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Regional Project on Pro Poor Housing Finance in Asia and the Pacific

A Compendium of Select Countries of the Region

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Objectives of the Project• To review state of the housing finance system with a focus on pro-poor

housing in countries across Asia and the Pacific including India, Thailand, Mongolia, Indonesia, Sri Lanka and others;

• To bring together the formal and CBO on a common platform to identify, replicate & upscale innovative approaches;

• To bring out a compendium on housing finance based on country reports on the state of housing finance and innovative experiences in providing housing finance for the poor;

• Promote a regional knowledge sharing forum by establishing a regional network on pro-poor housing finance involving institutions and stakeholders.

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Implementation Strategy• Preparing and publishing individual country reports highlighting the

state of its housing finance sector with a focus on pro-poor housing initiatives;

• Organizing National level workshops in each country for reviewing and analyzing the country reports in the presence of various stakeholders as well as promoting dialogue and knowledge sharing at all levels;

• Strengthening regional networking and linkages through such National level workshops;

• Preparation of a comparative analysis on the state of pro-poor housing finance in the Asia and Pacific.

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SEQUENCE OF EVENTSS.NO. EVENT/DATE/PLACE PURPOSE & OBJECTIVE1. Convening of the Regional Policy

Dialogue on January 30-31, 2008 at New Delhi, India

A brainstorming session to discuss the need for the establishment of a regional network on pro-poor housing finance.

2. First Meeting of the Country Reporters on January 31-Feb 1, 2008 at New Delhi, India

To review and finalize the draft guidelines for preparation of the country reports.

3. Second Meeting of the Country Reporters on March 18-20, 2009 at Chiang Mai, Thailand

Peer-Review of first drafts of the country report and discuss the preparation of the regional comparative analysis as also finalizing the time frame for the next steps of the program.

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SEQUENCE OF EVENTS4. National Workshops on Pro Poor Housing

Finance conducted at Thailand, Indonesia, Mongolia and India

Understand and outline the key challenges in providing finance for Pro-poor Housing, review and finalize the draft country reports and discuss the outline of the regional level initiatives.

5. Regional Meeting of Housing Finance Institutions on October 15, 2009 at Bangkok, Thailand

Discuss the formation of a regional network on pro-poor housing finance and launch of Special edition Government Housing Bank (GHB) Journal on pro-poor housing finance

6. Regional Symposium on Pro-Poor Housing Finance on April 19-20 at New Delhi, India

Discuss challenges and highlight innovative approaches towards pro-poor housing finance in different countries of the region. Discuss the creation of a Regional Network on Pro-Poor housing finance.

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COMPENDIUM STRUCTURE CHAPTERS Pro-Poor Housing & Housing Finance – A Primary Issue

General situation and housing conditions in select countries

Government housing policies and programs

Housing Finance system in select countries

Constraints in the provision of housing finance

Innovations in Pro-poor housing finance

Conclusion and Recommendations

Regional Support Mechanism

Figures, Boxes and Tables on various aspects of Pro-Poor Housing Finance

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Housing & Housing Finance• Housing a basic and fundamental right;

• A key driver of a country’s economy;

• Critical role in GDP growth;

• Market Housing & Social Housing;

• Pro Poor Housing is at the bottom of the pyramid of social housing – major share of housing shortage and affordability concerns.– Land costs– Infrastructure– Building materials & Supply– Finance

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Housing Scenario in Asia and Pacific• Urbanization trends• Population growth• Depletion of existing stock• Cultural changes

• Over 500 million or 45% of all urban residents of the region live in sub-standard housing, slums and squatter settlements;

• Increasing growth rates in urban settlements creating pressure on land and infrastructure availability in urban areas leading to increasing housing costs.

• Land-to-income ratios are the highest in Asia and the Pacific, when compared to other regions.

• Limited access to housing finance, particularly for the poor and economically weaker sections. Mortgage Debt/GDP ratio is very low when compared to western countries.

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Key IndicatorsCountry Total

Population (mn) 2007

Urban Population % of

total

Urbanization growth

%

India 1,125 29 2.5

Pakistan 162 36 3.3

Sri Lanka 20 15 0.2

Thailand 64 33 1.6

Mongolia 26 57 1.3

Indonesia 225 50 4.3

Bangladesh 158 27 3.7

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OBSERVATIONS Most of these countries have a majority or an increasing percentage of their

population residing in it’s urban areas and increasing urbanization and growth in economic activity have led to increasing influx of people towards the urban areas;

Increasing population pressure on urban areas has led to severe housing and infrastructural deficiencies;

One out of every three people living in cities of the developing world lives in slums. UNHABITAT estimates that more than half of the world’s slum population resides in Asia Poor infrastructure access to basic services in all countries Natural calamities – Tsunami, earthquakes and floods Majority of the poor – informal sector

Significant Developments in Political and Economic Conditions

The above presents a major challenge to the planners and a great opportunity for the financial sector

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HOUSING POLICIES AND GOVERNMENT INITIATIVES

• The National Governments in these countries have been taking various measures over the years, in meeting the housing needs for the poor through various programs, missions, etc. Constantly responding to the need to provide pro-poor housing solutions;

• The pro-poor housing initiatives form a major part of the policy formulation of these Governments;

• A wide spectrum of solutions have been adopted including provision of serviced land, subsidies be it on interest rate or infrastructure, participatory approaches in planning etc.

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HOUSING INITIATIVES: REGIONAL COMPARISON

COUNTRY KEY INITIATIVES

INDIA • Announcement of National Urban Housing and Habitat Policy in 2007.•Launch of urban infrastructure development programs like JNNURM .•Cash subsidy scheme like Indira Awaas Yojana (IAY) for rural poor.•Interest subsidy scheme (ISHUP) for the urban poor.•Project Finance assistance for housing initiatives through NHB & HUDCO.•Slum eradication programs like Rajiv Awas Yojana.

THAILAND •Approval of National Housing Strategy and establishment of National Housing Policy.•Initiation of community housing programs like Baan Eua-Arthorn (BEA) program by NHA and the Baan Mankong (BMK) Program by CODI.•Existence of an integrated model involving GHB, NHA and CODI to facilitate home ownership among low income communities.

MONGOLIA The Housing Finance Sector Program (HFSP) has contributed towards establishing a sustainable, market-based housing finance system for the delivery of housing finance to meet the borrowing needs of low- and middle-income households. The launch of “40,000 Houses Program” in 2005.

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HOUSING INITIATIVES: REGIONAL COMPARISON

COUNTRY KEY INITIATIVES

INDONESIA •Subsidized Home Mortgage (KPR) program, a housing assistance scheme for low income communities, was initiated in 1976.•National Movement for One Million Houses, with its objective to provide affordable housing and improving quality of living environment, was initiated by the government in 2003 – focus is on improving coordination amongst stakeholders in housing development.

SRI LANKA •Post 1970, a series of significant legislative enactments were introduced to regulate the housing sector which ushered in reforms related to tenancy, rent control, house property ceiling, etc.•Under the Janaudana Housing Programme, new houses are constructed with the enabling approach and participation of beneficiaries in direct construction. The Government provides land, infrastructural facilities and utilities in new housing complexes and provides housing loans at affordable rates to prospective buyers.

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HOUSING FINANCE SYSTEMS - Stakeholders• National and State Governments

• Public Sector Institutions

•Private Sector

•Retail Lending Institutions

•Microfinance Institutions/Community Based Organizations

•Individuals, Self Help Groups, Community Networks

•Multilateral Institutions/Donors

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Housing Finance SystemIndia Central & State Government

Housing Boards & Development AuthoritiesApex Level Housing Finance InstitutionBanks, HFCs, CooperativesMFIs, CBOs/NGOs

Thailand GovernmentApex Level/Specialized Housing Institutions – GHB, NHA, CODI, GSBRetail Level Institutions – Banks and Community Network

Mongolia Government – Primary Supplier of HousingApex Level/Specialized Housing Institutions – HFC, MMCCommercial Banks - Limited

Indonesia GovernmentApex Level/Specialized Housing Institutions – PERUMAS, BTNCommercial Bank and MFIs

Sri Lanka GovernmentApex Level/Specialized Housing Institutions – SMIB, NHDA, HDFC, NSB Banks, MFIs, RDBs

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CONSTRAINTS IN PROVIDING HOUSING FINANCE TO THE URBAN POOR

• Existing Programs not ‘affordable ‘ for the poor;• Reach

• Meeting the total borrowing needs

• Sensitive to rise in interest rates

• Construction costs/land costs

• Terms and Conditions for mortgage

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EXISTING PROGRAMS NOT ‘AFFORDABLE’ FOR THE POOR

• In India, although public sector institutions like Housing Boards and Municipal Corporations have supplied houses to the poor, however, over the years, the supply of houses to such segments has declined.

• In Thailand, the increase in interest rates has resulted in affordability programs under the Baan Eua-Arthorn (BEA) program.

• In Indonesia, the lack of supply of serviced land and tedious “permitting” procedures has made it unprofitable for developers to use available land resources for middle and lower-middle income houses.

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EXISTING PROGRAMS NOT ‘AFFORDABLE’ FOR THE POOR

• In Mongolia, despite the launch of Housing Finance Sector project, a majority of moderate and low income families, could not afford mortgage loans on the terms of commercial banks.

• In Pakistan, the actual supply of houses under different housing schemes announced by the Government falls dismally short of the target.

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IMPEDIMENTS RELATING TO THE TITLING AND REGISTRATION PROCESSES

• In Mongolia, the land registration and titling are somewhat problematic as the process is disjointed. The titling process is also confusing as it involves four sequential legal certificates.

• In Thailand, large amounts of farmland are either leased from the Royal Forestry Department (RFD) or otherwise have no titles. True title deeds are only found in the developed parts of the country and account for only a small part of the livable land in the country.

• In Sri Lanka, It was observed that unless the urban poor were provided with adequate access to land, they will not be able to make use of the presently available financial facilities .

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IMPEDIMENTS RELATING TO THE TITLING AND REGISTRATION PROCESSES

• In India, the lack of clear and marketable titles has proved to be a major barrier for the poor in accessing housing finance from the financial institutions in the formal sector.

• In Pakistan, like in India the same issues in titling of properties, and same cumbrances in the recording and registration of titles, particularly in downtown areas of big cities, and their adjacent semi-urban areas, exist.

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LACK OF LONG-TERM SOURCES OF FUNDING

Thailand• Local banks are reluctant to join the Baan Mankong Program (BMK)

because they are still unfamiliar with the concept of community-based lending and its level of credit-risk.

• Even in the BEA program, the long-term financing mismatch has been a major reason for the project’s failure in achieving its objective of providing 600,000 homes for low-income Thais in five years.

Mongolia• The Housing Finance Corporation (HFC) which is implementing its

program of 40,000 houses faces asset-liability mismatches, since its source of funds are short term bonds and lending is for longer periods.

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LACK OF LONG-TERM SOURCES OF FUNDING

Sri Lanka• The major risk being faced by the lending institutions is the

declining margins. Unless long term funds at moderate interest rates are made available, it would become very difficult to sustain mortgage lending.

India• Access to long term funds at affordable costs, particularly for

microfinance institutions, is one of the challenges for enlarging their operations for housing.

Pakistan• While the commercial banks are aggressive in originating new

mortgages, they use the short term funds/deposits for long term mortgage lending, thus creating a clear mismatch.

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NON-AVAILABILITY OF PRIOR CREDIT HISTORIES & UNDERWRITING STANDARDS FOR POOR

Thailand• Under the Baan Eua-Arthorn (BEA) program, many buyers

could not get access to housing finance because of lack of credit history. No credit ratings could be established. In fact more than 25% of the applications were rejected for financing.

Mongolia• Banks have their own standards to underwrite their housing

loans resulting in less access to housing finance for the poor. Sri Lanka, India, Indonesia• Due to the volatility and variability of their incomes, the low

income groups are not entertained by most of the formal sector institutions.

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ABSENCE OF WELL DEVELOPED SECONDARY MORTGAGE MARKETS

• In India, limited securitization of housing loans.

• In Mongolia, the Mongolian Mortgage Corporation (MIK) was established a few years back to develop primary and secondary mortgage markets by issuing and selling mortgage-backed securities.

• In Sri Lanka, secondary mortgage market is non-existent.

• In Thailand, even though Secondary Mortgage Corporation (SMC) was set up for development of secondary market through securitization, it has very limited housing finance role. It has done only outright purchase of housing loans, and no subsequent securitization was done.

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NEED FOR A SINGLE INSTITUTION CATERING EXCLUSIVELY TO THE POOR

• In India, the Government is exploring and examining the possibility of setting up of companies which could focus only on micro-housing requirement of the lower income groups.

• In Mongolia, there is need for an institution that targets to develop and upgrade housing condition of the ger area inhabitants.

• In Thailand, there is a felt need for establishing a specialized housing finance institution that will provide home financing for low-income families.

• In Pakistan, the HBFC is considering forming a “social housing bank” for very poor and very needy people.

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INNOVATIONS IN PRO-POOR HOUSING FINANCE

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Innovative Practices & Approach• Project Identified Several

– NHB Housing Microfinance, India– REPCO Integrated Model of Financing, India– Baan Mankong Program (BMK), Thailand– Women’s Bank, Sri Lanka– Poverty Reduction Program, Mongolia– Subsidized Home Mortgage Program, Indonesia– Community Mortgage Program, Philippines– Ansar Management Company, Pakistan– National and Sub-National Policies, India

Learnings

Success of integrated approach where one entity acts as a demand aggregator, another provides financing and the other provides technical/construction assistance.

As all concerned institutions belong to the same group, there is increased mutual stake holding and co-operation.

As a result of the integrated approach, overall monitoring is better, resulting in lesser default and delinquency.

• Commercial Banks can provide long term housing loans to MFIs who can pass them on to their members to facilitate incremental housing.

• The option of using Group Guarantee as collateral could be explored as peer pressure will ensure that the poor make timely repayments.

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Learnings• Small/incremental loans for construction of toilets/kitchens, etc. for improving

infrastructure.

• Exploring alternative forms of collateral like savings, etc.

• Urban poor communities and their networks need to be at the center of decision making with respect to funding and implementation of the project - their preferences and ideas are given primary importance.

• Institutions need to act as a facilitator and also provider of technical support;

• The Government institution need to work with community networks to achieve scale;

• Importance of saving for housing loan need to be emphasized among the community;

• Community networks need to interact with a wide variety of actors to achieve housing solutions;

• Provision/ security of land tenure a need for success of the program.

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CONCLUSIONS & RECOMMENDATIONS

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NEED FOR RISK MITIGANTS• The creation of a Credit Guarantee Fund/Risk

Fund by the Government• Title insurance• Credit bureau• Alternative forms of collateral • Consumer finance and education• Construction and technical assistance

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CREATION OF AN “AFFORDABLE HOUSING FUND”

• Provision of credit guarantee to financial institutions.

• Providing subsidies to the poor in the form of infrastructure, interest rates etc.

• Low interest loans to financial institutions.• Directly finance innovative projects.• Support research projects/studies.

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Others• The success of the BMK program implemented by CODI in

Thailand and the Community Mortgage program in Philippines clearly point that channeling of funds through community networks can work to the advantage of the community.

• There is a strong need for strengthening of laws related to the recovery of Housing loans.

• There is need for continuous dialogue and dissemination among various stakeholders at all levels.

• There is a need for creating “Exclusive” of “Intermediate” institutions which will act as a bridge or link between the community and the formal sector institutions.

KEY RECOMMENDATIONS

• Common issues and varied experiences – common issue with varied dimensions

• Physical and virtual platform for knowledge and experience sharing• Low cost construction technologies – NHB/Monitor Group, India • Low cost construction materials – Research and Development Institutions• Long term funds and Liquidity Facility - MFIs• Product innovation – Savings & loans, Progressive Housing Finance• Policy initiatives and programs by different governments – Need for SWOT

Analysis• Land bank and provision of serviced land – to counter rising land prices• Promotion of Housing Micro-Finance Institutions/Social Housing Banks• Regional Co-operation

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REGIONAL SUPPORT MECHANISM

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Felt Need • The need for establishing a Regional Network on Pro-Poor Housing

Finance was felt by participants at the Regional Policy Dialogue on Pro-Poor Housing Finance, held at New Delhi, India from January 30-31, 2008.

• Later, meetings held within the framework of the NHB – UNESCAP – UNHABITAT project, including those held in Chiang Mai and Bangkok in 2009, further emphasized the need for such a network.

• Discussions on the nature and shape of the network were also held following the SAHF meeting in 2010 in New Delhi. During the meeting it was agreed that the existing initiatives of SAHF, UNESCAP, UNHABITAT and NHB would be merged into the new Regional Network.

• Subsequently an additional meeting was held in Bangkok in March, 2010, where the modalities for the setting up of the network were presented and discussed.

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KEY AREAS IN ASIA PACIFIC WHERE REGIONAL ACTIONS ARE NEEDED

• Norms and standard setting.

• Creating regional funds and institutions to promote networking.

• Exchange of information and experience.

• To build capacities of formal and MFI/NGO/CBO based housing finance institutions.

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ROLE OF A REGIONAL NETWORK• Link institutions across the entire spectrum of housing finance

provision. • Undertake research and analyses of innovative practices in pro-poor

housing finance, policy options and frameworks enabling the establishment and successful functioning of wide-spread pro-poor housing finance mechanisms in Asia and the Pacific.

• Training and capacity building at all levels including virtual communication and face-to-face exchanges.

• Region-wide advocacy of pro poor housing finance issues.• The regional network would not only allow for a better exchange of

information, but would also offer opportunities for collaboration between various housing finance institutions.

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Thank You All