11 World Bank Housing Finance Seminar Prepared by Franck Daphnis, DIG; March 2006 Housing Microfinance: Current Issues, Opportunities and Challenges Purpose of Presentation  Provide an overview of housing microfinance  Discuss successes and opportunities  Discuss challenges and limitations  Provide and overview of what is on the horizon for government, donors, MFIs and housing finance operators

22 World Bank Housing Finance Seminar Prepared by Franck Daphnis, DIG; March 2006 Housing Microfinance: Current Issues, Opportunities and Challenges Definition: A subset of microfinance, encompassing initiatives that: - Target the habitat needs of the poor or the very poor - Extend Relatively small loan amounts based on estimated repayment capacity - Carry a Short repayment period - Are usually not collateralized - Are priced to ensure long term financial viability of the provider - Incorporate systematic due-diligence and follow up procedures

33 World Bank Housing Finance Seminar Prepared by Franck Daphnis, DIG; March 2006 Housing Microfinance: Current Issues, Opportunities and Challenges Housing Finance MicrofinanceMicrofinance HousingMicrofinanceHousingMicrofinance

44 World Bank Housing Finance Seminar Prepared by Franck Daphnis, DIG; March 2006 Housing Microfinance: Current Issues, Opportunities and Challenges Who Are the Clients? 1. Existing MFI Clientele (economically active poor working in the “informal” economy) 2. Salaried employees 3. In general, low income earning and poor households that do not enjoy access to traditional housing finance Definition

55 World Bank Housing Finance Seminar Prepared by Franck Daphnis, DIG; March 2006 Housing Microfinance: Current Issues, Opportunities and Challenges MICROENTERPRISE LENDING and HOUSING MICROFINANCE: A COMPARISON Microenterprise LoansHousing Microfinance Impacts borrower’s incomeImpacts borrower’s assets base and may impact income May offer very small loan amounts Relatively larger incremental loan amounts Can be individual or group loans Usually individual loans Repayment capacity based on generation of future income borrower’s current income

66 World Bank Housing Finance Seminar Prepared by Franck Daphnis, DIG; March 2006 Housing Microfinance: Current Issues, Opportunities and Challenges As Linked to Other Products Offered by MFI

77 World Bank Housing Finance Seminar Prepared by Franck Daphnis, DIG; March 2006 Housing Microfinance: Current Issues, Opportunities and Challenges As Stand Alone Incremental Product: FUNHAVI $ months 2 co-signers None No Variable Yes CHF/Gaza $7, months 2 co-signers with salary transfer None No Variable Yes

88 World Bank Housing Finance Seminar Prepared by Franck Daphnis, DIG; March 2006 Housing Microfinance: Current Issues, Opportunities and Challenges  Target Clientele: Working poor  Affordability: capacity to pay; loan terms; cost  Maturity: 1-5 Years (3 is recommended maximum for stand alone product; More if housing product can be sequentially linked to other products)  Security - For linked product: accumulated savings as collateral, or group members, or at least two co-signers; no collateral required - For stand alone product: at least two co-signers; collateral on high-end loans; do not take house as collateral  Sustainability: Product should always be priced so that MFI is financially viable in the long run  Construction Assistance: Depends on perspective; should bring real value added; could be offered as option PRODUCT DESIGN: Summary

99 World Bank Housing Finance Seminar Prepared by Franck Daphnis, DIG; March 2006 Housing Microfinance: Current Issues, Opportunities and Challenges PRODUCT DESIGN: An overview of key lessons we have learned over the past 10 years 1.Land Issues 2.Technical (construction assistance) 3.Inter-product competition within an MFI

1010 World Bank Housing Finance Seminar Prepared by Franck Daphnis, DIG; March 2006 Housing Microfinance: Current Issues, Opportunities and Challenges The Challenges we still face On the Microfinance Front: 1.Expand the state of knowledge through up-to-date case studies Develop copyright-free toolkits and operating manuals for HMF operators Continue to survey and disseminate best practices

1111 World Bank Housing Finance Seminar Prepared by Franck Daphnis, DIG; March 2006 Housing Microfinance: Current Issues, Opportunities and Challenges The Challenges we still face On the intersections between housing microfinance and other areas of development: 1.The role of housing microfinance in post emergency reconstruction The specific role of housing finance within the broader urban agenda (slum improvements, for instance) What impact does HMF have on land tenure regularization processes, and vice versa.

1212 World Bank Housing Finance Seminar Prepared by Franck Daphnis, DIG; March 2006 Housing Microfinance: Current Issues, Opportunities and Challenges The Challenges we still face On the subsidies front: 1.Subsidies are a reality in housing finance, but anathema in microfinance. What is the relationship between housing subsidies and housing microfinance? What are the best ways to channel subsidies to the poor without distorting emerging microfinance markets? How can (and is it appropriate for) governments and donors to use MFIs as a conduit for housing subsidies?

1313 World Bank Housing Finance Seminar Prepared by Franck Daphnis, DIG; March 2006 Housing Microfinance: Current Issues, Opportunities and Challenges The Challenges we still face Scale, sustainability and commercialization: 1.We do not yet fully understand the true potential impact (and the limitations) of housing microfinance on the financial sector and on national housing deficits. Can HMF be a “scale” product, or will it always remain a “boutique” product? Can housing microfinance become a fully “commercial” product and become a part of what regulated financial institutions offer their clientele?

1414 World Bank Housing Finance Seminar Prepared by Franck Daphnis, DIG; March 2006 Housing Microfinance: Current Issues, Opportunities and Challenges The Challenges we still face Enabling Environment: 1.Housing microfinance falls under current regulation written for mortgage lending, social housing or microfinance Other than the Philippines, no country is know to be looking into specific central bank regulation on housing microfinance Is HMF different enough to warrant its own set of regulatory guidance? What does a favorable enabling environment for housing microfinance look like?

1515 World Bank Housing Finance Seminar Prepared by Franck Daphnis, DIG; March 2006 Housing Microfinance: Current Issues, Opportunities and Challenges 1.Conclusion: Resist the Hype: Acknowledge the successes but also face current limitations of HMF Need for increased donor coordination (SIDA/CGAP working group) and for product benchmarking and standardization Better understanding of issues related to scale and sustainability, linkages with post-emergency and urban issues, interface with subsidies Expand the current state of knowledge and produce immediately useful operational materials for MFIs, banks, and other HMF operators