Developments in HMF - World...
Transcript of Developments in HMF - World...
Developments in microfinance are good for housing microfinance
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• Consolidation , downscaling and up-scaling and the benefits of supervision and regulation
• Improvements in core banking systems and MIS means greater potential of Branchless Banking
• Smarter use of subsidies to support capacity-building along with equity, e.g. Shorebank
• Specialized rating agencies reduce risk for domestic investors
• More focus on savings and not just lending
• BUT MFIs often are poor at understanding housing markets
In recent years the use of mortgage finance has grown in developing markets such as South Africa, Mexico and India…
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Philippines India Mexico South Africa EU USA
% M
ortg
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Most recent
Prior year
But at present, mortgage finance in these countries reaches at most 20-30% of households
5% 12% 8% 54% 20%1%
Currently have and use Have access but do not use
Do not want a mortgage Do not qualify
Qualify but cannot physically access Too poor
Market enablement
zone
Market development
zone
Market redistribution
zone
Current market
Even in South Africa, only 5% of households currently hold mortgage bonds. A further 20%, considered the “market enablement zone” of those who either have access to mortgage instruments but do not use them, or do not currently want them. Source: Porteous 2010
South Africa: Limited mortgage penetration
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HMF cannot meet all housing finance needs: convergence of mortgage and microfinance
Collateral
House Mortgage
Other
None Microloan
$500 $15,000
Loan size
“Product gap”
How to turn an fixed installment of $50-$160 pm into loan of $1,500 - $8000 over 4-8 years?
Beyond Microcredit: What is housing microfinance (HMF)?
“HMF is unsecured microcredit as well as
related financial services, such as savings
and remittances, organized to meet the
demand of low-income households to
repair or improve their existing homes or
build their own homes over time one loan
at a time, one lump sum at a time.”
Low-income households create “usefully large lump sums” and put them towards housing
Even the poorest households are mobilizing lump sums via:
• Group savings & “under the mattress”•Interest-free loans from families•A variety of consumer and other informal sector lenders
Housing is the second-largest use of lump sums (Collins et al. 2009)•Mainly financed by savings and incremental buying•Once people have housing and land, few want to use it as collateral
Housing microfinance could bring greater efficiency and scale to the sizable investments the poor are already making in their homes
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Construction Facilitation
HH purchases expensive buildingmaterials & expertise
Better Credit HistoryImproved Asset, Shelter &
Home-based enterpriseStronger
Community & Economy
Land
Stockpiled Materials
Income & Remittances
Own skills
Budget & plans
Sweat equity
Social networkSavings
Fixed installmentMicro-loan
Credit Assessment
OUTPUTS
Monetary Social Capital
HOUSEHOLD INPUTS
“Co-Financing the Process”
Fixed installment Micro-loan
HH purchases expensive buildingmaterials & expertise
MFI Inputs
¤
Which intermediaries provide HMF?
• Formal providers:
– Some traditional MFIs (e.g. rural banks, large NGOs, coops)
– Consumer lenders (e.g. Financiera Independencia)
– MFIs becoming banks
• e.g. CARD, BASIX (KBS), Compartamos
– Banks “downscaling”
• e.g. HDFC and ICICI Bank in wholesale role, but also trying retail : Standard Bank Community Bank ; BPI-Globe BanKO
– Specialized housing financiers
• HMFIs e.g. Kuyasa Fund (South Africa)
• Building material suppliers e.g. Cemex/PH (Mexico)
• Housing NGOs e.g. Habitat for Humanity (Global)
• All relatively small (<$500m total loan books) and new (1990s ) but MFI category now growing fast
What is the extent of MIVs in housing microfinance? Where is it most prevalent?
35%
43%
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5%4%
1%
2%LAC
E. Europe, Central Asia
South Asia
Sub-saharan Africa
East Asia & the Pacific
Middle East and North Africa
Conservative estimate of the amount of foreign capital currently “leaking” from microenterprise
loans into funding for incremental housing(=$10b total foreign capital X 20% leakage rate)
$2.0 billion
Sources: Ferguson (2009), CGAP (2009)
Most MIV investment going to LAC and East Europe/ Central Asia:
Low-to-middle income countries with high levels of declared home ownership, commitment to financial inclusion and “head room”
Philippines India MexicoDemographicsPopulation (millions) 90.3 1,139 106.4Urban Population Share 65% 30% 77%Urban population growth, annual % 3.0% 2.3% 1.4%GDP per capita PPP (costant intl. $) 3,200 2,700 13,400Human Development Ranking (2009, n=182) 105 134 53Transparency International Rank (2009, n= 180) 139 84 89Declared Homeownership Rate 80% 87% 78%
Three large, developing countries…
India is majority rural…
Mexico is upper- middle income…
All have high declared homeownership rates
Maturing microfinance sectors, while Mexico and India also have expanding mortgage sectors
Microfinance and Housing Philippines India MexicoMicrofinance Business Environment World Rank (2009) 3 4 21
Aggregate MFI Portfolio as Percent of GDP 0.3% 0.2% 0.2%
Active borrowers as % of population 4.3% 2.2% 5.6%Size of Loan Amount Relative to Average Income 9% 19% 8%Return on Assets -1% 0% -1%Financial Services SectorOutstanding Mortgage Debt as a Percent of GDP <1% >7% 13%Banked Population (GSMA) 26% 48% 25%Mobile phone penetration rate (among adults) 70% 34% 66%
The Economist gave high marks to each country’s microfinance business environment in 2009
India Mexico Philippines
Overall Rank 4 21 3
Regulatory Framework
13 19 1
Investment Climate
14 7 17
Institutional Development
3 20 6
Source: Economist Intelligence Unit Microscope (out of 55 countries)
In the Philippines, the poor are not yet using loans and microloans to finance homebuilding in large numbers
•Only 7% of adult Filipinos have taken any type of loan for housing in the last year
4% from government loans or projects2% from the national housing provident fund (Pag-IBIG)1% from friends and familyVery few from commercial banks or microlenders (Mercy Corps 2009)
• A far greater share utilize own-savings to finance incremental construction
• Few MFIs are making housing-specific loans•Among a broad, national cross-section of 30 MFIs (rural banks, coops, NGOs):
•6 are making housing-specific loans•Several more with general purpose loans applicable to housing•But no supply-side support
• Rural banks seem to be the most likely to expand HMF in the future•2010 central bank approval of new HMF product
In Mexico, innovation with both micro-mortgages and housing microfinance lending
Innovative housing finance products:
•SHF role: innovative mortgage products for low income & uninsured
• $22.4 million in HILs outstanding, across 11 MFIs (Nov. 2009)
•Promoting auto-construction loans with “social developers” e.g Mexvi
•Wholesale funding for MFIs, for home improvement loans as small as $500
•SHF financed roughly 95,000 home improvement loans to end-users in 2008
•Subsidies of up to $4,200 for self-build, home improvements, and new home construction or purchase of existing homes
•Building materials suppliers active, but CEMEX PH outreach decreasing
But continued roadblocks in Mexico:•Difficulty sourcing new working capital for most MFIs; Government preferred pension crowding-out private lending
MFI’s difficulty with individual lending has complicated HMF lending in India
India’s expanding microfinance sector still has several bottlenecks toward the growth of housing microfinance portfolios:
•Continued focus on group lending, especially in rural areas•Few recognized “success stories” from monoline housing microfinance providers•Difficulty of smaller MFIs outside the Tier I cluster in attracting new capital, which has limited innovation•Limited capacity of MIS for tracking individual loans or by product lines
On the other hand:•NHB promoting its own HMF product•Emergence of dedicated housing funds such as the Sorenson Fund•New technical assistance approaches pioneered by Habitat for Humanity•Emergence of new financiers (e.g. Micro Housing Finance Companies•New housing developers
India’s National Housing Bank
•Huge role in supporting the growth of Housing Finance Companies
•Small but growing HMF loan portfolio of $25 million
•Demonstrates that the existence of supply can stimulate demand
•Still, MFIs in India are struggling to use individual lending products
•The market for micro-mortgages in India is growing
• The convergence of HMF and micro-mortgages is underway
Financial Institution
Type of Institution
# of HIL in 2009
Millions MXP Date Interest Rate CommissionPayment
Frequency
Max Length of
creditInsurance
Financiera Independencia
SOFOM 29,782 $370 3Q09
3.6% - 5.8% (monthly) flat
based on client credit score
10%Weekly,
biweekly or monthly
24 mosCredit life &
unemployment
Te Creemos SOFIPO 3,045 $96 Nov-09Up to 6%
(monthly) flat5%
Weekly, biweekly or
monthly24 mos Not Applicable
En Confianza SOFOM 1,633 $5 Nov-09Up to 4%
(monthly) flat3%
Weekly or biweekly
24 mos Not Applicable
Fin Común SOFIPO 993 $11 Nov-09
5.3% - 7.8% (monthly) flat
based on client credit score
<$14,999.99: $117 fixed;
$15,000-$35,000:
$148 fixed
Biweekly or monthly
24 mos Not Applicable
Compartamos BANK 0 $905 Jan-0069.3% annual
effectiveNone
Biweekly or monthly
6 - 24 mos
Not Applicable
Sample HMF product terms at 6 MFIs in Mexico:
Effective annual interest rates for home improvement loans at the same institutions:
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Fin Independecia Compartamos Te Creemos En Confianza Fin Común
Annual Effective Interest Rate
---- Average Effective Interest Rate across 11 institutions: 87%
MNOs and banks have the potential to expand housing microfinance portfolios: savings led and through agents
Mobile banking platforms may be
reaching scale:
In addition, handhelds are in use for door-to-door savings collection:•Banca Azteca (Mexico): handhelds have lowered transaction costs for customers to save and have allowed bank to mobilize deposits equivalent to 2X its loan book•Rural banks (Philippines): credit officers have begun piloting their usage for remote savings collection & experimenting with building suppliers as agents•Microbanks (India): mobile phone technology used by KBS (Basix) to transact in the field
MNO Users Relevant services
Philippines Globe, Smart & BanKO
3 million combined
Bill payP2P
Kenya M-Pesa and Equity Bank
7 million Same
1. Strong regulatory framework
2. Supply-side government housing finance institutions
Are crucial in the development of…
Housing microfinance &
mortgage markets
Market makers are essential growth of housing finance: state institutions will get support
Supply Matters: A comparison on wholesale lending products for housing microfinance
Institution Country Product Interest rate
Max term Portfolio
Mexico Home improvement loans
3.6%-5.8% (to end-users)
24 months (to end-users)
$1.4b MXP
Land Bank Philippines General loans to MFIs via PCFC
10.5% or 91 day T-bill + 4% (higher of)
5 Years NA
National Housing Bank
India Wholesalefinancing
$25 million
Philippines: good regulation cannot overcome supply-side bottlenecks
Lack of funding from government housing finance institutions has limited the
impact of HMF
Despite holding the #1 microfinance regulatory
environment ranking (2009)…
The Philippines: Rapid growth of HMF lending at four rural banks…another 6 underway
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TOTAL CANTILAN GM GREEN KABAYAN
# of
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Cumulative HMF Loans Disbursed by Value and Number: Sept. 2009
Value disbursed # of Loans disbursed
But, by volume, portfolios remain small:< 1,000 loans from 4 HMF pilots, but > 3,000 in 6 months