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<ul><li><p>HOUSING MICROFINANCE TOOLKIT Guidelines for Product development and Operations </p><p>Global Housing Finance Conference</p><p>May 2010</p><p>First MicroFinanceBank AfghanistanIFC Advisory Services in MENA</p><p>Developed by:</p></li><li><p> Copyright ShoreBank International Ltd. 2010 2</p><p>Housing Microfinance Toolkit Intended Users</p><p>Commercial Banks</p><p>Non-bank Finance Cos</p><p>Microfinance Institutions</p><p>The HMF Toolkit is targeted to financial institutions seeking to launch a HMF Product in a variety of markets</p></li><li><p> Copyright ShoreBank International Ltd. 2010 3</p><p>Housing Market Segments (Mexico)</p><p>19% (+$1080 per mo.)</p><p>14% ($720-$1080 per mo.)</p><p>32% ($360-720 per mo.)</p><p>35% (0-$360 per mo.)</p><p>Banks</p><p>NBFIs</p><p>MFIs</p><p>Banks are moving down market into lower income segments, while MFIs are moving into mortgages in some markets</p></li><li><p> Copyright ShoreBank International Ltd. 2010 4</p><p>Housing Microfinance at FMFB-A</p><p>I</p><p>HMF Toolkit developed over course of 12 month technical assistance program in Afghanistan</p></li><li><p> Copyright ShoreBank International Ltd. 2010 5</p><p>HMF Toolkit -- Contents</p><p> HMF industry evolution Housing finance product comparisons FI considerations for entering HMF sector, including Sharia</p><p>compliance</p><p>HMF Market Context and Overview</p><p> Market mapping Focus groups Product profiles</p><p>HMF Product Development</p><p> Overview of the lending process Forms and documents, file building Underwriting, approvals and disbursals Portfolio monitoring and risk management</p><p>HMF Operations Manual </p></li><li><p> Copyright ShoreBank International Ltd. 2010 6</p><p>HMF Industry Key Issues for Market Entry</p><p> Is there demand for home improvement loans?</p><p> Do clients already make home improvements using MFI funds?</p><p>Demand</p><p> Competitive factors amongst FIs Government programsSupply</p><p> Has the FI engaged in individual lending? Has it made longer term loans? Does it have a source of longer-term funding?</p><p>Readiness</p><p> Are there interest rate caps? Prohibitions on lending for housingRegulatory</p></li><li><p> Copyright ShoreBank International Ltd. 2010 7</p><p>Housing Finance Product Evolution at an MFI</p></li><li><p> Copyright ShoreBank International Ltd. 2010 8</p><p>HMF Product Development</p><p>Idea Generation</p><p>Market Research</p><p>PrototypeDesign</p><p>Pilot TestPilot ReviewRoll out</p></li><li><p> Copyright ShoreBank International Ltd. 2010 9</p><p>Housing Microfinance in Afghanistan</p><p> Formal microfinance industry in Afghanistan started about 7 years ago.</p><p> There is limited supply of housing microfinance products in the country</p><p> According to the survey done in 2007*, 38% wanted house upgrade50% wanted new construction58% who had done some upgrade </p><p>spent about $4,500</p><p>First MicroFinanceBank Afghanistan</p><p>Home Improvement LoanComplete a houseDig a well Build a cellarRenovate the home</p><p>Pilot launched 2008Rolled out to 12+ branchesOver 2,400 active clients</p><p>*Banyan Global: Proposal for HMF Product for FMFB and AKTC. Jan 2008</p></li><li><p> Copyright ShoreBank International Ltd. 2010 10</p><p>Core HMF Products</p><p> Basic home improvements for existing house Ave loan size Term: 3 12 months</p><p>Home Improvement </p><p>Loan</p><p> Completion of house under construction Larger loan Term: 12-36 months</p><p>Home Completion </p><p>Loan</p><p> Full construction of new house Largest loan Term: up to 3-5 years Highest risk profile </p><p>Home Build Loan</p></li><li><p> Copyright ShoreBank International Ltd. 2010 11</p><p>Loan Amount = USD 200 USD 4,000</p><p>Initial Loan = Max. USD 2,200 and based on project cost</p><p> Service Charge = 25% per annum on declining balance</p><p>Loan Processing Fee = 1% of total loan per disbursement</p><p>Loan Duration = 6 - 24 months</p><p>Mode of Payment = Monthly Installments</p><p>Collateral = Title Deed and Guarantor</p><p>Savings = Voluntary ongoing savings (min 5%)</p><p>Home Improvement Loan Product Features</p></li><li><p> Copyright ShoreBank International Ltd. 2010 12</p><p>Alternative collateral mechanisms is a defining distinction between housing microfinance and traditional mortgage loans</p><p>Housing Microfinance Collateral Requirements</p><p>Mandatory savingsFixed assetsDepositsPension guaranteePersonal guarantee</p><p>Group guaranteeEmployer guaranteeCosigner(s)Microenterpriseloan history</p></li><li><p> Copyright ShoreBank International Ltd. 2010 13</p><p>The Loan Process</p><p>Marketing</p><p>Disbursement</p><p>Approval</p><p>- Monitoring- Repayment</p><p>RepaymentCapacity</p><p>Willingness toPay</p><p>CollateralValuation</p><p>TechnicalAppraisal</p><p>- Loan Default- EXIT</p><p>- Good Repayment- Repeat Loan</p><p>RequestField</p><p>Verification</p><p>Appraisal</p></li><li><p> Copyright ShoreBank International Ltd. 2010 14</p><p>Marketing Strategy</p><p> Community sensitization was also done through Heads of Shura (village leaders)</p><p> Know what you sell: Only 20% of staff pre-roll out could explain housing product features</p><p> Branch that printed and distributed leaflets achieved 112% of projected disbursements</p><p> Word-of-mouth market by field staff to existing clients and local business people; leaflets</p></li><li><p> Copyright ShoreBank International Ltd. 2010 15</p><p>HIL Use of Funds -- Afghanistan</p><p> Refurbishment 80%</p><p> Adding a room 10%</p><p> Roof works 4%</p><p>Wall works 3%</p><p>Other repairs 3%</p></li><li><p> Copyright ShoreBank International Ltd. 2010 16</p><p>HMF Risk Factors</p><p> Inadequately analyzing income</p><p> Construction cost overruns and delays</p><p> Building seasonality in cold climates (Afghanistan March September )</p><p> Poor use and storage of building materials</p><p> Borrowers with multiple loans (both enterprise and housing) In Afghanistan 21% of borrowers with arrears had both business and housing loans</p><p> Life changes for borrower</p><p> Security of land tenure</p></li><li><p> Copyright ShoreBank International Ltd. 2010 17</p><p>Computation of Repayment Capacity</p><p>Business Sales less Purchases = Gross ProfitGross Profit less Expenses = Net ProfitRepayment Capacity is the financial ability of a client to </p><p>repay a loan. It compares monthly Net Profit or Net Income with monthly loan installment</p><p>Net Monthly Income</p><p>Total Monthly Installment</p><p>Repayment Capacity</p><p>A repayment capacity of 2.0 indicates that a clients monthly income is twice the monthly installment</p></li><li><p> Copyright ShoreBank International Ltd. 2010 18</p><p>TECHNICAL APPRAISAL</p><p>Components of Technical Appraisal:</p><p>Determining proposed improvements </p><p>Providing technical advice</p><p>Sketching proposed improvements</p><p>Verifying project cost</p></li><li><p> Copyright ShoreBank International Ltd. 2010 19</p><p>Field Verification</p><p>Field verification is done by the appropriate manager</p><p>Visit to clients business is mandatory</p><p>The purpose is to verify main information in the loan appraisal done by loan officer, i.e.- existence of business- capacity of customer and business- accuracy of financial information</p><p>For clients with non-permanent businesses (free business) the manager must visit the guarantors business.</p></li><li><p> Copyright ShoreBank International Ltd. 2010 20</p><p>HMF Risks and Mitigants</p><p>Risks </p><p>Cost overruns</p><p>Seasonality</p><p>Overindebtness</p><p>Migitants</p><p>Pre-loan analysisMonitoring</p><p>Inside improvements in cold months</p><p>Limit borrowing per customer</p></li><li><p> Copyright ShoreBank International Ltd. 2010 21</p><p>HMF Toolkit Forms and Documents</p><p> Loan Request (application) Financial Information Form Loan Appraisal Form Collateral Form Guarantor Agreement Shura Leader Verification Employer Confirmation Power of Attorney Loan Agreement Demand Note Monitoring Form</p></li><li><p> Copyright ShoreBank International Ltd. 2010 22</p><p>Challenges to growing the industry</p><p> HMF traditionally viewed as non-productive use by MFIs resistance by IFIs/funders</p><p> Initial resistance of MFIs to take on housing lending</p><p> Human resource capacity building: longer term loans, construction aspect </p><p> Enforcement of loan agreements to liquidate collateral in case of default can be difficult</p><p> Aligning loan officer incentives with volume and quality</p><p> Dealing with seasonal nature of home building</p></li><li><p> Copyright ShoreBank International Ltd. 2010 23</p><p>For More Information</p><p>1200 G Street NW, Suite 401Washington, DC 20005 USA202-822-9100</p><p>Ms. Lauren Moser Counts, Vice PresidentHousing Finance Practice Headlmoser@sbksbi.comwww.shorebankinternational.com</p><p>mailto:lmoser@sbksbi.com</p><p>HOUSING MICROFINANCE TOOLKIT Guidelines for Product development and Operations Housing Microfinance Toolkit Intended UsersHousing Market Segments (Mexico)Housing Microfinance at FMFB-AHMF Toolkit -- ContentsHMF Industry Key Issues for Market EntryHousing Finance Product Evolution at an MFIHMF Product DevelopmentHousing Microfinance in AfghanistanCore HMF ProductsSlide Number 11Slide Number 12The Loan Process Marketing StrategyHIL Use of Funds -- AfghanistanHMF Risk FactorsComputation of Repayment CapacityTECHNICAL APPRAISAL Field VerificationHMF Risks and MitigantsHMF Toolkit Forms and DocumentsChallenges to growing the industryFor More Information</p></li></ul>

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