1. 1 Linking Remittances to Housing Microfinance Washington DC Romi Bhatia February 2008

2. 2 Linking Remittances to Asset Building: 1.MFIC Business Model 2.Phase 1: Program Launch: USA – El Salvador 3.Phase 2: Operational Challenges & Program Redesign 4.Client Profile 5.Phase 3: Growth & Expansion 6.Externalities MFIC’s experience in providing transnational mortgage loans to Salvadorian immigrants in USA

3. 3 Serving Transnational Families

4. 4 Our Remittance Distribution Network In USA: 9 Alante Financial retail branches in the Washington DC region and Delaware In Latin America: Network of 23 Financial Institutions in over 10 countries Global Expansion: Partnership with UAE Exchange to expand remittance network to 90 worldwide in 2008

5. 5 Programa de Operaciones Internacionales Phase 1: Program Launch in El Salvador

6. 6 Program Objective: Provide an option for immigrants in USA to channel their remittances to build assets by providing transnational mortgage loans. Pilot Program: Launched in September 2006 in El Salvador Two Microfinance Institution (MFI) Partners: 1. Apoyo Integral de S.V. 2. Sociedad Cooperativa de Ahorro y Crédito (AMC)

7. 7 Benefits of MFIC-MFI relationship 1.Increase in remittance volume through formal channels and provide an option for the use of remittances beyond consumption. 2.Facilitate purchase of property/investment in a business from the U.S. 3.Cross-selling of other products and services to both the immigrant customer in the U.S. and family members in the home country 4. Rapid growth and added mix of a secured loan portfolio for MFIs 5. Access to a large immigrant customer base in the U.S.

8. Pilot Program Structure: Risk Sharing: MFIC and MFI partner share 50% of all risk and revenues for each transnational mortgage loan Market Clientele: Un/Underbanked Salvadorian immigrants in the Washington DC region (primarily Alante Financial clients) Loan Underwriting: Pre-approval process by MFIC but ultimate loan decision made by financial institution. Policies and procedures to be determined through experience IT Infrastructure: Utilize existing ARIAS remittance platform and develop a system to manage information flow. Role and Responsibilities: MFIC – Alante Financial (in the U.S.) 1. Loan interview & credit analysis 2. Verifications and processing 3. Loan administration and collections Financial Institution (in El Salvador) 1.Property Appraisal/ Business evaluation 2.Evaluation of co-borrower (if applicable) 3.Loan documentation and disbursement 8

9. 9 Transnational Loan Product Purpose of Loans: Home/Land Purchase (construction, home improvement) Investment in an existing business Educational expenses Main Characteristics: Loan Size: $8,000 - $40,000 USD Loan Term: 10 – 15 years Collateral: Property /Business Assets in El Salvador Interest Rate: 12 – 16% (determined by MFIs)

10. 10 Programa de Operaciones Internacionales Phase 2: Operational Challenges & Program Redesign

11. 11 Pilot Program Outcome: (9-month period) 7 Transnational Loan brokered with outstanding loan portfolio of $132,300. 118 applications taken, 29 loan applications denied; 82 clients ineligible What has worked? In-depth credit analysis MFI rural presence in El Salvador Client Demand for T-loan product

12. 12 …..what has not worked? #1. Unbalanced Risk Management Structure #2. Underwriting Policy challenges #3. Lack of I.T. Infrastructure #4. Insufficient support structure to promote new loan product #5. Mismatch in Client and Lender Expectations

13. 13 50 – 50: 50% risk and revenue sharing scheme difficult to implement Legal enforcement: No legal action permitted in the U.S. in case of client default #1 Unbalanced Risk Management Structure #2 Underwriting Policy Challenges Potential Conflicts of Interest : Differing assessments on level of credit risk of loan clients Assessment of Legal Risk: Should undocumented immigrants be eligible for this loan?

14. 14 #3 Lack of I.T. Infrastructure No loan brokering software Modifications to ARIAS remittance platform required Loan administration very time consuming #4 Insufficient Support Structure New product requires significant upfront costs MFIs need dedicated loan officer to manage cross- border mortgage loans Need for an incentive system MFIs need capacity building training

15. 15 #5 Mismatch in Client – Lender Expectations Broker-Lender Model: Revised business model to reflect proper roles and responsibilities Fee for service: Revenue allocation based on fee for services; lender retains all loan revenues but also accepts all loan risk Program enhancement: implementation of a web- based brokering software system; capacity building trainings, etc. Program Redesign Discrepencies in appraisals Unbanked clients do not possess credit history Clients may lack key information on value of property/viability of a business investment

16. 16 Programa de Operaciones Internacionales Client Profile

17. 17 Client Profile: Maria Echeverria Client Profile: 40-year-old Salvadorian came to the US in the midst of the Civil War in 1985. An Alante loan and remittance customer for one and a half years. Financial Standing: monthly income = $2,015, expenses = $1,420; disposable income (after T-loan) =20% (~$415) Average Monthly Remittance: $150.00 (to assist relative) Loan Request: $30,000 Purpose of Loan: Purchase of land to build house and farm in the future

18. 18 Client Profile: Maria Echeverria Property Appraisal: $13,164.50 Renegotiated Sales price: $20,000 Approved loan Amount: $13,000 USD Circumstances: Integral was willing to lend $13K so Alante Financial restructured Maria’s existing loan to provide her with $5K. With her savings, Maria contributed $2k in order to complete financing. Loan processed and disbursed in 10 days due to urgency of seller.

19. 19 Programa de Operaciones Internacionales Phase 3: Growth and Expansion

20. 20 Streamline loan processing time Add additional lenders to offer loan clients more financing options Implement USAID partial credit guarantee Aggressively market loan product Develop brokering software customized for cross-border mortgage loans …..do MORE Transnational Loans! Growth and Expansion

21. 21 Externalities (+) (~) (-) Outcome of immigration debate MFIC’s growth and expansion to other states in the U.S. MFI partners building capacity; dealing with increased market competition Political and economic shocks in the country of origin of loan clients Potential recession and high unemployment in the U.S., especially in the construction industry Availability of capital for Tier 2 and 3 MFIs Increased financial inclusion of immigrants both in the U.S. and their family members in the home country.

22. 22 The MFIC Team

23. 23 Programa de Operaciones Internacionales www.mfi-corp.com www.ariasfs.com www.alantefinancial.com Thank You! Romi Bhatia Vice President, International Operations rbhatia@mfi-corp.com