Housing Panel Discussion

Momina AijazuddinProgram Manager, Microfinance, MENA RegionInternational Finance Corporation (IFC)

Tunis – May 2008

Table of Contents

• IFC and Microfinance• Microfinance MENA• Defining Housing Microfinance• Products• Challenges for MFIs• Solutions

IFC’s Four Key Strategic Solutions in Microfinance

Promoting collective investment vehicles (structured finance, debt and equity funds)

Developing microfinance network partners

Supporting individual financial institutions through strategic partnerships (i.e., MIFA – IFC/KfW program in Asia developing greenfields)

Engaging in selected advisory services projects at the institution, financial infrastructure, and policy levels

• Financed 128 projects in 47 countries + 15 regional/global projects; portfolio $635 million.

• High Impact – MFIs provided loans of $5.6 billion to more than 3.5 million entrepreneurs; ROE 14%

• Supported (i) greenfield banks (ii) transformation of NGOs (iii) bank downscaling (iv) funds

• Now scale-up activities through (a) networks (b) strategic partnerships eg KfW and (c) funds

• Over the next 3 years, IFC expects to reach annual commitments averaging US$300 million, leading to a committed portfolio of US$1.2 billion by the end of 2010, with exposure to over US$15 billion.

IFC’s Microfinance Strategy

Portfolio Commitments and Client Growth

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• IFC and Microfinance• Microfinance MENA• Defining Housing Microfinance• Products• Challenges for MFIs• Solutions

IFC Commitments in Microfinance

Sub-Saharan Africa to grow with new greenfield projects: Microfinance Initiative for Sub-Saharan Africa (MIFSSA)

IFC to boost investment in EAP and SA: Microfinance Initiative for Asia (MIFA)

Future Growth will be Balanced Among Regions

Committed Portfolio by Region (US$ m) FY07

14 2546

171

536

231

82

Sub-Saharan Africa

East Asia & the Pacific

Central and Eastern Europe

Latin America & Caribbean

Middle-East & North-Africa

South Asia

Southern Europe & Central Asia

World

Microfinance MENA

• # of Projects: 15• # of Clients: >1.1 million• Invested: US$70 million

• Countries: Pakistan, Afghanistan, Yemen, Syria, Lebanon, West Bank & Gaza, Jordan, Tunisia, Algeria, Morocco

• Gross Loan Portfolio: US$520 million

• Women Borrowers: 825,000• Instruments: • Partial credit guarantees, dedicated

country fund, Lcy, sovereign linked guarantees

MENA Microfinance Product Diversification

Credit Products Savings InsuranceHousing Tourism Seasonal Consumer Compulsory Voluntary Life Health

Pakistan X XAfghanistan

Egypt X X X XJordan X X XIraq XLebanon X X X XMorocco X X XPalestine X X X X XTunisia XSaudi Arabia

Sudan XSyria XYemen X X

• IFC and Microfinance• Microfinance MENA• Defining Housing Microfinance• Products• Challenges for MFIs• Solutions

Defining Housing Microfinance

• Point 1• Point 2• Point 3

Here is an example of text written in blue color…

Micro/Small loans made for housing that are not backed by mortgages.

Typical Characteristics

• Address habitat needs of the poor and very poor using methodologies adapted from micro credit practices

• Monthly payment up to 25% of family income

• Tenors typically range from 1 to 5 years

• Pricing is typically higher then that for other regular MF loans because of longer tenors

• Client must show tenure security right to the property – Not necessarily a full land title – Can be tax receipt, sales contract, etc.– Individual, not group loans

• Individual, not group loans

• Secured typically by one or more co-signers, rather then lien on property

• Used typically for incremental construction and for home improvement but can also be used for home purchase and land purchase

• Often accompanied by construction (technical) assistance

Commercial Reasons to Launch HMF

• High demand

• Amounts, payments and guarantees are accessible to low-income families

• Reduces risk of financing housing within the microenterprise portfolio

― In some countries 20% to 25% of business loans used for housing

• Builds client loyalty

• IFC and Microfinance• Microfinance MENA• Defining Housing Microfinance• Products• Challenges for MFIs• Solutions

Linked vs. Stand –alone Products

• Linked HMF loans require the customers’ prior participation in a savings account or a micro credit line. – Performance filter and a credit bureau– Indication of the applicants’ capacity to

manage and repay their debt• Stand-alone HMF loans do not require

borrowers to have a prior history with the lender, that could be used as a proxy of their ability to repay. – On average, have higher interest rates and

shorter tenors

Typical Target Groups

Self - employed

Family businesses; established for several years

Self-employed (Urban)

Food processing & production, trade, services, transportation, home-based industry Women work from home: domestic work, beauty salons, handicrafts

Self-employed (Rural)

Agriculture, livestock, silk, day labour, transport, carpet weaving, food processing and shop keeping

Salaried workers

Mainly public sector but can also include private sector

Product Examples

Minor Major Construct

Amount $500 $1,000 $8,000

Term (Mo) 12 12 60

Interest/Mo 2% 2% 1.5%

Payment/Mo $46 $92 $200

HH Income/Mo $184 $368 $800

Market segment

Lower poor

Middle - upper poor

Upper poor

Guarantees Evaluation EvaluationCosigner

EvaluationCosignersSalary

Type Stand-alone

Linked Linked

Examples From Emerging Countries

LINKED HMF PRODUCTS STAND-ALONE HMF PRODUCTS

MFIMax. Tenor

Security Collateral

Required Time w/ Program

Savings Required MFI

Max. Tenor

Security Collateral

Required Time w/ Program

Savings Required

Grameen Bank (Bangladesh) 120 mos

5 cosigners & center guarantee Min 2 yrs Yes

ADEMI (Bolivia) 36 mos

Collateralized loan None No

SEWA Bank (India) 60 mos

2 cosigners. Lien on 1 yr of savings Min 1 yr Yes

FUNHAVI (Mexico) 20 mos 2 cosigners None No

Features of HMF and Mortgage backed loans

Characteristics Housing MF Mortgage-Backed Loans

Target market Low income clients Middle to high income clients

Loan term Short & medium term (< 5 years)

Long term (over 5 years)

Loan amounts Small to medium Large

Loan use Home improvementProgressive building

New house constructionHouse purchase

Type of guarantee Co-guarantor, collateral required for typical microenterprise loans

Formal mortgage

Demand for HMF in West Bank & Gaza

Micro entrepreneurs in the Gaza Strip mainly need loans to:

• Expand their activities, where expansion can be interpreted as an increase of business output or investment in new projects (43%)

• Working capital loans (7%) or funds to start a new activity in the context of their existing business (8%)

• Consumption, housing, education or emergencies

• Reimburse debts (9%).

Needs for credit (%)

reimbursement of debt

working capital

finance asset

start up new activity

expand your business

education

emergency reason

occasional reason

own consumption

house improvement

50403020100

43

8

7

9

• IFC and Microfinance• Microfinance MENA• Defining Housing Microfinance• Products• Challenges for MFIs• Solutions

Challenges for MFIs

• Financial services vs Subsidy

• Limited Access to Medium/ LT funding

• Revised individual lending methodologies

• Capacity building for staff

• Effective guarantee mechanisms

• Unclear security of tenure in some countries

• IFC and Microfinance• Microfinance MENA• Defining Housing Microfinance• Products• Challenges for MFIs• Solutions

• Market Research/Survey

• Technical Assistance Program – toolkit, lending policies, training, pilots

• Partnerships with banks and international agencies for 3-5 year credit lines

• Link to capital markets

Potential Solutions

Example of linking MFIs to Capital Markets EFSE

• Promoted by KfW, managed by Oppenheim Pramerica, advised by Bankakedemie

• Leverages investors funds for up to 7 years in different risk tranches – IFC, EBRD, NDFC, KfW and private investors

• Provides funds, capacity building and training, product development and market studies, and impact studies for partner lending institutions: Banks and MFIs

• Recipients: MSEs and private households

Thank you for your attention