by: zaigham m. rizvi global islamic microfinance forum dec 8-10, 2012- dubai, uae

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By: Zaigham M. Rizvi Global Islamic Microfinance Forum Dec 8-10, 2012- Dubai, UAE Housing Microfinance and Challenges of Bottom of Pyramid

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Page 1: By: Zaigham M. Rizvi Global Islamic Microfinance Forum Dec 8-10, 2012- Dubai, UAE

By: Zaigham M. Rizvi

Global Islamic Microfinance Forum

Dec 8-10, 2012- Dubai, UAE

Housing Microfinance and Challenges of Bottom of

Pyramid

Page 2: By: Zaigham M. Rizvi Global Islamic Microfinance Forum Dec 8-10, 2012- Dubai, UAE

Housing Issue: Snapshot of Muslim World and Asia

Page 3: By: Zaigham M. Rizvi Global Islamic Microfinance Forum Dec 8-10, 2012- Dubai, UAE

The Muslim world represents 1 of 4 humans on the planet

Nearly the same ratio in number of countriesRepresents 1 of 2 poor on the planetA great challenge of widening demand/supply gap,

adding to the already existing housing backlogMost of the housing backlog and short supply is in low-

income segment of the populationPopulation growth and urbanization are further

compounding the existing urban housing backlogRising costs (land, construction, construction materials

etc.) are making housing unaffordable for the poor

Housing is a ‘Numbers’ game –The Muslim World is no exception!

Page 4: By: Zaigham M. Rizvi Global Islamic Microfinance Forum Dec 8-10, 2012- Dubai, UAE

IDB study suggests housing needs of the Muslim World at 8 mn units/year, nearly all in Low-Income SegmentMENA 3.2 mn; Asia 2.7 mn; andAfrica/others 2.3 mn.

Urban population likely to rise from 1/4th to 1/3rd of totalRapid Urbanization a major issue in low income housingNeed for new housing of 8 mn due to population growth is

based on 5-5.5/Household and population growth at 2.5%Urbanization and population growth further increases the

incremental housing needs in major metropolitansSupply is short and is 30-40% on new demand for housing

Housing Supply Challenge of Muslim WorldFigures speak for themselves

Page 5: By: Zaigham M. Rizvi Global Islamic Microfinance Forum Dec 8-10, 2012- Dubai, UAE

As most of housing shortage is in low income segment, poor need empowerment in housing finance

Institutional Housing Finance is either non-existent or in infancy stages in most of the Muslim World (Afghanistan and some African Countries)

Slightly advanced in some others (Malaysia, Turkey, Egypt, Morocco, Indonesia, Pakistan and Saudi Arabia)

Regulatory Framework also needs major upgradation Additional challenges include:

Role and responsibilities of Specialized Housing Finance Institutions (HFIs) and Commercial Banks (CBs)

Long Term Liquidity Facility Institutions and InstrumentsRole of Capital markets

Housing Finance Challenges of Muslim World

Page 6: By: Zaigham M. Rizvi Global Islamic Microfinance Forum Dec 8-10, 2012- Dubai, UAE

An issue of faith e.g. Afghanistan with nearly 100% Muslim Population

Also an issue of Financial Inclusion. Even if conventional finance is available, Faith-Based clients do not avail it

Standardization and Diversification of RE/Housing Products both on Asset Side and Liability Side

Islamic REITS and MBS ProductsRole of Islamic Banks and Islamic Windows of

Conventional BanksNeed for Research and Development Center

Sharia-Compatible Housing Finance

Page 7: By: Zaigham M. Rizvi Global Islamic Microfinance Forum Dec 8-10, 2012- Dubai, UAE

Region, excluding China, represents more than 1/4th of Worlds population and ½ of the poor on the planet

Including China, Asia-Pacific represents ½ of the Worlds population

Region is very low in terms of Mortgage Finance penetration Average Mortgage Debt to GDP Ratio 3.3

Region is faced with massive housing shortage India alone faces an Urban Housing shortage of 27 mn

Nearly entire urban shortage is in Low-Income CategoryPersons per Room Density, a comparison:

India/Pakistan is 3.5; EU is 1.1; and USA is 0.5

Housing Challenges in Asia

Page 8: By: Zaigham M. Rizvi Global Islamic Microfinance Forum Dec 8-10, 2012- Dubai, UAE

In 1950, about 232 mn people lived in urban areas representing 17% of Asia’s total population. Today it is more than 1/3rd and by 2025 nearly ½ of Asian population will be urban

By 2030, 1 of every 2 urban residents in the world will reside in Asia

In India, as per census 2001, total housing stock was 249 mn units of which 29% (72 million) were in urban areas. India today faces an Urban housing shortage of 27 mn units (Pakistan faces total housing backlog of 8 mn units, whereas it has urban backlog of around 3 mn)  

Nearly entire urban housing shortage is in Economically Weaker Sections of society

India, Thailand, Indonesia, Malaysia , Pakistan, Turkey etc. offer unique success stories and business models in housing

The countries facing such challenges could benefit from knowledge and experience sharing on regional basis

Population explosion in Asian Cities

Page 9: By: Zaigham M. Rizvi Global Islamic Microfinance Forum Dec 8-10, 2012- Dubai, UAE

Slums known by various names across the region: Shanty Towns, Jhopar Patti, Jhuggi, Basti, Katchi Abadi, Squatter Settlements, legal/illegal habitat, etc

Shelterless are hidden behind higher persons per room density, slums and indecent and sub-standard housing

In extreme cases homeless poor live on footpaths, and even in abandoned sewerage pipes

Nearly 50% of major metropolitan habitats in the regions are slums

The rules, planners and decision makers have no vision of life inside these slums, except seeing them in movies

A two pronged approach is required: Slums improvement programs; and Slums resettlement and rehabilitation programs

Where the Urban Poor Live

Page 10: By: Zaigham M. Rizvi Global Islamic Microfinance Forum Dec 8-10, 2012- Dubai, UAE

Urban Realities – A glimpse into reality

Page 13: By: Zaigham M. Rizvi Global Islamic Microfinance Forum Dec 8-10, 2012- Dubai, UAE

Karachi & Lahore, Impacting 40,000 people

Sindh, Serving 2,500 people

NationwideProvision of Housing Finance Loans

AJK, Goth Noor Muhammad, Sindh & Ehsanpur, Punjab

Post disaster reconstruction and model villages

Azad Jammu & Kashmir and Mianwali, PunjabProvision of Post Disaster House Rebuilding Loans

Schemes for the poorCase of Pakistan

Income range – PKR 7,000 to PKR 15,000

Saiban Khuda Ki Basti:

Orangi Pilot Program:

Kashf Foundation & Tameer Bank:

PPAF:

NRSP:

Page 14: By: Zaigham M. Rizvi Global Islamic Microfinance Forum Dec 8-10, 2012- Dubai, UAE

Khuda Ki Basti in Lahore, Pakistan

Page 15: By: Zaigham M. Rizvi Global Islamic Microfinance Forum Dec 8-10, 2012- Dubai, UAE

Low-Income Housing Bottom of Pyramid

andHousing Microfinance

Page 16: By: Zaigham M. Rizvi Global Islamic Microfinance Forum Dec 8-10, 2012- Dubai, UAE

Housing Pyramid and Bottom of Pyramid

Middle income Less able to access finance due to

informal income sources or inability to provide collateral

(often due to inability to secure land title)

Lower-middle and lower incomeDifficult to access finance due to low income

levels, informal income sources, and inability to provide collateral

Bottom of the pyramidNo access to finance due to low income levels, informal income

sources and inability to provide collateral

High income Formal

employment and title, can

obtain mortgages

Supply: Market rate housing, private sector

Finance: Mortgage

Supply: Limited market rate housing, non-profit and private sector involvement

Finance: Micro-mortgages

Supply: Social housing, self-built housing

Finance: Housing microfinance, home improvement lending

Slum redevelopment and upgrading

Page 17: By: Zaigham M. Rizvi Global Islamic Microfinance Forum Dec 8-10, 2012- Dubai, UAE

Key Constraints for Low-Income Housing

Cost of land

• Land availability• Land use management,

land allocation• Land ownership• Government provision of

serviced land

Cost of construction

• Construction technology• Local construction

materials• Self-built/incremental

housing• Fiscal and regulatory

incentives

Expanding the supply of affordable housing is a critical factor in the development of a successful social housing programme. The greatest

challenge in expanding the affordable housing supply is managing the cost of the housing that is developed.

Page 18: By: Zaigham M. Rizvi Global Islamic Microfinance Forum Dec 8-10, 2012- Dubai, UAE

Nearly 1/5th of population in the Muslim World is a candidate for HMF (Bottom of Pyramid-BoP)

At BoP income segment, people are more concerned on Faith-Based Finance

Issues with HMF are: Product Design; Outreach; MF Housing Microfinance Regulations; Income Assessment; Appraisal, Surveillance; Delivery; and Recovery

Challenges include Cost-efficient Finance , Loan Surveillance , and timely loan recovery

Manufacturing scale production, Community-based finance etc Credit Guarantee, Management of Default and Loan Realization

Housing Micro-Finance (“HMF”)

Page 19: By: Zaigham M. Rizvi Global Islamic Microfinance Forum Dec 8-10, 2012- Dubai, UAE

Social Housing Finance Institutions (HMFIs)Social Housing Finance Institutions with a

focus on slums improvement, Incremental Housing etc

Sponsor a Shelter Programs: as delivery channels for Charity, Zakat.

Specific Regulatory Regimes for HMF, both for financiers and developers

Specific Fiscal Regimes on Smart Subsidies and Cross Subsidies

Need to define HMF for regulatory and fiscal support

HMF Institutional Framework

Page 20: By: Zaigham M. Rizvi Global Islamic Microfinance Forum Dec 8-10, 2012- Dubai, UAE

PakistanAfghanistanA general overview

Housing Scenario at Bottom of Pyramid

Page 21: By: Zaigham M. Rizvi Global Islamic Microfinance Forum Dec 8-10, 2012- Dubai, UAE

Population:160-170 million2/3rd Rural, 1/3rd Urban

Major metropolitans:Karachi, Lahore, Rawalpindi/Islamabad, Peshawar,

Hyderabad and Faisalabad facing high rate of urbanization

Karachi: Population 16-17 mn and growing @ of 7 to 8%

Nearly half of Karachi’s population lives in squatter settlements (600-800 squatter settlements)

Karachi only needs 100,000 new housing units per year to meet natural growth, cover backlog and urbanization pressure

Pakistan

Page 22: By: Zaigham M. Rizvi Global Islamic Microfinance Forum Dec 8-10, 2012- Dubai, UAE

Housing Continuum in PakistanAt the Bottom of Pyramid is HMF Clientele

CommercialBanks

HBFC(SMH)

HBFC &Social

HousingBank

SocialHousing

MarketHousing

High End

Upper Middle

Lower Middle

Small

MicroUpto Rs.7,000

Rs.100,000

Rs.30,001 toRs.50,000

Rs.15,001 toRs.30,000

Rs.7,001 toRs.15,000

Rs 7.5 & above

Rs 2.5 ~ 5.0

Rs 1.0~ 2.5

Rs 0.50~Rs.1.0

Rs 0.50

Rs1 Lac

& above.

High - High

Rs 5.5 to Rs 7.5 4 %

15 %

20 %

40 %

20 %

1 %

0.300

1.125

1.500

3.000

1.500

0.075

Housing Finance Player Market Segment Income Distribution in %

Mortgage Affordability(Rupees in millions)

Housing Market Housing Shortage *(millions)

- Per Capita Income: Rs 9,000 per month- Minimum Wage Rate Rs.7,000 per month

* Total existing backlog is estimated at 7.5 mn units. The shortage in various income segments is assumed in the same proportion as per income distribution pattern. However, actual shortage is much higher in low income segments as opposed to higher income segments.

Page 23: By: Zaigham M. Rizvi Global Islamic Microfinance Forum Dec 8-10, 2012- Dubai, UAE

Afghanistan has a population of nearly 27 mn people Most of its population are candidates for HMF Three to four decades of war has partially or totally

destroyed institutional and physical infrastructure in many cities

Land records have been either destroyed or manipulated In Kabul, Land Records are now being recreated and

computerized under LIETRA Project The only specialized HFI which existed in the past has been

closed down for various reasons In Kabul only, an estimated $ 2.5 Bn are needed to repair

and rehabilitate damaged/destroyed housing (World Bank) Central Bank of Afghanistan (DAB) is actively working on

different initiatives on housing, and seeks TA and Funding Support

Afghanistan

Page 24: By: Zaigham M. Rizvi Global Islamic Microfinance Forum Dec 8-10, 2012- Dubai, UAE

ME and Gulf States: Recent uprising in some ME Countries has brought to surface the social issue of low-income affordable housing

Nearly all countries in the region have now allocated huge funds and have initiated plans and projects to address it

Most of these programs are based on State Subsidy, and thus would not be viable and sustainable in the long run.

Indonesia, over the years has developed and implemented a very comprehensive program of State Subsidized Pro-Poor Housing.

Africa has a unique challenge of Low-Income housing, with challenges of Affordability, HMF, major slums etc.

In many African Countries, largely Muslim population is a candidate for Sharia-Compatible Housing Finance

Case of some other countries

Page 25: By: Zaigham M. Rizvi Global Islamic Microfinance Forum Dec 8-10, 2012- Dubai, UAE

Generally Political Sloganizm “Housing for all”, “Slums Free Cities”, “Maang Raha hai har Insaan-Roti, Kapra, aur Makan” (every

individual is demanding for bread, clothe and house), and so on…… In some countries delivery on these slogans is SOME, and in most

it is NONE Every country is facing a common issue of “shelter less poor” with

an ever increasing backlog Recent uprising in the ME has shown that even effluent economies

are no exception Regional successful models are to be shared and indigenized IDB may assist Al-Huda to set up a digital and physical platform on

country specific Data, Information and Business Models on HMF Islamic Development Bank to play a pivotal Role in promoting

sharia-compliant housing finance, more so in housing microfinance

Issues we know – Answers we need

Page 26: By: Zaigham M. Rizvi Global Islamic Microfinance Forum Dec 8-10, 2012- Dubai, UAE

Thank you

Notice:This document has been prepared by Mr. Zaigham Mahmood Rizvi for the sole purpose of providing a presentation document to the Global Microfinance Workshop-Dubai to be held on December 4-5, 2012. The information contained in this document has been compiled by Mr. Rizvi from self study and from different sources. He is grateful to all those serving this noble cause in some form or the other.

Mr. Zaigham Mahmood Rizvi

[email protected]

• Expert Consultant Housing: The World Bank

• Adviser Housing: State Bank of Pakistan

• Secretary General: Asia-Pacific Union for Housing Finance-APUHF (www.apuhf.info)