HOUSING FINANCE FROM A MICROFINANCE PERSPECTIVE

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1 Organized by

2 HOUSING FINANCE FROM A MICROFINANCE PERSPECTIVE

3 HOUSING FINANCE: OPENING FRONTIERS THROUGH MICROFINANCE September 12, 2017

4 Micro Housing-an effective vehicle for financial inclusion Housing has a direct impact on employment & income-engine of equitable economic growth Indirect impact through improved living conditions and educational, cultural and social standards Social economic benefits through improved productivity Income savings Repayment potential Sustainable human settlement is an effective tool to meet the end goals of financial inclusion, imbibing financial stability and social inclusion Value Creation IFC s approach: Aspiration Better & safer housing in emerging markets Leverage Impact Approach Footer Creating a COMBINED PLATFORM to offer synergetic solutions through INVESTMENT AND ADVISORY SERVICES

5 Housing Finance structure within IFC: An integrated approach IFC Housing Finance Offering Coordination with the World Bank Investment Advisory Financial Institutions Real Estate Department Access to Finance Sustainable Energy Finance Investment Climate Mortgage Finance Capital Markets Home Improvement Housing Microfinance Property Development Construction Finance EDGE Tool ASHA Tool

6 IFC Approach towards Housing Finance Advisory Services: Scope and Direction Proposal to proceed Execution and delivery Controlling results Diagnose operations, procedures, processes Review strategy, business plan Work plan Timeline Staffing Implementation Restructuring Testing and piloting Review Refine Reap results

7 The Opportunity for Housing Finance in the Micro Space-Trends Increasing urbanization Growing populations Opportunity to diversify risk, cross sell, forge longer and deeper relationships Graduating clients Scalable & sustainable Loans are harder to be fungible Loans can be longer and larger Secured and unsecured loans Rising housing consumption More pollution and congestion in cities More green house gas emissions More disasters Rise in informal settlements

8 Challenges to Micro Housing Finance and IFC solutions Low Income housing issues: MFIs access to funding May not have capacity for one time large project-generally go for Progressive build Regulatory Issues: Regulations restrictive in terms of loan size cap along with income level constraints as well. Other restrictions may control the portfolio mix etc. (Can help policy making as well through IBRD) Banks ability to assess credit risk associated with low income group Lack of documentation, clear property titles etc. available guarantees etc. Some approaches to address these: Liquidity facility approach-synergies with IBRD-for example in Pakistan, the PMRC is being financed through IBRD and advised through IFC Product design could address progressive build-or home improvement loans as a starter, rather than a full home finance IFC can play an advocacy role as well as leverage the IBRD link-eg. Inform them about land titling and other policy needs Capacity building approach Home Technical assistance can deepen the institutions offering

9 Synergies: WBG departments co-ordinate across housing finance value chain to support market development City Planning & Building Regulations Infrastructure & Services Subsidies End-user Finance SURR Other GPs 9 SURR City planning, regulations, land, infrastructure, subsidies, slum upgrading Access to Land IFC Construction & Building Materials Sectors F&M IFC FIG & MAS Materials, developers, micro finance, mortgages, capital markets Developer Finance F&M Micro finance, mortgages, developer finance, capital markets, subsidies

10 What can an IFC partnership do? Specialized product offerings in housing finance (investments and advisory services) Specialized group consisting of housing finance and banking experts with significant deal and implementation expertise obtained in developed countries and emerging markets Large network of contacts across the globe which can be mobilized to leverage and enhance expertise and knowledge of our housing finance experts Since 30 years, IFC has pioneered new product innovations in emerging market with tangible results

11 Recent experience in low cost home finance Capacity building/training programs Harvard University African Union for Housing Finance KfW Working with microfinance institutions Holcim/Lafarge Pipeline in Nigeria, Kenya, Rwanda, Bangladesh, India and others Supporting development of funding instruments National and regional liquidity facilities Investments in lenders

12 Case studies-pakistan Engaged with the largest Microfinance Bank, Khushhali Bank The Market: Central Bank estimates backlog of 10m units, there is a need to build 1.1m units per year. Most of the housing finance is arranged through personal sources while the formal financial sector caters to only one to two percent of all housing transactions in the country, whereas informal lending caters to percent of such transactions. Unsecured Lending Through Secured Approaches IFC designed a product that addresses the endemic issues across all MFBs/MFIs in the housing finance context. Home ownership proof through acceptable list of documents-not security but equitable mortgage Introduction of technical advice Addressing both urban and rural needs of both self employed and salaried class Market study Product Prototype Technical Skills Road Map Loan Process MIS designing Training Pilot

13 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Number of Loans Outstanding Value of Loans Outstanding (EGP) Egypt: Dakahleya Businessmen Association for Community Development (DBACD) IFC has recently been engaged with DBACD (implemented over the period of ) in Egypt on a comprehensive housing product development module, which comprised of the following key activities: Market Assessment Product Design Pilot Test Pilot Review and Roll-Out The TA assistance was very well received and had a significant effect on the institution, allowing them to scale up housing finance (today it makes up nearly 9% of their overall outstanding loan portfolio). As of the end of 2015, DBACD had an outstanding housing portfolio of EGP 28M (approx. USD 3.6 M) and approximately 4,000 active clients. The total number of housing loans disbursed has reached 7,600 with a corresponding value of EGP 70 M (approx. USD 9 M). 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% Housing Loans Disbursed as % of Total Disbursed 6.78% 3.79% 3.02% 2.05% 1.59% 1.29% 1.19% 0.86% 0.99% 0.32% 0.31% 0.54% % of HL Disbursed from Total Portfolio % of Value of HL Disbursed from Total Portfolio 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Outstanding Housing Portfolio 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000, % 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% Housing Loans Outstanding as % of Total Outstanding Portfolio 1.99% 2.13% 0.72% 0.78% 3.27% 1.18% 4.50% 1.71% 5.81% 2.13% % 2.91% Number Value % of HL Outstanding from Total Portfolio % of Value of HL Outstanding from Total Portfolio

14 Afghanistan: First Microfinance Bank Afghanistan Market: strategic importance to IFC due to FCS and IDA status Cash based economy, weak legal & financial regulatory structure, HR capacity limited, high operation costs, lack of property valuators, enforcement of building codes Footer

15 Afghanistan: evolution of housing finance at FMFB Increased access to housing microfinance with construction advisory services to improve the quality of housing for Afghanistan s urban & rural poor Demand and Capacity Assessment 2007 Product evaluation and toolkit development with IFC Q /10 Aug 2010 Contract with Aga Khan Planning & Building Services 2010/ /11 Construction Advisory Manual finalized Q Q Pilot in Hirat & Kabul Agreement signed with USAID and AKF USA for scale up and bundling of Construction Advisory Training and construction of demo houses in Kabul, Samanghan & Kishm Development and roll-out of rural product with seasonal repayment schedule Innovations Earthquake resilient, sanitation, ventilation, and energy efficiency Advisory services to select building materials Construction manual (AKPBS) to apply techniques Demo houses to illustrate techniques Seasonal repayment to match rural cash flows Footer

16 Critical Success factors Healthy and functioning enabling environment Titles Bankruptcy/foreclosure procedures Investor protection Sustainable financial sector Transparency and access to information Supportive monetary policy Lending standards Consumer protection Primary market first

17 Mapping the way forward for Micro Housing-parting thoughts Specialized Microfinance Institutions Partnership approach Regulatory support Customized, segmented offerings Suitable credit infrastructure Building/technical partnerships and increased supply of low cost buildings

18 Micro Housing Finance solutions: IFC toolkit Structure of HMF Toolkit: Market assessment plan Strategy formulation and business plan preparation Product (including shariah-compliant HMF products) Sales and outreach Processing and servicing of HMF loans Construction technical assistance program Risk management and funding Training programs for staff and managers

19 Challenges to Micro Housing Finance and IFC solutions Low Income housing issues: Capacity to assess informal incomes MFIs access to funding Lack of potential market knowledge/segmentation: whom to target Regulatory Issues: Regulations restrictive in terms of loan size cap along with income level constraints as well. Other restrictions may control the portfolio mix etc. (Can help policy making as well through IBRD) Banks ability to assess credit risk associated with low income group Lack of documentation, clear property titles etc. available guarantees etc. Management of costs while scaling Some approaches to address these: Liquidity facility approach-synergies with IBRD-for example in Pakistan, the PMRC is being financed through IBRD and advised through IFC Product design could address progressive build-or home improvement loans as a starter, rather than a full home finance IFC can play an advocacy role as well as leverage the IBRD link-eg. Inform them about land titling and other policy needs Capacity building approach Home Technical assistance can deepen the institutions offering

20 Micro-Finance for Affordable Housing Cambodia Sothany Chun, First Finance CEO 05 September VERSION:

21 About First Finance Founded in 2009 with vision to make home ownership possible for everyone. Portfolio of over USD 19m Currently offering four products with housing finance as core business: Home loan Home Improvement loan Residential Land Purchase Loan Home Equity Loan As Cambodia s only licensed, specialist mortgage provider, First Finance provides under-served Cambodians access to Long-term housing finance to grow their security and wealth. 21

22 43% 2% 55% As Cambodia s only licensed, specialist mortgage provider, First Finance provides under-served Cambodians access to Long-term housing finance to grow their security and wealth. 22

23 As the only housing finance provider, First Finance faces number of challenges. As Cambodia s only licensed, specialist mortgage provider, First Finance provides under-served Cambodians access to Long-term housing finance to grow their security and wealth. 23

24 Over these many years, First Finance learnt some lessons As Cambodia s only licensed, specialist mortgage provider, First Finance provides under-served Cambodians access to Long-term housing finance to grow their security and wealth. 24

25 First Finance Plc Website: Facebook: firstfinance LinkedIn: firstfinance microfinance plc Phone: As Cambodia s only licensed, specialist mortgage provider, First Finance provides under-served Cambodians access to Long-term housing finance to grow their security and wealth. 25

26 Thank You