Asian Pacific Union of Housing Finance Conference

Housing Finance: New Approaches for Access to Finance

April 11, 2013

Ira G. PeppercornHousing Finance GroupFinance & Private Sector Development

Shortage of Affordable, Safe Housing

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• World Urbanization in 2010 – 50.5%• Slum Dwellers grew from 777mm to 850mm 2000-2010• Positive factor: 227 million moved from slums; doubling MDG goals• World needs 4,000 houses an hour to keep up with demand (UN-

Habitat)

0102030405060708090

100Northern America

Latin America and the Caribbean

Europe

Oceania

World

Asia

Sub-Saharan Africa

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Nairobi

Why Does Housing Finance Matter for the World Bank and its Clients?

• Many households aim to improve living conditions and are

in need of finance; self construction often slow

• Housing Finance helps make long term investment into

housing more affordable and accessible for households

• Housing Finance can help to support housing demand

which is a key economic driver and job creation engine

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World Bank: Critical Factors for Development of Housing Finance Markets

• “Value for Money”, i.e. maximize the impact of public resources, leveraging government initiatives with the involvement of the private sector, with the goal of achieving a higher multiplier

• Coordination, i.e. ensure the coordination between administrations and public/private sectors, to maximize the efficiency and effectiveness of the programs

• Public sector role, i.e. from provider to enabler of housing

• Inclusive housing finance, i.e. include non-salaried borrowers

• Progressivity, i.e. ensure an equitable allocation of resources

• Incremental housing, i.e. consider alternative instruments and mechanisms to promote incremental housing products

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6

North America

East Asia & Pacific

Europe & Central Asia

Middle East & North Africa

Latin America & Caribbean

Sub-Saharan Africa

South Asia

0% 10% 20% 30% 40% 50% 60% 70%

Mortgage depth (2006-2010) and Penetration (2011)

Mortgage Penetration

Mortgage Depth

The mismatch in housing finance market development is evident across regions, with North America, and East Asia and Pacific regions showing the highest mortgage depth and penetration, and South Asia and Sub-Saharan Africa the lowest.

North America

Europe & Central Asia

Latin America & Caribbean

Middle East & North Africa

East Asia & Pacific

South Asia

Sub-Saharan Africa

0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%

Annual Urban Growth Rates By Region (2015-2050) Though the fastest growing urban

cities are located in South Asia and Sub-Saharan Africa, these regions currently have relatively underdeveloped mortgage markets.

Rising Demand is not Matched with Access to Finance

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Development Challenges-Access to Finance

For lower income economies there is much greater reliance on informal sources of financing, e.g. family or friends

Home Loan Penetration by use of formal accounts – Adults ages 25+ with an outstanding loan to purchase a home or apartment

Source: 2012 Global Findex Survey

Challenges in Serving Low Income and Informal Borrowers (i)

• A large part of the population has non-salaried income, whose creditworthiness cannot be verified using conventional techniques

• The existence of a large part of the population that cannot afford the down payment needed for a mortgage

• The inexistence of deep and stable capital market that provides easy access to long term funding

• Lack of suitable products in area of rental, self-construction and home improvement finance

• Policy actions often not consistent with stated policies: i.e. low income policies and interest rate subsidies used with mortgages

• Legal and regulatory structure often undeveloped or ineffective

• Differentiation between regulation of mortgage finance and microfinance

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Challenges in Serving Low Income and Informal Populations (ii)

• Shortage of safe, affordable housing

• Many properties informal without title: lack of asset security

• Inconsistent or nonexistent standards for safe building

• Land and permitting regulations and processes inefficient

• Availability of inexpensive land in city centers

• Lower cost housing often far from urban core

• Infrastructure not always developed

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Port au Prince

Moving to Solutions: Some of World Bank Current and Forthcoming Partnerships

India: Funding and technical assistance for mortgage and housing microfinance for low

income people

Bangladesh: Cooperative housing finance for slum upgrading

China: Financing and managing public and social housing

Ecuador: Subsidy restructuring, construction finance for affordable housing, and access to

finance

Egypt: Liquidity facility and smart subsidies

Indonesia: Subsidy effectiveness, expand mortgage market, public rental housing and

housing microfinance

Tanzania: Funding and technical assistance for housing microfinance

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Low Income Housing Finance Project - India

• $100 million World Bank Financial Intermediary Loan Funder through IDA

• National Housing Bank is implementation agency

• Funds flow to housing finance corporations and micro finance institutions

• Distribution partnership with Small Industries Development Bank

• Target population: Income under Rs 15,000

• Main target: formal property; informal income

• Microfinance will be used

• Pilot projects for informal/informal

• Technical assistance key component

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Example: India Low Income Housing Finance Project

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EWS, LIG

75% of population

3% of housing loans

High Income

Low Income

India - Distributional benefits of expanding access to finance

0 10 20 30 40 50Average annual interest rate on housing loans, by source (%)

Govt. program

Bank

Credit group

Employer

Other

Relative

NGO

Friend

Money lender

Informal lenders charge higher rates...

0 20 40 60 80Borrowing from informal sources, by income decile (%)

10987654321

...and poorer households use informal lenders more.

-2 0 2 4 6 8Rate premium paid by the bottom 40 percent, by source (% points)

Govt. program

Relative

Bank

Credit group

Money lender

Other

Friend

Employer

NGO

Poorer households pay more to the same lender...

0 5 10 15 20Average income gain, by income decile (%)

10987654321

...and could benefit the most from switching to formal credit.

Source: Calculations using IHDS data, urban households only.

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Delhi

Benefits of Increasing Financial Tools to Low Income People

• Low income people can enter formal financial markets

• Increase in demand through finance can motivate increase supply

• Houses can be improved or constructed faster and more efficiently

• Rental housing can be a component of home expansion

• Can integrate safety standards into loans

• Jobs can created in construction industries

• Improvement in housing can mean an improvement in people’s lives

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Thank You

Download: Peppercorn and Taffin, Rental Housing atdocuments.worldbank.org

Contact Information

Michel Noel, Manager, Non-Bank Financial InstitutionsMnoel@worldbank.org

Alfonso Garcia Mora, Lead Housing Finance SpecialistAgarciamora@worldbank.org

Simon Walley, Housing Finance Program CoordinatorSwalley@worldbank.org

Ira Peppercorn, Senior Housing Finance SpecialistIpeppercorn@worldbank.org

Tuo Shi, Housing Finance SpecialistTshi@worldbank.org