by: zaigham m. rizvi global islamic microfinance forum dec 8-10, 2012- dubai, uae
TRANSCRIPT
By: Zaigham M. Rizvi
Global Islamic Microfinance Forum
Dec 8-10, 2012- Dubai, UAE
Housing Microfinance and Challenges of Bottom of
Pyramid
Housing Issue: Snapshot of Muslim World and Asia
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!
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
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
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
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
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
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
Urban Realities – A glimpse into reality
Solutions are being attemptedSuccess is being demonstratedAnswers have no match with quantum of
IssueIssues we know, Answers we needMuch more is needed to be done
Some housing solutions for Bottom of Pyramid
Incremental or Progressive housing, a possible way of option for BoP Housing Challenge
Small and incremental Loans used to help build incrementally - “Progressive building strategy”
Loans are often provided with:Lending and Construction Assistance
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:
Khuda Ki Basti in Lahore, Pakistan
Low-Income Housing Bottom of Pyramid
andHousing Microfinance
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
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.
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”)
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
PakistanAfghanistanA general overview
Housing Scenario at Bottom of Pyramid
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
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.
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
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
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
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
• Expert Consultant Housing: The World Bank
• Adviser Housing: State Bank of Pakistan
• Secretary General: Asia-Pacific Union for Housing Finance-APUHF (www.apuhf.info)