Asian Pacific Union of Housing Finance Conference Housing Finance: New Approaches for Access to Finance April 11, 2013 Ira G. Peppercorn Housing Finance Group Finance & Private Sector Development

Shortage of Affordable, Safe Housing 2 World Urbanization in 2010 – 50.5% Slum Dwellers grew from 777mm to 850mm Positive factor: 227 million moved from slums; doubling MDG goals World needs 4,000 houses an hour to keep up with demand (UN-Habitat)

3 Nairobi

Why Does Housing Finance Matter for the World Bank and its Clients? Many households aim to improve living conditions and are in need of finance; self construction often slow Housing Finance helps make long term investment into housing more affordable and accessible for households Housing Finance can help to support housing demand which is a key economic driver and job creation engine 4

World Bank: Critical Factors for Development of Housing Finance Markets “Value for Money”, i.e. maximize the impact of public resources, leveraging government initiatives with the involvement of the private sector, with the goal of achieving a higher multiplier Coordination, i.e. ensure the coordination between administrations and public/private sectors, to maximize the efficiency and effectiveness of the programs Public sector role, i.e. from provider to enabler of housing Inclusive housing finance, i.e. include non-salaried borrowers Progressivity, i.e. ensure an equitable allocation of resources Incremental housing, i.e. consider alternative instruments and mechanisms to promote incremental housing products 5

6 The mismatch in housing finance market development is evident across regions, with North America, and East Asia and Pacific regions showing the highest mortgage depth and penetration, and South Asia and Sub-Saharan Africa the lowest. The mismatch in housing finance market development is evident across regions, with North America, and East Asia and Pacific regions showing the highest mortgage depth and penetration, and South Asia and Sub-Saharan Africa the lowest. Though the fastest growing urban cities are located in South Asia and Sub-Saharan Africa, these regions currently have relatively underdeveloped mortgage markets. Rising Demand is not Matched with Access to Finance

7 Development Challenges-Access to Finance For lower income economies there is much greater reliance on informal sources of financing, e.g. family or friends Home Loan Penetration by use of formal accounts – Adults ages 25+ with an outstanding loan to purchase a home or apartment Source: 2012 Global Findex Survey

Challenges in Serving Low Income and Informal Borrowers (i) A large part of the population has non-salaried income, whose creditworthiness cannot be verified using conventional techniques The existence of a large part of the population that cannot afford the down payment needed for a mortgage The inexistence of deep and stable capital market that provides easy access to long term funding Lack of suitable products in area of rental, self-construction and home improvement finance Policy actions often not consistent with stated policies: i.e. low income policies and interest rate subsidies used with mortgages Legal and regulatory structure often undeveloped or ineffective Differentiation between regulation of mortgage finance and microfinance 8

Challenges in Serving Low Income and Informal Populations (ii) Shortage of safe, affordable housing Many properties informal without title: lack of asset security Inconsistent or nonexistent standards for safe building Land and permitting regulations and processes inefficient Availability of inexpensive land in city centers Lower cost housing often far from urban core Infrastructure not always developed 9

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Moving to Solutions: Some of World Bank Current and Forthcoming Partnerships India: Funding and technical assistance for mortgage and housing microfinance for low income people Bangladesh: Cooperative housing finance for slum upgrading China: Financing and managing public and social housing Ecuador: Subsidy restructuring, construction finance for affordable housing, and access to finance Egypt: Liquidity facility and smart subsidies Indonesia: Subsidy effectiveness, expand mortgage market, public rental housing and housing microfinance Tanzania: Funding and technical assistance for housing microfinance 11

Low Income Housing Finance Project - India $ 100 million World Bank Financial Intermediary Loan Funder through IDA National Housing Bank is implementation agency Funds flow to housing finance corporations and micro finance institutions Distribution partnership with Small Industries Development Bank Target population: Income under Rs 15,000 Main target: formal property; informal income Microfinance will be used Pilot projects for informal/informal Technical assistance key component 12

Example: India Low Income Housing Finance Project 13 EWS, LIG 75% of population 3% of housing loans High Income Low Income

India - Distributional benefits of expanding access to finance

15 Delhi

Benefits of Increasing Financial Tools to Low Income People Low income people can enter formal financial markets Increase in demand through finance can motivate increase supply Houses can be improved or constructed faster and more efficiently Rental housing can be a component of home expansion Can integrate safety standards into loans Jobs can created in construction industries Improvement in housing can mean an improvement in people’s lives 16

Thank You Download: Peppercorn and Taffin, Rental Housing at documents.worldbank.org Contact Information Michel Noel, Manager, Non-Bank Financial Institutions Alfonso Garcia Mora, Lead Housing Finance Specialist Simon Walley, Housing Finance Program Coordinator Ira Peppercorn, Senior Housing Finance Specialist Tuo Shi, Housing Finance Specialist