housing micro finance
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POWERING INNOVATIONS IN MICROFINANCE conference on microfinanceJuly 24 - 25, 2008 * Asian Development Bank, Manila, Philippines
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CONCURRENT WORKSHOP SESSIONSFriday, July 25, 2008
11:00 a.m. - 12:30 p.m.Early Experiences in Housing MicrofinanceAuditorium Zone A & B
Housing microfinance cater to the financing needs and affordability of the poor in a sustainable and non-subsidized approach. The practice involves the application of microfinance principles and best practices to the provision of housing finance for home improvements, house construction as well as house/ lot acquisition. It is seen as a powerful way to improve the living conditions of the enterprising poor and the lowincome households which will contribute to better health, increased productivity and improved quality of life. This session will consist of presentations from Mr. Eduardo C. Jimenez, who was part of the Development of Poor Urban Communities Sector Project (DPUCSP), which is an Asian Development Bank-assisted social housing and community development program jointly executed by the Housing and Urban Development Coordinating Council (HUDCC) and the Development Bank of the Philippines (DBP). The DPUCSP presented the Housing Microfinance Product to the Bangko Sentral which was approved last 14 February 2008. There will also be a presentation by Mr. Ignacito Alvizo of Enterprise Bank, one of the early adopters of the Housing Microfinance Product of the DPUCSP. The session will be rich with both concepts as well as practical applications of the housing microfinance.
Resource speakers: Eduardo C. Jimenez, Microfinance Consultant, Bangko Sentral ng Pilipinas Ignacito Alvizo, Director, Enterprise Bank
Facilitator: Pia Roman, Bangko Sentral ng Pilipinas Documenter: Noemi Bonaobra, Bicol Microfinance Council
HOUSING MICROFINANCE and the HOUSING MICROFINANCE PRODUCT MANUAL
Outline of the Presentation Definition and importance of housing microfinance Housing microfinance and mortgage finance Microenterprise lending and housing microfinance Policy action plans for pro-poor housing provision Housing Microfinance Product Manual: Summary of Credit Policies and Procedures
What is Housing Microfinance?Housing microfinance involves the application of microfinance principles and methodologies to the provision of shelter finance and consists mainly of loans to the poor and low-income households for (i) home improvement/repairs, (ii) housing construction, (iii) house and/or lot acquisition, and/or (iv) access to basic infrastructure or public services.Source: Consultative Group to Assist the Poorest (CGAP), World Bank
Housing microfinance links mortgage finance and microenterprise finance and constitutes a more appropriate lending methodology for serving the housing finance needs of the working or entrepreneurial poor.
Importance of Housing MicrofinanceConsidered a non-subsidized, sustainable approach tailored to meet the housing needs of the entrepreneurial and working poor Results in asset creation for the poor at the needed scale as demand for social housing continues to grow Addresses poor cost recovery efforts in past government housing programs and corrects market distortions caused by interest rate subsidies Supports mass housing which has been reaffirmed as the centerpiece program of government in poverty alleviation Increases the value of services received by MFI clients Increases transparency of MFI transactions by treating housing loans distinctly from microenterprise loans
Mortgage Finance and Housing MicrofinanceMORTGAGE FINANCEBigger loan sizes
HOUSING MICROFINANCELoan sizes are smaller than mortgage finance but larger than microenterprise finance
Requires a mortgage lien; full legal title Works with paralegal or substitute titles to property Formal employment sector; middle and Low-income and informal sector upper income households Long repayment periods (typically from Repayment periods are shorter (often 15 - 30 years) 2-10 years; may be up to 15 years) Housing units are constructed commercially and sold as a complete unit Fits the incremental building process and self-help home improvement and expansion needs of the clients
Microenterprise Lending vis--vis Housing MicrofinanceTypical Microenterprise LoansLoan affects borrowers income
Housing Microfinance LoansLoan affects borrowers asset base and may impact income (home based enterprises) Relatively larger incremental amounts
Offer smaller loan amounts
Lending methodology can be individual Usually individual loans or group loans Repayment capacity often based on generation of future income Repayment capacity based on borrowers current income
Policy Initiatives to Accelerate Pro-poor Housing Forms part of the inter-agency policy action plan developed in October 2002 (Urban Land Reform Conference) Improving the proclamation, land conversion and registration processes for pro-poor housing Distributing secure tenure through rights-based secure tenure approaches Adopting appropriate methodologies to make shelter financing more catered to the needs of and more affordable to the poor.
Housing microfinance is one of the key initiatives Approval of DPUCSP>>> ADB/HUDCC/DBP Partnership Submission by HUDCC of Policy Paper and Housing Microfinance Product Manual to the BSP
Policy Initiatives to Accelerate Pro-Poor Housing BSP/Monetary Board approval on February 14, 2008 Signing of MOA between BSP and HUDCC on April 2, 2008 Define the roles and responsibilities of the BSP and HUDCC in the implementation of the program Set the applicable accreditation standards and procedures for banks that will be offering housing microfinance services to their existing or new low-income clients.
Housing Microfinance Product: Summary of Credit Policies and ProceduresELIGIBILITY CRITERIAExisting Clients : Must be an active borrowing member for at least 2 years Consistent 95% repayment record and at least 90% attendance in center meetings if applicable for the past 2 years Should have an operating and earning enterprise With other verifiable sources of income Capacity to put up the required equity For housing construction and house and/or lot acquisition, with tenure security or proof of legal use, possession or ownership of their residence (for both house and lot, when applicable)
New Clients: Generally, low-income earners with no access to conventional home finance institutions (e.g. Pag-IBIG, SSS, GSIS) With verifiable proof of regular income and savings Capacity to put up the required equity Willing to participate in all activities that will be undertaken within the framework, systems and principles of microfinance such as training and transformational activities For all housing microfinance loan types, with tenure security; proof of legal use, possession or ownership of their residence (for both house and lot, when applicable)
In the context of housing microfinance, a client or borrower has secure tenure when the following conditions exist: The client has legal use, possession or ownership of the property at the time the loan application is made or will be acquiring those rights because of the loan It is determined that the client will not be forced to vacate the property during the time it takes to repay the loan; and The clients right is supported by valid proof or legal documentation.
Summary of Credit Policies and ProceduresLOAN TYPES AND PURPOSESHome improvement/ repair loan finance improvements (both major and minor) to the structure of the home, including but not limited to replacing doors, windows and roof, adding rooms, installing utilities, toilet facilities, connection to basic services, painting, repairing walls, ceiling or floors, replacing foundations and building second floors above the clients businesses finance the construction of a new house on a lot owned by the borrower; finance the purchase of housing materials in relation to a planned housing project finance the purchase of serviced land parcels for individual households purchase of an existing house (includes acquisition of a house or unit such as those in a low-cost or socialized housing subdivision)
New housing construction House and/or lot acquisition loan
Housing Microfinance Product: Summary of Credit Policies and ProceduresLOAN SIZEDetermining Factors: Purpose of the loan: House repair, construction, or house and lot purchase Clients capacity to repay: Demonstrated ability to repay based on the household income; a benchmark for affordability is that the loan payment should be less than or not exceed 60% of the clients income as determined by an analysis of the clients total household cash flow. Amount of savings with the MFI: The amount of savings a client has in the bank can determine the maximum loanable amount that he/she may be entitled to during a particular loan cycle. Type of tenure security for collateral: The type of tenure security or legal right enjoyed by the client over the house and/or lot may be used to determine the value of the loan
Summary of Credit Policies and ProceduresTERMS AND CONDITIONS OF LOANHome Improvements House Construction House and/or Lot Purchase Depends on the project cost (typically higher than the average enterprise loans)
MINIMUM AMOUNT MAXIMUM AMOUNT LOAN TERMS INTEREST RATES
P150,000 Up to 5 years Market-based Home improvement loans may have the same or lower interest rates as enterprise loans
P300,000 Up to 10 years
P300,000 Up to 10 years
Market-based Market-based Loans for housing construction and hou