead, HFHE collaborates with commuity-based orgaizatios ad itermediary parter NGOs to reach eedy borrowers i multiple commuities: Commuity-Based Orgaizatios (CBOs): Borrowers receive their loas directly from a local, commuity-based orgaizatio (CBO) i their specific commuity. There are curretly 22 CBOs oe i each of the 22 commuities (see Aex 1) that actively maage HFHE housig loa fuds. All CBOs are formal, o-profit orgaisatios registered with the atioal miistry that is resposible for NGO regulatio ad oversight. The CBO is typically a commuity developmet associatio or a Muslim or Christia social welfare associatio. Noe of these are specialised ledig orgaisatios, or do they provide housig micro loas as their oly activity. All CBOs provide other commuity services ad program activities apart from maagig housig loas. Some participatig CBOs also provide micro credit for small busiess as a separate activity. Parter NGOs: The CBO is ot, however, a parter with HFHE i housig microfiace. There is o partership or loa program agreemet betwee HFHE ad participatig CBOs. I order to exted its loa outreach to more commuities ad borrowers, HFHE parters with a small umber of itermediary NGOs. HFHE has siged partership agreemets ad cotracts with these NGOs that specify roles ad resposibilities i implemetig these loas. Parter NGOs are also registered with the resposible atioal miistry. Curretly, HFHE has partership agreemets with five itermediary NGOs. Each itermediary NGO the has a housig loa project agreemet with oe or more CBOs. The NGO is the resposible itermediary betwee HFHE ad the CBOs. HFHE s largest ad oldest NGO parter, CEOSS 7, supervises ad supports 14 CBOs i housig microfiace ad other CEOSS developmet programs. Aother parter NGO works with four CBOs, a third parter assists two CBOs, ad two other itermediary parters each support oe CBO. Based o the selectio criteria established by HFHE, the parter NGOs idetify ad propose CBOs to implemet HFHE housig micro loas. Cadidate CBOs are approved joitly for participatio by HFHE ad the parter NGO. Housig Loa Committees: Each CBO has a housig loa committee of 7 to 11 members. This committee is directly resposible for reviewig ad approvig or decliig applicatios for loas, sigig loa agreemets with borrowers, ad maagig the disbursemet ad collectio of housig micro loas i their commuity. The members of the housig committee are selected by both the CBO leadership ad parter NGO. HFHE the oriets ad actively trais the housig committee members ad parter NGO staff perso to esure that they are able to maage the housig loas capably. They are traied o how to aouce loas, receive ad review loa applicatios, take decisios, approve or declie applicatios, ad moitor ad follow-up o costructio ad repaymet. Figure 2 presets the specific roles ad resposibilities of HFHE with parter NGOs, participatig CBOs ad their housig loa committees i their fiacial ad ofiacial services to borrowers: Figure 2: HFHE Roles ad Resposibilities to Participatig Orgaizatios Habitat for Humaity Egypt Sets criteria for the selectio of parter NGOs, CBOs ad borrowers. Sets housig loa terms ad coditios. Obtais aual program fuds from Habitat for Humaity Iteratioal ad solicits program grats from other iteratioal doors as well as compaies ad orgaizatios i Egypt. Reports to Egyptia govermet authorities o its program activities ad fiacig. Liaises with ad reports to Habitat for Humaity Iteratioal ad other supportig agecies o its programs ad activities. Cotracts ad pays for egieerig techical services to borrowers i most commuities. 7 The Coptic Evagelical Orgaizatio for Social Services (CEOSS), oe of Egypt s largest ad most experieced commuity developmet ad social welfare associatios. Habitat for Humaity Iteratioal first supported housig microfiace i Egypt i a project partership with CEOSS from 199 to 2003 before establishig HFHE as a separate etity i

6 Figure 2: HFHE Roles ad Resposibilities to Participatig Orgaizatios With its parter NGOs, HFHE: With participatig CBOs, HFHE: Sigs multi-year agreemets to implemet HFHE housig microfiace ad small housig improvemet grats for the poorest households who caot repay loas. Provides loa capital for housig microfiace. Negotiates idirect costs to be retaied by parter NGOs from housig loa repaymets to cover implemetatio costs. Trais resposible staff of parter NGOs to maage ad report mothly to HFHE o implemetatio, fiaces ad outputs of its housig microfiace activity. Approves the selectio of ad oriets participatig CBOs. Moitors loa portfolio progress ad compliace with HFHE loa terms ad eligibility criteria for borrowers. Assists parter NGO to form, oriet ad trai housig loa committees to receive loa applicatios, ispect homes ad plas for improvemet, select eligible borrowers, help borrower set a appropriate loa size, disburse loas ad collect loa paymets. Together with parter NGOs, moitors loas maagemet performace of loa committees ad CBOs. Together with parter NGOs, moitors CBO charitable assistace to poorest households for essetial home improvemets. 1.3 HFHE Relatioships to Govermet ad Baks As a registered Egyptia NGO, HFHE is supervised by the Miistry for Social Solidarity which is resposible for overseeig the fiaces ad varied programs of early all local o-govermetal orgaisatios i Egypt. As a microfiace provider, HFHE is also subject to oversight by the Egyptia Fiacial Supervisory Authority uder Law 141 of However, the Authority has ot yet begu executig its ew resposibilities, i.e. to support ad moitor microfiace ledig ad compliace. Microfiace is ewly established as a recogised busiess activity i Egypt; govermet licesig ad oversight of this fiacial sub-sector is also just emergig. The govermet s iitial priority will be to support microfiace ledig to micro- ad small eterprises ot micro loas for home improvemets i which HFHE is curretly the sole exclusive provider. No istitutios except baks are permitted to accept deposits i Egypt. HFHE has ever borrowed loa capital from a Egyptia bak ad has o microfiace relatioship with a local bak. Egyptia baks are ot kee to provide bakig or home improvemet loas to the poor ad low-icome households that are HFHE s clietele. Most of these homes are ot registered ad families lack the property owership documets to secure bak loas. Egyptia baks do ot view HFHE as a competig fiacial istitutio, ad HFHE cliets do ot view Egyptia baks as a alterative leder. Aual iterest rates o persoal loas from Egyptia baks have fluctuated betwee 10.5% ad 12.5% sice 200, a rate much higher tha the 7% aual iflatio adjustmet ow applied to HFHE micro loas. 1.4 Three HFHE Approaches to Poor ad Low-icome Housig Improvemets HFHE supports housig improvemets for poor ad low-icome households ad the poorest families i participatig commuities through 3 approaches: ormal ledig, wholesale ledig ad home improvemets for the poorest households. Figure 3: HFHE Approaches to Improve Poor Housig Normal Ledig HFHE ad parter NGOs share the risks of ogoig ledig i participatig commuities for a idefiite duratio with ledig targets (umbers of loas) set aually. Loa maagemet costs of all parter NGOs ad CBOs are reimbursed at a fixed percetage of loa value. All NGOs ad CBOs are reimbursed at the same rate from ew loas disbursed. Wholesale Ledig HFHE ad CEOSS, its strategic NGO parter, implemet this pilot ledig approach i 3 commuities. CEOSS commits to aual targets for ledig over 5 years ad to retur 100% of loa capital to HFHE by ed Year. CEOSS bears all risk of bad loas ad opaymet but receives a higher aual fee for all years, icludig the fial 3 years (Years 6-) of loa collectio oly (o ew loas disbursed). Home Improvemets for the Poorest Households I their partership agreemets with HFHE, parter NGOs commit to make essetial home improvemets for the poorest households that are uable to repay loas. Costs are shared by parter NGOs ad CBOs. The umber of poorest households assisted is 7% of the total umber of housig loas disbursed i each commuity. 6

7 Normal Ledig: I its ormal ledig approach, HFHE receives aual plas from parter NGOs that specify the umber of micro loas to be disbursed i each commuity the ext fiscal year. These aual plas curretly budget for a average loa size of EGP 7000 (US$ 90). HFHE agreemets with parter NGOs are for three years, which is the maximum duratio for a HFHE micro loa. However, the expectatio is that the HFHE parterships will be ogoig ad that loa capital ad housig micro loas will cotiue to be dispersed i participatig commuities for a idefiite period. Ideed, a characteristic of HFHE s curret ormal ledig approach is that there is o ed-date for micro ledig to a specific commuity (see Part 3: Challeges ad Opportuities) 9. Both HFHE ad the parter NGOs share the risk of bad loas ad o-paymet by borrowers. I this regard, parter NGOs withhold a aual loa maagemet fee of 6% of the total value (icludig the 7% iflatio adjustmet) of all micro loas disbursed i each commuity. The moies are take from the loa repaymets collected ad shared with participatig CBOs to cover salaries ad other direct expeses 10. Wholesale Ledig: Wholesale ledig is curretly a pilot iitiative betwee HFHE ad CEOSS, HFHE's strategic parter. This approach is beig implemeted with just three CBOs, each situated i a large rural commuity. HFHE ad CEOSS will evaluate the success of this approach before expadig to other iterested parters. Iitiated i 2013, wholesale ledig differs from ormal ledig i just three key features: 1. A Ed Date: Wholesale ledig has a ed date for ledig i each commuity. These micro loas will be disbursed for oly five years. After Year 5, collectio of loas will cotiue util Year, whe the last loas (i.e. those disbursed i Year 5) will be due ad fully repaid. 2. Parter NGO bears all risk: I: I this wholesale ledig pilot, the parter NGO bears 100% of the risk of orepaymet of loas. (I the ormal ledig approach, HFHE shares this risk with parter NGOs but it is HFHE that bears the larger share of ay losses ad write-offs). I this pilot, CEOSS has committed to retur 100% of the HFHE loa capital plus iflatio adjustmets ot allocated for CEOSS s loas maagemet expeses (fee). CEOSS will retur this loa capital to HFHE aually after Year 5 from the loa repaymets that it collects. 3. Higher Fees for Parter NGO, icludig Repaymet Period: To maage this wholesale ledig pilot, CEOSS receives a higher aual fee (9% i each of Years 1-4, 10% i Year 5) tha the 6% fee received by parter NGOs for ormal ledig 11. It also receives a smaller aual fee durig the repaymet years (Years 6-) whe o ew loas are disbursed. I ormal ledig, parter NGOs ear their maagemet fee solely for ew loas disbursed. But apart from these three features, wholesale ledig ad ormal ledig share idetical loa terms ad coditios. Miimum loa size is EGP 2,000, maximum loa size is EGP 12,000, maximum loa duratio is 36 moths, loa size determiatio for each cliet is that mothly repaymets are ot to exceed 25% of borrower s mothly icome, ad clietele selectio ad eligibility criteria are idetical for both approaches. Both approaches assist poor ad low-icome households to make essetial home improvemets. Home Improvemets for the Poorest Households: HFHE s third approach charitably assists the poorest of the poor i supported commuities with vital home improvemets. These households are uable to repay eve the smallest micro loa, i.e. EGP 2,000 (US$ 250). Their daily icome is too precarious, too ucertai, ad rarely exceeds their immediate expeses o food, ret, utilities, ad medical essetials. For these households, a day s icome of eve EGP (US$ 4-6) is a blessig. Sice it bega this third ledig approach i FY2006, 1,120 households (to Jue 30, 2015) have bee helped with small home improvemets ad reovatios that markedly ehace their life quality. Home improvemets for these poorest families cost EGP 500 2,000 ad typically comprise: istallig a widow ad door, cemetig earth floors, coectig homes to a potable water etwork, a ew wood roof, cemet mortar o iterior walls to seal them agaist isects, iterior walls to provide separate sleepig space for parets ad/or adolescet daughters ad to separate farm aimals from huma ihabitats iside peasat homes. The improvemets are chose by the beeficiary family together with the parter NGO / CBO resposible for executig ad payig for the work. These households do ot receive cash. Sice iitiatig this third approach, HFHE has tried differet schemes to pay for these charitable home improvemets. I some commuities, CBOs ad parter NGOs solicit doatios from higher icome families. HFHE itself solicits cotributios from multiatioal ad local corporatios i Egypt ad charitable doors i the West 12. Today, partership agreemets betwee itermediary parter NGOs ad HFHE stipulate that the parter NGO will, together with its participatig CBOs, execute housig improvemets for poor families at the rate of 7% of the total umber of loas, ot 7% of the value of The loa capital remais HFHE property ad HFHE ca request retur of the loa capital. HFHE does withdraw ad reallocate loa capital from oe CBO or commuity to aother if the capital is ot efficietly used. 9 Of the 22 rural ad urba commuities with active HFHE micro ledig, 3 commuities have bee served by HFHE loas for more tha 15 years, 4 commuities for more tha 10 years, ad 11 commuities for -9 years. Just 5 commuities are ew to HFHE ledig i the past five years (sice 2011). 10 I FY2015, most participatig CBOs disbursed HFHE loas at a average value of EGP 7000 per loa (ot icludig the 7% aual iflatio adjustmet). No commuity loas committee approved more tha 155 loas i 2015 ad oe less tha 40 loas. 11 It is importat to add that both the curret rate (6%) for parter NGO maagemet expeses of ormal ledig ad the curret aual iflatio adjustmet (7%) o micro loas have slowly icreased over the years of HFHE ledig i Egypt. Wholesale ledig is a recet iitiative. The 6% aual maagemet fee for parter NGOs ad the 7% aual iflatio adjustmet o loas could also be icreased. 12 Multiatioal corporatios have also cotributed to HFHE loa capital. 7

8 loas that it disburses i that commuity that year. For example, if a parter NGO will disburse 120 micro loas i commuity A ext year, it will also make home improvemets for eight poorest families (7% of 120 loas) ext year i commuity A. The 7% target was set i 2010, a icrease from the previous requiremet of 5% ad the iitial 3% requiremet which was set i 2000 at the start of HFHE's support to these households. Some parter NGOs use their share of the aual 6% maagemet fee for micro loas to help pay for these home improvemets. Parter NGOs commit to these home improvemets ad are resposible to fiace them themselves or through local doatios. HFHE itself has o ivestmet i home improvemets for poorest families. The fiacig ad sustaiability of these three approaches are cosidered i Part 2 below. 1.5 Techical Services to Borrowers Most borrowers also receive free egieerig techical services for their plaed home improvemets; the cost is ot added to the loa value for repaymet ad HFHE pays the full cost of the egieerig services from its ow budget. Experieced ad traied egieerig graduates are cotracted o a part-time basis to assist CBOs ad loa applicats with the specificatio of costructio requiremets, preparatio of egieerig desigs (if eeded), estimatio of actual costs for plaed home reovatios ad ew costructio, ad ispectio of the completed works. These egieerig graduates are cotracted aually; there are curretly four egieerig graduates with part-time cotracts with HFHE. The beefits of these egieerig services are cosiderable. First, this esures that the loa is sufficiet to complete the plaed reovatio or costructio. The loa for a completed home project is much more likely to be repaid o time ad i full. Secod, this esures that the reovatio or costructio is properly plaed ad desiged ad, if executed properly, will be soud costructio ad a successful project. HFHE must protect its reputatio agaist the publicity of a failed home costructio ad a buildig collapse, ijuries or death that might esue from a HFHE micro loa. Third, this provides greater assurace to the CBO loas committee that the proposed loa will be used for home improvemet ad ot diverted to aother use (weddig, small busiess, cosumptio). Fourth, this provides the techical ispectio ad approval for borrowers to receive the secod trache of their loa. Nearly all HFHE micro loas are disbursed i two traches, with the secod trache disbursed by the CBO oly after the egieer certifies that the costructio work paid from the first trache has bee satisfactorily completed. I sum, these egieerig services provide HFHE ad its parter NGOs ad CBOs with the assurace that housig micro loas are achievig their iteded purpose. The egieers schedule their field visits directly with the CBO loa committees, but they report directly to HFHE each moth o the services provided ad the progress of home costructio ad reovatios. What does this service cost? Egieers are ot HFHE staff. They are paid for their actual services to each borrower o a piece work basis. I FY2015, the total costs of egieerig services provided to a sigle borrower (from start to fiish of the egieer s desig, cost estimate ad follow-up ispectios of costructio) averaged just EGP 5.5 (US$ 7.50). This cost is less tha 1% of the value of a average micro loa (EGP 7000). Egieerig services to borrowers are a valued form of isurace ad offer peace of mid to HFHE. I FY2015, egieerig services beefitted 1,90 borrowers, i.e. 3% of the 2,393 micro loas disbursed that year. May urba homeowers reovatig their apartmets are geerally ot served by these cotract egieers. Their plaed reovatios (wall ad floor repairs, plumbig ad electric works) geerally do ot require egieerig desig or ispectio. With traiig ad experiece, the CBO loa committees are able to estimate costs ad ispect these apartmet reovatios themselves. CBO loa committees also perform cost estimates ad simple desig tasks of home improvemets for the poorest families. For HFHE, it is importat that borrowers feel a sese of owership towards their housig loa ad improvemet project. For this reaso, homeowers ad egieers collaboratively prepare ad agree o the egieerig desigs for the plaed work. Egieerig desigs are custom made for each borrower s home. The desig ad cost estimate prepared by the egieer ad homeower must be siged by the loa applicat; they are essetial supportig documets i the loa applicatio.

9 1.6 Selectig CBOs, Eligible Homeowers ad Settig Loa Values HFHE has clear ad specific criteria for the selectio of CBOs, eligible homeowers ad the loa value that borrowers may receive. Detailed criteria are stipulated below: Selectio Criteria for CBOs: The maagemet experiece ad capacity of the local CBO is the most sigificat factor i the selectio of participatig commuities. The target commuities that beefit from HFHE loas were all selected chiefly because they have a capable CBO. The CBO is key to the success of HFHE micro ledig for housig improvemets; the high loa repaymet rates ad low levels of HFHE portfolio risk are both largely due to capable CBOs. It is the CBOs ad their loa committees who select borrowers, loa values ad collect loa paymets. The importace of selectig capable CBOs caot be overstated. What are the chief criteria for selectig CBOs? First ad foremost, the CBO must have strog ties to its commuity. The CBO must have the commuity s respect ad show active support of the commuity. The CBO should iclude atural leaders of the commuity ad iclude members from leadig families ad differet eighbourhoods or quarters of the commuity. It is essetial that the CBO be committed to servig the etire commuity with particular priority for its poor ad low-icome households. The CBOs stadig ad reputatio i its commuity are very importat i both its selectio ad its successful maagemet of HFHE ledig. A secod major criterio for CBO selectio is that the CBO should be officially registered with the resposible govermet miistry. This is typically the Miistry of Social Solidarity that regulates ad oversees the large majority of ogovermetal orgaizatios i Egypt. Registered CBOs are subject to official regulatio, ispectio ad oversight ad are legally resposible to govermet authorities for their actios. Registered CBOs are also required to have basic admiistrative competecy. Additioal criteria for CBO selectio iclude: i) the CBO should have the maagemet (icludig fiacial maagemet) capacity ad commitmet to capably implemet the housig micro loas, ad ii) the CBO should have previous experiece of maagig small loas. The last criterio stipulates that previous experiece of loa maagemet is preferable but ot madatory. A experieced CBO that is perceived to have soud overall maagemet ad fiacial maagemet systems ca be traied to maage HFHE loas ad closely moitored ad assisted by the parter NGO over the duratio of the first year to assure its loa maagemet capacity. Selectio Criteria for Borrowers: HFHE isists that parter NGOs ad participatig CBOs apply specific criteria for the selectio of borrowers. HFHE criteria fall uder three categories: i) the borrower s eed for adequate shelter, ii) the borrower s ability to repay the loa, ad iii) ad the borrower s willigess to parter. Other criteria stipulate that all borrowers must be homeowers ad live i the commuity. Apart from these criteria, there must be o discrimiatio i the selectio of borrowers due to age, geder, religio, employmet, or residece. o o o Need for adequate shelter: HFHE micro loas are to assist oly poor ad low-icome households who have iadequate shelter. A eligible home is cosidered iadequate shelter based o its structural soudess, geeral state of disrepair, size of livig quarters, lack of saitatio, security ad safety, ad cost of housig (as a percetage of gross mothly icome). Ability to repay the loa: To be eligible to receive a HFHE micro loa, the borrower ad their household must be fiacially poor or low-icome. Households that are able to take bak loas are ot eligible for HFHE micro loas, but the poor ad low-icome borrower must also be able to repay the loa. Borrowers must demostrate a stable source of icome for at least 6 moths prior to their loa applicatio. Borrowers must have a soud fiacial reputatio i their commuity ad ot be burdeed with other debts that might keep them from repayig the HFHE loa. Applicats must also demostrate owership, iheritace or buildig rights to the home. Willigess to Parter: Habitat for Humaity Iteratioal ad HFHE are kee for borrowers to cotribute materially to the costs of their home improvemet, reovatio or costructio. HFHE loas should ot cover more tha 90% of the plaed work costs. Loa applicats are also evaluated for their readiess to participate i traiig ad egieerig desig activities, their demostrated resposibility for the care ad maiteace of their home, their geeral welcome ad cooperatio i ispectio visits, ad their referece ad credit evaluatios. 9

10 Complete HFHE criteria for borrower / homeower selectio are icluded i Aex 2. Also icluded i Aex 2 are HFHE criteria for the selectio of poorest households to receive charitable assistace for vital home improvemets. Fially, although it is importat that there be o discrimiatio i the selectio of borrowers, HFHE does give priority (i order) to the followig social categories: Orphaed or deserted childre, Widowed, divorced, separated, or deserted wome with depedats, Married couples with depedats, Widowed, divorced, deserted, or separated wome without depedats, Married couples without depedats, Prospective husbads or wives withi six moths of marriage. Settig Loa Values: The miimum size of a HFHE micro loa for housig improvemet is EGP 2,000 (US$ 255); the maximum size is curretly EGP 12,000 (US$ 1,530) 13. Betwee these limits, CBO loa committees set the size of each loa. The criteria they use i settig the loa size iclude: o o o Borrower s ability to repay the mothly istalmets. Istalmets should ot exceed 25% of the borrower mothly icome. The egieer s report o the techical requiremets ad the cost estimate of the plaed work. The borrower s ability to cover at least 10% of the cost of the plaed work from his/her ow resources. The loa size distributio of actual HFHE micro loas for a large sample of borrowers for 2015 is provided i Aex 1. The average (mea) loa size (EGP 7,003 before iflatio adjustmet) for this sample of borrowers was early idetical to the budgeted average of EGP The Process of Loa Applicatio, Approval ad Disbursemet Step 1 - The Loa Applicatio: The loa applicatio process begis with the applicat submittig a simple oe-page Loa Request Form to the CBO loa committee. The form asks the applicat s ame, address, cotact iformatio, ID iformatio, ad a geeral descriptio of the home improvemet or reovatio work to be doe. The form also asks the applicat to describe why this work is ecessary. Lastly, the applicat specifies the size of loa requested ad the proposed value ad frequecy (mothly, quarterly or semi-aually) of their loa paymets. Applicats must preset their applicatio to the CBO i perso. Step 2 - Completig the Loa Request Review Form: The CBO loas committee may either accept or reject the Loa Request Form 14. The committee the cotacts the HFHE-cotracted egieer to schedule a home ispectio ad to prepare, together with the accepted loa applicat, the egieerig desig ad cost estimate of the proposed work. At the time of the egieer s visit, the CBO loas officer or a loa committee member will also atted ad, with the applicat, complete a Loa Request Review Form. This 4-page form collects brief iformatio o the applicat s employmet, icome, other household icome, other loas, ad reputatio i commuity. It cofirms the size ad frequecy of the loa repaymets that the borrower ca pay, ad idetifies the borrower s collateral ad/or guarator for the loa 15. Page 2 of the Review Form collects geeral iformatio o the physical household ad its occupats (huma ad farm aimals, if ay) ad provides a geeral descriptio of the home s costructio ad cotets. Pages 3-4 specify the proposed reovatio / costructio work ad iclude cost estimates for the major work compoets. Lastly, the Form records the recommedatios of the egieer ad CBO loa officer / loas committee member regardig the proposed work ad loa applicatio. If the applicat is ot well kow to the loas committee, the committee will check the applicat s refereces ad iquire i the commuity to cofirm the applicat s employmet, icome, fiacial stadig, reputatio, ad trustworthiess. Step 3 Approvig the Loa: The CBO loas committee meets periodically, typically mothly or quarterly, to review completed loa applicatios for approval. All applicatios iclude a copy of the egieerig desig ad a cost estimate for the work, all siged by the homeower/applicat ad egieer. For each loa review meetig, the committee completes a stadard form of Loa Committee Miutes that idetifies all attedig committee members ad separately lists: i) all loas approved at the meetig (icludig the ame of borrower), the type of costructio work to be doe, ad the loa value; ii) the applicatios of all rejected loas ad the reaso for rejectio; ad iii) completed loa applicatios for which a decisio is postpoed (ad reaso for postpoig). Importatly, it is the CBO loas committee ot the HFHE cotracted egieer that determies the loa size. The miutes are the siged by each attedee ad by the CBO presidet. The loa committee miutes are importat supportig documets for the loa review process, its trasparecy ad accoutability. 13 Before 2013, the maximum HFHE micro loa was EGP 10,000. Together, this maximum loa size ad preferece that most households ot receive multiple HFHE loas (maximum 3 loas per household) help to esure that the micro loas chiefly beefit poor ad low-icome families. 14 If the loas committee kows the applicat to be ot trustworthy or ieligible for ay reaso (icludig the size of loa requested or the household s higher icome / wealth), the applicatio is dropped from the start. Oly accepted applicats proceed through Step I practice, all borrowers provide the CBO with siged promissory otes legal guaratees for all of the loa repaymets of their loa. 10

11 Step 4 Loa Disbursemets ad Follow-up: All loas are disbursed i two traches; typically, each trache is 50% of the loa amout. To receive the secod trache, the borrower must satisfactorily complete costructio work to the value of the first trache paymet. The partial work is ispected by the HFHE-cotracted egieer who reports o the work s progress ad quality. Based o the egieer s report ad the ispectio by the committee (if ecessary), the loa committee completes a brief summary report for the CBO, ad the makes recommedatios for the paymet of trache two (the recommedatio may be either to delay the ext paymet or termiate the loa altogether). Rarely is a loa termiated at trache oe; this is a good idicator of the soudess of the loa applicatio, approval ad disbursemet processes. For loas repaid mothly, repaymet begis 30 days after receipt of the first trache; early all HFHE loas (~95% i 2015) are repaid mothly Fial Step: The HFHE-egieer ispects the completed work to certify that the costructio work is techically soud ad of satisfactory quality. The egieer s report is cofirmatio to the CBO, parter NGO ad HFHE that the loa was successful ad achieved its iteded purpose. Files of completed loa documets are maitaied by the parter NGO for HFHE audit ad ispectio. Loa documets for loas i progress are maitaied by the CBO util the secod trache is disbursed. The CBO s registers of loa disbursemets ad all paymets for each borrower are maitaied at the CBO for as log as the HFHE program is active. Fially, it is importat to make clear that the average per-loa cost (EGP 5.5 i 2015) of the HFHE-cotract egieer icludes the cost of the iitial visit, the egieerig desig ad costig, ad the two follow-up visits ad ispectios of the reovatio / costructio work. 1. A Brief Sample Profile of HFHE Cliets ad Micro Loas Figure 1 makes clear that HFHE is a apex itermediary orgaisatio i housig microfiace. It is oe level removed from parter itermediary NGOs ad two levels of hierarchy from the CBOs who approve loas ad maitai loa records. It is ot surprisig that HFHE does ot maitai a loa trackig system for its micro loas. Its priority is the fiacial performace ad reportig of loa disbursemets ad repaymets by CBOs. HFHE does however, receive mothly reports from all parter NGOs, with separate fiacial ad borrower lists for each commuity; borrower lists iclude basic iformatio o each loa. Aex 1 reports the sample profile of HFHE cliets ad micro loas compiled for this case study. It profiles a stratified sample of 75 HFHE loas disbursed i FY2015. These were all (100%) loas disbursed i 7 of the 22 commuities actively maagig HFHE micro loas i FY2015. This sample of 75 loas are early oe-third (32.%) of the 2,393 HFHE micro loas disbursed last year. The profile is represetative of all HFHE loas i FY2015. Figure 4: Size Distributio of HFHE Loas, FY2015 Sample EGP 10,000-12,000 13,0% Loa Size, excludig Iflatio Percetage EGP,000-9,999 EGP 6,000-7,999 EGP 4,000-5,999 EGP 2,000-3,999 3,2% 20,0% 25,5% 3,3% 0% 10% 20% 30% 40% 50% Percetage of 75 Sample Loas The average loa size i this sample, i.e. EGP 7,003, represets the most commo loa size ad the largest category of HFHE micro loas. The sample icludes a greater percetage (3.5%) of above-average size loas tha below-average loa sizes (23.2%). This is expected as CBOs typically prefer to give sigificat loas that will result i sigificat costructio work ad a more impressive ad satisfyig result. 11

12 Figure 5: Icome Distributio of HFHE Borrowers, FY2015 Sample Mothy Icome of Borrower/Household EGP ,3% EGP ,1% EGP ,5% EGP ,2% EGP ,5% EGP <600 6,9% 0% 5% 10% 15% 20% 25% 30% Percetage of 75 Sample Borrowers The icome distributio closely resembles the distributio of loa sizes (Figure 4). The majority of loas are to households i the mid-rage of borrower / household mothly icome 16. These are mothly icomes of poor ad low-icome households i Egypt today: EGP 00-1,400 (US$ ). The overall average mothly icome of sample borrowers is EGP 1169 (US$ 150). Although this is poor, these borrowers are still able to repay a micro loa. Nearly oe i five HFHE loas wet to these borrowers who maaged to repay their loas. Households with mothly icomes of EGP are low icome, especially those households with more tha five members. Mothly icomes of EGP 2000 ad above are cosidered middle-icome households i Egypt today; these households are a small miority (i.e. 16%) of the sample of borrowers. HFHE is however, fully aware of the challege of disbursig 100% of loas to the target clietele of poor ad low-icome households. This challege ad outcome are discussed i Part 3. More profile characteristics of the FY2015 sample of HFHE loas ad borrowers are preseted i Aex Icome data must always be treated cautiously. The HFHE Loa Request Review Form asks ). The recorded icome may ofte, however, be the borrower s mothly icome ad exclude other icome sources. 12

13 Part 2: Fiacial Performace Part 2 examies the growth ad sustaiability of HFHE housig microfiace, icludig the program s outreach (umber of borrowers) ad loa portfolio value, it also highlights the maagemet of HFHE micro ledig ad select idicators of portfolio sustaiability. We apply stadard metrics (measures ad idicators) used i appraisig microfiace performace. Where iformatio is available, we compare performace with other MFIs. 2.1 Growth i Borrowers ad Gross Loa Portfolio Table 2 presets the aual growth i total borrowers, ew borrowers ad gross loa portfolio (GLP) 17 i the past five years from FY2011 through FY2015. Table 2: HFHE Total Active Borrowers, New Borrowers ad Gross Loa Portfolio o Jue 30 of FY2011 through FY2015 Metric FY2011 FY2012 FY2013 FY2014 FY2015 Total Borrowers 6,164 5,63 6,032 6,391 6,46 Chage i Total Borrowers (Y-Y) (4.9%) 2.9% 6.0% 7.1% Total Borrowers 6,164 5,63 6,032 6,391 6,46 Chage i New Borrowers (Y-Y) 2.9% 15.1% (2.2%) 10.3% Gross Loa Portfolio (EGP) 1 16,749,531 1,295,549 22,699,226 25,012,953 2,215,22 Chage i GLP (Y-Y) 9.2% 24.1% 10.2% 12.% We must begi with history. Two key evets i Egypt ad HFHE history are essetial backgroud to appraisig maagemet performace o these metrics ad later aalyses. The first evet occurred mid-fy2011: Egypt s Jauary 2011 Revolutio that violetly deposed the 30-year regime of Presidet Hosi Mubarak. I the moths of isecurity ad societal chaos that followed, parter NGOs halted or slowed ew HFHE ledig. Fewer ew loas were grated over much of the followig year, leadig to a 4.9% drop i total borrowers from FY2011 to FY2012. Cliet outreach actively resumed late i FY2012 with strog icreases i both the umbers of ew borrowers (+15.1%) ad gross loa portfolio (+24.1%) i FY2013. The secod evet, the abrupt replacemet of seior HFHE maagemet, occurred early i FY2015 (September 2014). Yet despite this sudde maagemet burde, outreach to ew borrowers, total umbers of borrowers, ad GLP growth all icreased over FY2014. This was a commedable achievemet ad prospects are strog for sigificatly icreased cliet growth ad portfolio performace over the ext few years. HFHE is rightly proud of these achievemets ad the performace reboud i a difficult period. The rapid resumptio ad growth of ledig after both evets affirms the importace of HFHE s distributed etwork of micro ledig. Today, HFHE microfiace is completely distributed across five parter NGOs ad their 22 CBOs. HFHE parters ad their CBO affiliates remai close to commuities ad maitai effective loa maagemet that is resposive to the specific circumstaces of each locale. Ledig performace does ot require that HFHE itself be fully fuctioal. Both the Jauary 2011 Revolutio ad the abrupt replacemet of HFHE maagemet occurred i Cairo, where HFHE has its atioal office. Yet parters ad affiliates could cotiue or resume active ledig. Major iterruptios of HFHE ledig ad loa repaymet did occur i a few commuities after Jauary The sigificace ad impact of this are discussed i sectio 2.3 below. Year-to-year chage i total borrowers ad GLP for this period is also show graphically i Figure 6. O the outreach metric chage i total borrowers it is useful to compare HFHE performace with microfiace istitutios (chiefly micro- ad smalleterprise ledig, ot housig) i other cotexts. Aex 3 provides aual growth i borrowers for MFIs i Asia i the previous decade ( ). 17 The gross loa portfolio (GLP) is the total balace of loas outstadig (loa pricipal + iflatio adjustmet) held by borrowers ad to be repaid o a specified date. The figures i Table 2 are at the close of each HFHE fiscal year o Jue 30. Growth is reported year-to-year (Y-Y). 1 GLP is reported oly i local currecy (EGP). Successive devaluatios of the Egyptia poud over this period preclude a valid aalysis of gross loa portfolio chage i U.S. dollars. 13

14 Figure 6: Aual Chage i Total HFHE Borrowers ad Gross Loa Portfolio, Jue 30 of FY2011 FY2015 Chage Year-to-Year 30% 25% 20% 15% 10% 5% 0% -5% Total # Borrowers Gross Loa Portfolio (EGP) % These HFHE results show that aual GLP growth of 15% ad aual icrease of 10% i total borrowers are both possible i the ear term. I its strategic plaig, HFHE should aim to achieve or exceed these target growth rates i at least two years betwee FY2015 ad FY Fiacig Structure The fiacig structure of HFHE is limited to its gross loa portfolio (i.e. the total value of loas outstadig) ad its cash balace ad cash reserves. HFHE caot accept deposits ad has o other sources of equity. HFHE s total fiacial assets iclude its GLP ad cash balaces. A stadard metric for a MFI s fiacig structure is the value of its GLP as a percetage of total assets. HFHE has o sigificat assets other tha its fiacial assets ad ows o property or vehicles. Table 3 presets the ratio of HFHE s gross loa portfolio to total assets (GLP to Assets) for the past 5 years. Total assets iclude the GLP plus total cash balaces with parter NGOs ad CBOs ad cash reserves with HFHE o Jue 30 of each year. These ratios are calculated from audited figures prepared aually for HFHE balace sheets ad ed-of-year accouts. Table 3: Ratio of Gross Loa Portfolio to Total Assets, FY2011 FY2015 Metric FY2011 FY2012 FY2013 FY2014 FY2015 Ratio of Gross Loa Portfolio to Total Assets (EGP) 74.6% 74.1% 0.7% 7.% 3.1% Lower GLP to Asset ratios i FY2011 ad FY2012 reflect the pull-back i ledig cosequet to the Jauary 2011 Revolutio. The highest ratio of this period occurred i the latest year, i.e. FY2015, ad reflects reewed program mometum ad icreased ledig by HFHE, parter NGOs ad CBOs. This tred is positive. Table A-3 (i Aex 3) provides comparable ratios for Asia MFIs i 200. These are small- ad micro-eterprise MFIs, ot housig MFIs, but the compariso is useful. The aggregate ratio for all MFIs i Idoesia that year was 76.3%; i the Philippies, 71.2%. MFIs i Sri Laka reported the highest ratio of GLP to Assets at 90.0%. The media atioal ratio for this group of coutries was 77.% (Bagladesh). HFHE performace o this metric is comparable ad stregtheig. 2.3 Loa Repaymet ad Risk Profile The sustaiability of ay microfiace program depeds first ad foremost o timely repaymet ad successful collectio of loas from borrowers. Loa repaymet rates ad calculatios of portfolio at risk are key metrics of ledig sustaiability ad HFHE s risk profile. Sice FY2011, HFHE has maitaied a above 97% loa repaymet rate; that is, at least 97% of the gross loa portfolio (GLP) is curret or ahead of schedule i repaymet. At the ed of FY2015, 9.1% of the GLP was curret. These are strog results. The percetage of borrowers who are curret or ahead i their paymets is slightly more variable, ragig betwee 95.3% (FY2012) ad 99.1% (FY2014). 14

15 Aalyses of the HFHE portfolio at risk (PAR) are especially revealig. Figure 7 compares three measures of PAR: i) the percetage of GLP more tha 30 days late i repaymet, ii) the percetage of GLP more tha 90 days late i repaymet, ad iii) the percetage of GLP more tha 10 days late. The portfolio at risk is the total value of all outstadig HFHE loas (icludig iflatio adjustmet) for which the borrower is late i repaymet. Whe repaymet is delayed, the etire remaiig loa value is said to be at risk. High PAR levels idicate large umbers of loas with deliquet (late) paymets. High PAR levels sigal the possibility of a deterioratig repaymet situatio ad greater risk. Figure 7: HFHE Portfolio at Risk, FY2011 to FY2015 Percetage of Gross Loa Portfolio, 30 Jue 3,0% 2,5% 2,0% 1,5% 1,0% 0,5% 0,0% Portfolio at risk >30 days Portfolio at risk >90 days Portfolio at risk >10 days Before examiig the recet treds for these three metrics, the summary appraisal is that HFHE has successfully maitaied a low to low-moderate level of portfolio risk throughout this period 19. This is a impressive achievemet cosiderig the specific circumstaces of Egypt. It is useful, however, to compare the three treds i Figure 7. From FY2011 to FY2012, two of the three measures of portfolio risk (i.e. the percetage of GLP more tha 30 days overdue, ad the percetage more tha 90 days) rose moderately by 0.5% to 1.0%. But the share of GLP more tha 10 days late rose sharply: from 0.1% i FY2011 to 1.4% (FY2012). What happeed here? I the breakdow of social order, civic values ad police services i Egypt, especially i metropolita Cairo, after the Jauary 2011 Revolutio, may HFHE borrowers i poorer metropolita commuities of Greater Cairo stopped repayig their loas. Withi several moths, their deliquet loas were more tha 10 days late. I FY2012, these very deliquet borrowers made up oly a small percetage (1.%) of active HFHE borrowers who held just 1.4% of GLP. They were however, cocetrated i three to four metropolita commuities served by HFHE ad its parter NGOs ad they were a sigificat ad growig percetage of all borrowers i these commuities. I respose, HFHE ceased all ledig i these commuities ad directed its parter NGOs ad CBOs to esure prompt loa repaymet ad timely collectio i all other HFHE-assisted commuities. New loas cotiued to be disbursed i other commuities ad the aggregate results were very positive. Sice FY2012, deliquecy rates have falle steadily o all HFHE loas. At the ed of FY2015, oly 1.1% of GLP was still 10 days late ad just 0.1% of loas were days late. The EGP value of these very deliquet loas (more tha 10 days overdue) has icreased slowly but steadily over this period: from EGP 263,000 at ed FY2012 to EGP 314,000 o Jue 30, But the PAR measure of portfolio at risk (more tha 30 days) has declied steadily: from 2.3% i FY2012 to 1.3% at FY2015. It is agai useful to compare HFHE portfolio risk with PAR rates for the Asia eterprise MFIs. Aex 3 presets similar lie graphs of PAR rates for microfiace istitutios i South Asia, East Asia ad Pacific betwee 2003 ad 200. I coclusio: Through a difficult ad challegig period, HFHE successfully maitaied a satisfactory risk profile for its housig loa portfolio. The fact that it did so while ledig to poor ad low-icome households without promise of successive loas is impressive 20. It is also testimoy to the sigificace of commuity ad civic values i sustaiig strog repaymet rates ad loa portfolio stability eve i periods of serious social disruptio. This last poit is importat. We will retur to it i Part For loas more tha 30 days overdue, the portfolio at risk (PAR) is cosidered very low if 0.5% or less of the GLP is late i repaymet. Iteratioal bechmarks for microfiace cosider a PAR of 1-5% of GLP more tha 30 days overdue as a low to moderate level of portfolio risk. The comparable PAR for HFHE i this period ever exceeded 2.6% (FY2012). 20 Oly a small percetage (<5%) of HFHE borrowers, those buildig i stages, receive a secod loa. The overwhelmig majority (4+%) of HFHE loas are sigle loas for home reovatios. These borrowers are ieligible for repeat loas. See Aex 1. 15

16 2.4 Costs ad Efficiecy of Loas Maagemet Historically, reducig the costs of loas maagemet was ot a HFHE priority. HFHE measures its idirect costs (i.e. all expeses other tha the value of loa capital) as a percetage of its total budget for a give year. Its total budget icludes the plaed total value of ew loas to be disbursed that year ( direct costs ), plus all other costs ad operatig expeses ( idirect costs ) of the HFHE atioal office ad its parter NGOs ad CBOs admiisterig these micro loas. These percetages are however, budgeted (plaed) expese ratios; they are ot actual ratios. The actual value of ew loas disbursed may differ from the budgeted value. Likewise, actual costs will differ from plaed costs. Hece, the ratio of actual idirect costs to actual ew loas disbursed might differ sigificatly from the budgeted ratio. Table 4: Budgeted versus Actual Costs, FY2014 ad FY2015 All figures are EGP Value of New Loas Disbursed (pricipal oly) Loas Maagemet Fees of Parter NGOs + CBOs HFHE Natioal Office Expeses (total) Parter NGO + CBO Fees as % of New Loas HFHE Natl Office Expese as % New Loas Total Idirect Costs as % of New Loas FY2014 Actual as FY2014 % of Budget Actual Budget Budget Actual Actual as % of Budget 13,455,750 14,474, % 16,14,700 17,195, % 1,322,50 1,096, % 1,422,191 1,121, % 3,00,767 2,331, % 3,171,159 1,714, % 9.% 7.6%.5% 6.5% 22.9% 16.1% 1.6% 10.0% 32.7% 23.7% 27.1% 16.5% Table 4 compares the budgeted ad actual costs, direct ad idirect, of HFHE ledig for FY2014 ad FY2015. Direct costs are the value of ew loas disbursed each year. Idirect costs iclude the loa maagemet fees paid to parter NGOs (a percetage of the iflatio adjustmet o loas disbursed that year) ad all the expeses of HFHE s atioal office 21. HFHE makes o provisio for loa losses i its budget or expeses. Let s first compare actual to budgeted expeses i Table 4. I both years, actual expeses were sigificatly below budgeted expeses especially the expeses of the HFHE atioal office. The dramatically lower (54%) expeses of the atioal office i FY2015 chiefly reflect a reductio i total salary expeses followig the departure of seior maagemet. Lower actual expeses i both years provided HFHE with cash reserves to cover loa write-offs (see sectio 2.6 below) ad provide loa capital for ledig i ew commuities. I presetig budgets, it is useful to preset idirect costs as a percetage of plaed ew loas. This percetage provides a quick reality check of the ratio of idirect to the plaed direct costs (ew loa values) for that year 22. It is ot, however, a valid idicator of microfiace efficiecy. It does ot iclude the maagemet burde of existig loas. Iteratioal bechmarks for MFI efficiecy report operatig expeses as a percetage of GLP. Figure shows the total operatig costs of HFHE ledig as a percetage of GLP i FY2014 ad FY2015. These are total actual expeses (Table 4) as a percetage of the gross loa portfolios each year (from Table 2). 21 FY2015 expeses i Table 4 exclude specific, orecurrig idirect costs of the HFHE Natioal Office that resulted from the abrupt maagemet chage. Expeses for these two years are ormal, recurret expeses. 22 This is especially useful if the budget presets the ratio of plaed expeses for the ew year agaist actual expeses from the previous year. 16

17 Figure : Icreasig Efficiecy of HFHE Microfiace, FY2014 ad FY2105 Operatig Expeses as Percetage of Gross Loas Portfolio 40% 30% 20% 10% 0% 4,4% 9,3% FY2014 Parter NGO + CBO Loas Maagemet Fees HFHE Natioal Office Expeses (recurrig) 4,0% 6,1% FY2015 HFHE markedly icreased efficiecy ad reduced the burde of operatig expeses o GLP i FY2015. Loa maagemet fees paid to parter NGOs (ad NGOs to CBOs) dropped by 0.4 percetage poits to 4.0% of GLP i FY2015, ad the HFHE atioal office's expeses fell to 6.1% of the gross loa portfolio. This is a total expeses-to-glp ratio of 10.1%. This is a low ratio that idicates efficiet maagemet of HFHE ledig operatios. Comparable levels of ledig efficiecy (i.e. operatig expeses as a percetage of GLP) for Asia MFIs i 200 were 20.7% for all Idoesia MFIs, 26.7% for all Philippie MFIs ad 10.% for all Nepal MFIs surveyed. See Table A-3 for more comparisos. The media efficiecy ratio for the te Asia coutries was 12.7%, these are aggregate percetages for all surveyed MFIs i each of the te coutries; the compariso is favourable for HFHE. However, lower expeses by other MFIs also idicate the potetial for more efficiecy. Greater operatig efficiecies ca best be achieved by HFHE icreasig its GLP while maitaiig soud maagemet ad cotrollig costs. 2.5 Additios to Loa Capital Habitat for Humaity Iteratioal has log bee the chief source of HFHE loa capital. Before FY2014, the aual budget preseted by HFHE to Habitat for Humaity Iteratioal icluded a lie item for additios to loa capital 23. These additios to loa capital were i U.S. dollars. Sice FY2014, Habitat for Humaity Iteratioal has ot provided HFHE with additioal loa capital. HFHE has, however, obtaied mior additios to its loa capital from local corporate doatios ad grats from other door agecies. HFHE has ot approached a commercial bak to borrow loa capital for o-ledig. 2.6 Loa Guaratees ad Loa Write-offs HFHE leaves the choice of loa guaratees to parter NGOs. These guaratees are maitaied at the CBO ad audited by HFHE durig periodic site visits to supported commuities. Microfiace isurace is ot yet available i Egypt. Egyptia regulatios goverig NGOs prohibit the write off of bad debts, iactive loas or other associatio property ad assets without a court rulig or a death certificate for the borrower. Table 3 reports total loa write-offs i the 5 years from FY2011 through FY2015 i absolute value ad as a percetage (write-off ratio) of GLP. Table 5: Loa write-offs of bad debts, FY 2011 loas Metric FY2011 FY2012 FY2013 FY2014 FY2015 Gross Loa Portfolio (EGP) 16,749,531 1,295,549 22,699,226 25,012,953 2,215,22 Value of Loa Write-offs (EGP) 73,611 12,92 112,514 20,620 13,100 Write-offs as % of GLP 0.439% 0.071% 0.496% 0.02% 0.046% This was a turbulet period i Egypt that severely slowed ecoomic growth, fostered widespread isecurity ad forced may small busiesses ad microeterprises to close. I this cotext, a icrease i operformig loas would be expected. The results reported i Table 4, however, attest to cosiderable HFHE success i sustaiig loa repaymets. I oly two years this period did loa write-offs exceed 0.1% of the gross loa portfolio (GLP) ad less tha 0.5% of the GLP was lost i each of the two years (FY2011 ad FY2013) of marked write-offs. I its latest year (FY2015), HFHE had a very low write-off ratio of 0.05%. 23 Additios to HFHE loa capital were, however, budgeted as eeded for icreased outreach ad were ot aual additios. 17

18 The write-off ratio (i.e. the total value of loa write-offs as a percetage of GLP) is a stadard metric for measurig MFI risk ad liquidity. I 200, aggregate write-off ratios for MFIs i Asia raged as high as 2.7% i Bagladesh to 1.7% i Idoesia ad 0.1% i Idia. 24 HFHE seeks court judgmet ad if ecessary, threat of police eforcemet to force repaymet of o-payig loas. Eve i commuities where ew ledig ceased years ago, parter NGOs ad CBOs cotiue to slowly collect istalmets o o-payig loas from borrowers wishig to avoid legal puishmet. Neither HFHE or its parter NGOs has reegotiated a overdue micro loa Iterest Rates ad Preservig the Value of Loa Capital As previously metioed, HFHE housig micro loas are o profit, o iterest. Over the past decade, however, HFHE has slowly raised the percetage iflatio adjustmet applied to all loas the curret rate is 7% aually. The large majority (79% - Aex 1) of HFHE loas are repayable over moths ad the total iflatio adjustmet paid for each loa is 14-19%. From this amout, parter NGOs implemetig HFHE ormal ledig debit 6% total for their (ad CBO) costs of loa maagemet. The balace of the iflatio adjustmet augmets the total value of loa capital. Does this iflatio adjustmet protect HFHE loa capital agaist iflatio? No. The local price of cemet, a commoly-used buildig material for home reovatio ad ew costructio, has swug wildly i recet years. 26 Figure shows the year-to-year chage i Egyptia cemet prices sice September Clearly, a iflatio adjustmet of 7% does ot fully protect loa capital i this cotext. Figure 9: Percetage Chage i Egypt Cemet Prices, Year-o-Year from September % Price Chage EGP, Y-Y 40% 30% 20% 10% 0% -10% -20% Ja 2010 Ja 2011 Ja 2012 Ja 2013 Ja 2014 Ja % Source: Cetral Bak of Egypt, Mothly Statistical Bulletis, Table 09. Idicators (Real Sector). Missig values are mothly figures that were ot reported (missig) i CBE statistical reports. But is it ecessary that a NGO micro ledig program that aims to improve iadequate housig for poor ad low-icome households seek to fully protect its loa capital by chargig higher, burdesome iterest rates? Ulike for-profit microfiace istitutios or o-profit MFIs that serve lower-middle icome borrowers ad their small eterprises, HFHE is well positioed to solicit charitable additios to its social loa capital. Sigificatly higher iterest rates could sharply reduce demad, iitiative ad ivestmet by poor ad low icome families to make vital improvemets to their households ad realise a basic quality of home life. The curret iflatio adjustmet o loas slows the declie i loa capital value without deterrig this priority clietele from makig valued home improvemets. HFHE will likely cotiue to slowly icrease its iflatio adjustmet i respose to market coditios. However, it is ot ecessary that HFHE apply higher iterest rates as its sole meas of preservig ad growig loa capital. 24 Aggregate write-offs are the total write-offs of all reportig MFIs i these coutries as a percetage of their total (aggregate) GLPs i 200. See Aex 3. It is importat to make clear that these atioal write-off ratios are for microfiace programs supportig small- ad micro-eterprise ot housig microfiace. The compariso does, however, poit up the relative success of HFHE i maagig its portfolio risk i this difficult period. 25 Additioal iterest does ot accrue o bad loas that parter NGOs ad their CBOs cotiue to collect eve several years beyod scheduled repaymet i commuities where ew ledig has bee termiated. Repaymet of loa pricipal with the origial iflatio adjustmet is all that ca be expected. 26 The cemet prices show are average prices for Greater Cairo. HFHE does ot moitor prices of key buildig materials red brick, limestoe block, cemet, steel rebar, wood purchased by borrowers i assisted commuities. Yet these prices are well kow to CBO loa committees. To moitor the actual iflatio of buildig materials ad home improvemet costs, HFHE is ecouraged to begi mothly recordig of buildig materials prices i Bei Suef ad al-miia. This would be a valuable cotributio to sector moitorig ad HFHE professioal reputatio as a housig MFI. HFHE might report these mothly prices, treds ad year-o-year price chages o its ew Facebook profile. This cost data would be useful to may parties. Local prices could be collected ad recorded mothly by 2-3 selected CBOs i each goverorate, so that price differeces i differet locales may be oted. 1

19 Part 3: Maagemet Challeges ad Opportuities for Growth ad Sustaiability This fial part cosiders key challeges ad opportuities to sustaiig HFHE microfiace for housig improvemets. The most sigificat challeges ad opportuities are exteral to the HFHE orgaisatio itself. Today, there are few sigificat challeges to HFHE iteral operatios ad capable maagemet. Seior maagemet is well able to lead ad direct HFHE growth ad professioal developmet. As the sole sigificat provider of exclusively housig micro loas to poor ad low-icome households i Egypt, HFHE has a very large ad growig market that will far exceed its loa assets ad outreach for decades to come. It is a high priority iche i Egypt s housig sector ad value chai that HFHE occupies early aloe. This is both a eviable ad challegig positio. 3.1 The Importace of Commuity to Sustaied Micro Ledig I the wake of the Jauary 2011 Revolutio that deposed Presidet Hosi Mubarak ad defeated the police forces that defeded him, social disorder ad idisciplie soo prevailed across Egypt s metropolita cetres, especially Greater Cairo, ad Delta regio (Lower Egypt). The police disappeared for moths. I the resultig security vacuum, crimiality surged ad social order waed. I may of the poor ad low-icome eighbourhoods of the capital, citizes sought private, persoal gai urestraied by law, regulatio, public regard, or commuity leadership. Others lost jobs ad small busiesses, suffered ijury, or fled i fear of arrest or retributio. May HFHE micro loa borrowers i these more trasiet commuities stopped repaymet. I respose, HFHE ad its parter NGOs ad CBOs halted all ew ledig i these metropolita districts ad commuities. However, the CBOs cotiued to collect curret ad overdue loas (with court ijuctios, if ecessary) to compel able but ucooperative borrowers. This experiece has highlighted the importace of commuity (the social bods of shared idetity ad solidarity, persoal reputatio, adherece to civic values, respected commuity leaders, logstadig family residece ad eighbour relatios) for sustaied micro ledig. I all rural villages ad provicial urba areas assisted by HFHE, the commuity remaied strog ad housig loas cotiued to be disbursed ad repaid without delay or impairmet. Poor ad low-icome commuities i metropolita areas, with more trasiet populatios ad households lackig strog social ties to commuity, preset greater risks to leders. Coditios for sustaiable microfiace ca deteriorate quickly i metropolita commuities. By closely moitorig loa repaymets to participatig CBOs, HFHE ad parter NGOs could respod quickly ad effectively to moutig risk. It could close dow ledig i high risk commuities ad expad ledig i low-risk commuities, maitaiig a low level of portfolio at risk. For the ext several years, HFHE will give priority to fidig ew parters ad establishig CBOs i rural villages, provicial tows ad smaller cities with stroger commuity relatios. 3.2 Reachig Other ad Poorer Commuities HFHE ad its parter NGOs today provide housig micro loas to poor ad low-icome households i 21 commuities of Bei Suef ad al-miia goverorates i Middle Egypt 27. Bei Suef has 226 commuities (comprisig more tha 1,000 settlemets); al- Miia has more tha 350 commuities (comprisig early 1,700 settlemets). HFHE ow serves less tha 4% of commuities i these two goverorates. More tha 95% of these commuities are rural villages. Key to HFHE's outreach is the presece ad capabilities of a CBO. At least half of these commuities have o registered CBO ad i the remaiig half, more tha half have a weak CBO with little capacity or leadership. That is, less tha 25% of all commuities potetially have a CBO with the miimum of maagemet capacity, program experiece, commuity reputatio ad citize support, leadership, ad iterest to satisfactorily provide micro loas for housig improvemets by poor ad low-icome households. The true percetage is closer to 10-15% of commuities. Eve that low percetage, however, is % greater tha the umber of commuities ow served by HFHE ad its parters. There is potetial for greater outreach. The poorest commuities are the most difficult to reach. Very few of these smaller, more remote commuities have a registered CBO. Eve fewer have a fuctioig CBO; early oe have a capable CBO. Moreover, these poorest commuities may have few ledable poor households. The large majority of residet families i some of the eediest commuities would qualify for charitable home improvemet for the poorest. To reach commuities of greatest eed, HFHE ad its parter NGOs will eed alterative approaches that rely less o a local CBO ad, istead, secure housig micro loas through group ledig systems, patro-cliet relatios, or other social mechaisms to ecourage timely repaymet. HFHE ad parter NGOs may wish to desig ad pilot a ew approach i oe to two poorer commuities without a capable CBO. Alteratively, there may be poor villages that are i close proximity (eighbourig) to villages ow served by HFHE or poorer, outlyig settlemets (uguu`, ezab) of assisted commuities. Outreach to immediately eighbourig commuities, supported by the CBO already experieced i loas maagemet i curretly assisted commuities, might be oe approach. 27 Plus 1 commuity i Greater Cairo for a total of 22 commuities. 19

20 There remai large umbers of poor ad low-icome homeowers i other commuities with existig capable CBOs who would be kee to iitiate home improvemets ad able to repay loas. These are the low-hagig fruit for HFHE outreach. Some of these CBOs ca be served by existig parter NGOs. Other CBOs ad commuities recommed ew, additioal parter NGOs. Ecouragig its curret parter NGOs to expad their program outreach to ew CBOs ad commuities, ad idetifyig ad appraisig ew parter NGOs, should ow be a HFHE priority. The preparatio of ew commuities, ew CBOs ad ew parter NGOs to capably iitiate ad maage ledig eeds time. HFHE should ow begi ivestig time ad effort i buildig essetial relatioships for future growth. 3.3 Servig Small Commuities There is a logical bias i HFHE outreach to ew commuities. To idetify ad appraise ew cadidate commuities ad prepare their CBOs to satisfactorily maage its housig micro loas, HFHE must ivest sigificat time ad effort. For this ivestmet, it is atural that HFHE would wish to serve a large pool of poor ad low-icome households over a exteded period (-10 years). This is the logical bias that results i greater umbers of larger commuities, icludig larger villages, served by HFHE. This bias towards larger commuities is eve more proouced where HFHE lacks a clear exit strategy (see 3.4 below). Smaller commuities are both a challege ad opportuity. There are may more small rural villages tha large, ad may of these smaller villagers have ledable poor ad low-icome households. With a effective exit strategy for idividual commuities, HFHE should collaborate with curret ad ew parter NGOs to prepare a strategy ad approach for medium-term ledig (5-6 years) i smaller commuities. The umber of curret loas i smaller commuities will be fewer, but a effective strategy for ledig to small commuities would sigificatly icrease the potetial scope of HFHE outreach ad ledig, dilute its loa portfolio risk across more commuities, ad build a sub-atioal stature ad reputatio as a professioal housig MFI to poor ad low-icome households i may more commuities. 3.4 Exit Strategies for Completed Commuities HFHE will ed micro ledig for home improvemets this year (FY2016) i Bei Muhammad al-shaarawi village. This will be 15 years of HFHE ledig i Bei Muhammad al-shaarawi, a small village. I several other curret commuities, HFHE micro ledig for home improvemet has bee ogoig for more tha 20 years. Util recetly, HFHE has ot had a exit strategy to ed ledig i a commuity. The reasos for ot exitig are several. First, large commuities with rapidly growig populatios (curretly % aual populatio icrease i rural Egypt) offer a steady supply of ew poor ad low-icome households formed by marriage ad/or eedig to reovate their decayig homes. Large, fast-growig commuities promise a future stream of ew borrowers. Secod, HFHE s parter NGOs are commuity-focused. They have assisted some of these commuities with other developmet projects ad commuity services for decades, ad may cotiue for decades more. They have strog historical ties ad edurig commitmets to specific commuities. Third, parter NGOs ad HFHE have both feared that if they stop disbursig ew loas i these commuities, curret borrowers may also stop repayig their loas. Fourth, parter NGOs ad CBOs ear reveues (maagemet fees) from disbursig ew loas, ad these reveues help sustai the orgaisatios ad may subsidise other activities ad programs i these commuities. 2 Fifth, the start of HFHE s home improvemets for poorest households as a ew approach i FY2006 also ecouraged a cotiued presece i these commuities to aid may of the poorest ad eediest homeowers who caot repay eve the smallest HFHE micro loa. Sixth, the smaller HFHE loa capital i the past prologed the time eeded to complete ledig to iterested ad eligible borrowers i those commuities. I sum, parter NGOs ad HFHE have a shared iterest to cotiue ledig i some commuities. However, as a atioal, apex itermediary NGO, HFHE s focus is the strata of poor ad low-icome households i eed of housig improvemets ad ew costructio. It is ot the housig rehabilitatio of selected commuities. Future HFHE ledig to ew commuities ad with additioal parter NGOs recommeds exit strategies. Testig differet strategies will facilitate ledig closure with prove exist strategies i completed commuities. HFHE is curretly testig 2 exit strategies: 1. Strategy 1 Reduce Ledig ad Risk Exposure Gradually: I Bei Muhammed al-shaarawi village, HFHE ad its parter NGO (CEOSS) bega to reduce the umber of ew loas disbursed i that commuity seve years ago. From 100 loas i FY200, this declied to 60 i FY2009, 50 i FY2010, ad the 40 i FY2011. Sice FY2011, just 40 ew loas were disbursed each year. A gradual reductio i ledig reduces the portfolio risk of may curret borrowers ceasig repaymet whe they lear that the program will ed. The burde of curret borrowers to be followed for loa repaymet after ledig eds is also reduced. 2 The CBO staff perso who is paid 50% time for HFHE loas collectio may actually eed oly 25% time for this task, ad supports other CBO services the remaiig time at o additioal cost to the CBO. 20

21 2. Strategy 2 Pay Parter NGOs to Collect Loas: I its ormal ledig approach, HFHE pays parter NGOs (ad parter NGOs pay their CBOs) from the iflatio adjustmet added to ew loas. The iflatio adjustmet o ew loas covers the loa maagemet expeses for all curret loas. I its wholesale ledig approach, HFHE is testig a alterative exit strategy. All ew ledig eds after 5 years (ed Year 5), but the parter NGO cotiues to be paid a loa maagemet fee (smaller amouts) durig the fial 2-3 years of loas collectio (Years 6-). I receivig a maagemet fee for loas collectio oly, the parter NGO also bears 100% of the risk of loas ot beig repaid. The parter NGO is committed to returig 100% of the origial loa capital with the balace of iflatio adjustmets to HFHE after the parter NGO takes its maagemet fee. The outcomes of both strategies should be kow i 2-4 years. Other exit strategies, icludig strategies for limited-duratio ledig (5-6 years) i small commuities, are also coceivable ad might be desiged ad tested. HFHE is appropriately reluctat to risk loa capital i risky, utested exits. Prove exit strategies will facilitate HFHE strategic plaig i collaboratio with parter NGOs ad specific commuities, ad outreach growth to ew commuities. It is importat to add that cotiued HFHE ledig i select commuities for exteded periods (15+ years) is ot iappropriate. Large ad fast-growig commuities of poor ad low-icome households, icludig provicial tows ad smaller cities, may eed years to cover the majority of target households ad achieve sigificat commuity impact, but this is ot all commuities. HFHE ad parter NGOs should ow pla for exits ad start-ups i ew commuities i their 5-year strategic plaig. 3.5 Keepig HFHE Micro Loas to Poor ad Low-Icome Borrowers HFHE is kee that its micro ledig for housig improvemets serve oly poor ad low-icome borrowers. This is the target clietele ad this exclusive focus is appropriate ad soud maagemet. Lower-middle ad middle-icome households have potetial access to bak loas. Oce subsidised ledig expads to iclude these higher icome homeowers, higher tha poor ad lowicome families, these larger umbers of commuity households might soo take the majority of available loa pricipal (by demadig larger loas). The most effective method to esure that loas go chiefly to poor ad low-icome households is to keep loas small. As previously metioed, HFHE sets a maximum loa size of EGP 12,000 (US$ 1530) the previous maximum loa size was EGP 10,000. Price iflatio of buildig materials recommeded icreasig the maximum size. The distributio of sample FY2015 loas show i Figure 4 shows that oly 13% of sample loas were EGP 10,000 or higher. These fidigs strogly suggest that poor ad lowicome households are the actual beeficiaries of HFHE micro loas. Field visits to a radom selectio of borrowers of larger loas (EGP 10,000 ad above) should cofirm that these homeowers are HFHE s target clietele. 3.6 A Christia Microfiace Istitutio i a Domiatly Muslim Cotext Habitat for Humaity Egypt is a Christia NGO i Egypt s predomiatly Muslim society. Over 90% of Egyptias are Muslim. This cotext presets several challeges ad oe opportuity for HFHE growth ad sustaiability: Opportuity: Little competitio but potetial parters: Egypt geerally, ad the goverorates of Middle ad Upper Egypt specifically, have large umbers of CBOs ad NGOs, icludig Muslim social welfare associatios ad o-religious developmet ad social service associatios that are wholly Muslim staffed. Very few (if ay) of these associatios would cosider becomig a major, specialised microfiace istitutio. Islamic ijuctios agaist iterest ad a preferece for charity discourage may Muslims from ledig as their primary activity ad pricipal idetity. Yet more tha a few o-religious CBOs staffed chiefly or etirely by Muslims would be ready to parter with HFHE i maagig o profit, o-iterest micro loas (with iflatio adjustmets) for housig improvemets by poor ad low-icome families as oe of the activities ad services offered to their commuities. There are few Egyptia NGOs ready to compete with HFHE, yet there are CBOs ready to parter. Challeges: Accusatios of proselytisig: Over the past two years, political developmets i Egypt ad the surroudig regio have reewed local sectaria tesios. I servig predomiately Muslim commuities, HFHE ad its Christia parter NGOs risk beig accused of proselytisig amog Muslims. It is a advatage that HFHE is a apex itermediary NGO ad ot ledig directly to Muslims. Accusatios of usury: Private moey ledig is ot prevalet i Egypt. HFHE s o profit, o iterest micro loas are acceptable to most Egyptia Muslims. The eed to protect loa capital agaist iflatio is also uderstood ad geerally accepted. HFHE must be cautious, however, i settig its iflatio adjustmet. A aual iflatio adjustmet of 7-9% the HFHE rate is curretly 7% is curretly ulikely to provoke accusatios of usury. Local currecy savigs i commercial baks offer aual iterest of %. Cosumer iflatio rates i Egypt have geerally bee 9-12% i recet years. 21

22 Aual chages i buildig material prices have swug widely (Figure ). But HFHE is prudet ot to set the aual rate of iflatio adjustmet o its micro loas higher tha a rate cosidered socially acceptable to Muslims for micro loas to poor ad low-icome households. Low cofidece ad ucertai trust i o-christia NGOs: I Egypt s curret cotext, it is uderstadable that HFHE cofidece ad trust is low or ucertai for o-christia NGOs that may be ready to parter. HFHE caot be cofidet of their objectives ad agedas as potetial ledig parters. It is importat to be cautious. However, for program growth ad log-term sustaiability it is importat to egage with o-christia NGOs ad seek iterested parters. Dialogue ad cofidece-buildig steps may take moths. Cooperatio will begi slowly ad build i scale as cofidece ad trust grow with partership experiece. Growth is importat: HFHE caot become a atioal voice ad advocate for improved housig of poor ad low-icome families ad caot become a leadig sub-atioal or atioal housig MFI if it caot parter with o-christia NGOs. 22

23 Aex 1: A Sample Profile of HFHE Borrowers ad Loas HFHE receives iformatio o a mothly basis from parter NGOs o all ew borrowers ad loas but does ot compile this data electroically. To iform this case study, a stratified sample database was compiled from borrower ad loa iformatio icluded i ew borrower lists reported by parter NGOs to HFHE i FY2015 (July 2014 through Jue 2015). These lists, icluded i mothly fiacial ad arrative reports of housig loas, prepared by parter NGOs separately for each commuity, idetify all borrowers whose loas were approved ad disbursed that moth. Borrower data from these lists iclude: Name of borrower Marital status Religio Number of households Number of persos i household Size of home (m 2 ) Category of work (reovatio, demolitio & ew costructio, buildig i stages) Average mothly icome Total value of loa pricipal Total value of loa icludig iflatio adjustmet Total cost of home reovatio / costructio project Amout of mothly repaymet Repaymet frequecy: mothly, quarterly, semi-aual From this iformatio, the followig additioal data ca be extracted or calculated: Geder (from borrower s ame) Loa duratio: total loa value (icludig iflatio adjustmet) / mothly paymet Mothly repaymet as a percetage of average mothly icome Loa value as a percetage of total work cost Iflatio adjustmet as a percetage of loa pricipal. Rural / urba commuity: from HFHE desigatio of assisted commuities Total umber of FY2015 borrowers per commuity The sample database icluded all (100%) FY2015 borrowers i 7 of the 22 commuities with active HFHE housig micro loas 25. The author aloe selected the 7 commuities o the followig bases: At least oe commuity from each of the 5 parter NGOs (3 CEOSS commuities) A mix of provicial urba ad rural commuities Commuities from the two pricipal goverorates: Bei Suef, al-miia This stratified sample icludes 75 borrowers early oe-third (32.%) of all 2,393 HFHE micro loas disbursed i FY2015. The selectio of commuities is ot strictly radom. However, both the diversity of commuities ad the size of the sample give reasoable cofidece that the profile of FY2015 borrowers ad loas compiled from this database is geerally represetative of all 2,393 HFHE loas ad borrowers i FY The 7 sampled commuities iclude: Masaas wa Shahee (Miia City), Talla (Miia), Nazla Faragallah (Miia), Nazla Haa (Bei Suef), Ga afar (Bei Suef), Mashiet Nasr (Bei Suef), Kom Akhdar (Bei Suef). 23

24 Table A-1 below presets this stratified sample profile of HFHE borrowers ad micro loas i FY : Table A-1: Stratified Sample Profile of FY2015 Borrowers ad Micro Loas Geder Type of Work Female 36.3% Reovatio 2.0% Male 63.7% Demolitio, New Costructio 13.9% 100.0% Buildig i Stages (2-3 loas) 4.1% Religio 100.0% Christia 46.2% Loa Duratio Muslim 53.% 31+ moths 2.4% 100.0% moths 61.9% Marital Status moths 16.9% Married 2.9% moths 1.4% Sigle to be Married 14.% < 21 moths 17.3% Widow 2.3% 100.0% 100.0% Mothly Istallmet as % of Mothly Icome Number of Persos i Household 40+%.4% % % 1.0% % % 25.1% 4 1.2% <25% 4.5% % 100.0% 100.0% Loa as % of Total Home Project Cost Mea household size: 4.7 persos 95+% 36.3% Repaymet Schedule % 10.% Mothly 96.1% % 25.7% Quarterly 0.% % 14.5% Semi-aual 3.2% <65% 12.6% 100.0% 100.0% 30 See also Figure 4 ad Figure 5 o page 15. The borrower ad loa profile iformatio preseted i these Figures are ot repeated i Table A-1above. 24

25 Aex 2: HFHE Criteria for the Selectio of Borrowers ad Poorest Households Criteria for Homeower s Selectio Each implemetig parter (associatio) determies criteria for the beeficiary homeower selectio i a way that avoids ay discrimiatio withi the followig framework: First NEED FOR ADEQUATE SHELTER I. Structural safety, itegrity, ad fuctio A preset physical dwellig ca be cosidered iadequate if: A. Reparability 1. The house is structurally usoud or has structural fire hazards; 2. The home residets, family ad frieds are uable to readily repair deficiecies; 3. The ladlord is cosistetly uwillig to complete ecessary repairs. B. Saitatio 1. There is o cotiuous supply of safe water. 2. There is o safe/saitary method of sewage disposal. 3. There are livestock aimals sharig huma livig areas. 4. There is isect-ifested costructio. 5. There is a lack of or a uhygieic kitche. 6. There is iadequate vetilatio or lightig. C. Safety 1. The house is ot secure agaist the probability of crime. 2. There are uavoidable dagers to childre. 3. The immediate eviromet has irremovable hazardous or toxic material. II. Size of livig quarters A preset dwellig's size ca be cosidered iadequate if two or more of the followig coditios are met: A. There is more tha oe uclear family i the house. B. Married couple ad childre share a bedroom. C. Adolescet childre of the opposite sex are sharig a bedroom. D. Each family member has less tha seve square meters of floor space. III. Temporary housig A preset livig situatio ca be cosidered iadequate if: A. Family is livig i a house that is beig codemed or sold. B. Family is losig their lease or right to occupy the house. C. Family is livig i a lea-to, tet, or similar "quasi-homeless" situatio. IV. Cost of housig A preset housig situatio ca be cosidered iadequate if a family is payig more tha 50% of their gross icome for ret or house paymet. V. Family average icome The average total gross mothly icome of idividual withi a family is LE200 ad the total average icome of the family should be a maximum of LE

26 Secod: ABILITY TO REPAY The followig are factors to be used i determiig whether applicats have the resources ecessary to make cosistet paymets o the mortgage. I. Debt to icome ratio If the family has mothly icome equal to at least three times the projected mortgage paymets. II. Mortgage paymet cosistecy If they have had a stable source of icome for at least six moths prior to applicatio for a housig loa, ad are III. If they are willig to sig legally eforceable promissory otes for each paymet for the life of the mortgage. IV. Bakruptcy, Lies, Judgmets, Idebtedess If they have a good fiacial reputatio, are ot uder ay court ijuctio, ad do ot have ay idebtedess that would iterfere with makig regular mortgage paymets. V. House equity ad/or dow paymet A family ca be cosidered to meet these criteria if their equity i their house is at least 25% of its total projected value of the house after buildig, repairs, or reovatios are completed; or are able to cotribute at least 25% of the total projected value of the house through cotributios of labor, i-kid materials, ad/or cash. VI. VII. The applicat must demostrate owership of, ad/or buildig rights, ad/or iheritable lease rights o lad o which the house will stad. The applicat families are cosidered ot acceptable for a mortgage loa if those families ca afford bakig loas with the market rate. Third: WILLINGNESS TO PARTNER Applicats must demostrate a willigess to parter. I order to meet this requiremet, the Associatio must set a pla for ecouragig beeficiaries to fulfill sweat equity requiremets, mutual help with their eighbors. Total local cotributio is expected to reach 10% of the total amout of loas. The followig are factors to be used i determiig whether families will be willig to parter. I. Eager participatio A family ca be cosidered willig if: A. They took iitiative to complete the applicatio process, providig all ecessary documetatio ad refereces. B. They readily welcomed home visits from the Associatio, Committee or the sposorig orgaizatio. C. They are comfortable with their credit ad referece evaluatios. D. They fulfill the sweat equity requiremet valued the Committee at 10% of the value of the loa received. II. Uderstadig A family ca be cosidered uderstadig if: A. They atted all traiig sessios required for prospective homeowers. B. They are pleased with the Housig Program's basic home desig criteria ad desire to build to those specificatios. C. They accept full resposibly for the care ad maiteace of their house. D. They realize they must make paymets mothly without default. E. They realize they must reside i the house ad caot sell it for profit. 26

27 PRIORITIES With other factors beig equal, these social categories will guide prioritizatio: (a) Orphaed or deserted childre, (b) Widowed, divorced, separated, or deserted wome with depedets, (c) Married couples with depedets, (d) Widowed, divorced, deserted, or separated wome without depedets, (e) Married couples without depedets, ad (f ) Egaged couples with 6 moths to their marriage date Poorest of the Poor Project Criteria for Selectig Homeowers Social-related Criteria Widows ad have childre Widows ad do ot have childre A family (father, mother, ad childre) Widows or divorced livig o their ow Orphas livig i homes that eed to be demolished ad rebuilt or to be reovated There is o limitatios to the homeower's age Ecoomic-related Criteria Homeower does ot have a job or a stable icome source Homeower's mothly icome does ot exceed EGP 200 No projects or possessios providig the homeower with a stable fixed icome Total mothly icome for the whole family does ot exceed EGP 300 Mothly expeses for the family at least equals their mothly icome Homeower takes medicatio o a regular basis ad pays for it from his icome Costructio-related Criteria House has o latrie House has usuitable latrie There is either o roof or there is a thatch roof There is o separate places for humas ad livestock There is o separatio betwee adolescet childre of the opposite sex There is a eed for a added room or more to fit for the family House lacks clea water House lacks electricity House lacks walls, floorig, or ay other type of fiishig House is dilapidated ad forms a threat to its residets House does ot exceed 60 meters square House lacks doors, widows, stairs' hadrail, or ay other thig that represets a threat to the safety of the family. Geeral Criteria Homeower has ot received a Habitat loa before. No discrimiatio betwee homeowers by geder, religio, or color. Priority is to be give to whoever matches the above-metioed criteria. Also if the homeower is disabled or suffers from a chroic disease that requires him to pay for mothly. It is ecessary that local committee members ad persos-i-charge i the associatio agree uaimously o the iability of the homeower to beefit from Habitat's Regular Program ad they metio that clearly o the decisio-makig report. There should be o iterferece from ay religious party i the omiatio/selectio process. Resposibility totally falls o the associatio ad local committee members. Other Criteria Amouts give to the families are grats, ot loas. Formal cotracts are to be siged betwee the homeower ad the associatio, listig the grat amout ad the work that eeds to be doe i the house. Homeower is to receive the amout o two stages, as i the Regular Program. House is to be subject to the costructio supervisio by Habitat Site Egieers. The associatio should sed a mothly report o these cases to Habitat separate from the regular mothly report. 27

28 It is ecessary that the associatio take before-ad-after photos of all homeowers of this Project. A homeower's file is to be filled out for every homeower of this Project (same file as the oe used i the Regular Program). Grats will rage from EGP 2,000 EGP 5,000 for every house. Every house should oly beefit oce from the Project. Each associatio is to cotiue buildig/reovatig houses for the poorest of the poor uder the Regular Program, accordig to the aual pla for the commuity ad from sources other tha Habitat. It is ecessary that the homeower be selected outside the cofies of the geographical area agreed o with Habitat, eve if they meet all the criteria. I cases of default, the associatio, ot the homeower, is committed to refud the amout to Habitat. 2

29 Aex 3: Comparative Performace i Microfiace Source: Asia 2009: Microfiace Aalysis ad Bechmarkig Report, Microfiace Iformatio Exchage (MIX), March 2010, p.3. 29

30 Source: Asia 2009: Microfiace Aalysis ad Bechmarkig Report, Microfiace Iformatio Exchage (MIX), March 2010, p.11. Table A-3: Comparative Results o Select MFI Metrics Mortgage market obstacles Ratio of GLP to Total Assets Write-off Ratio Ratio of Operatig Expeses to GLP Afghaista 56.5% 2.2% 34.4% Bagladesh 77.% 2.7% 22.2% Cambodia 0.5% 0.1% 15.6% Chia 5.2% 0.0% 10.1% Idia 7.0% 0.1% 12.7% Idoesia 76.3% 1.7% 20.7% Nepal 71.7% 1.1% 10.% Philippies 71.2% 0.9% 26.7% Sri Laka 90.0% 0.0% 12.1% Vietam 5.9% 0.1% 6.4% 30