Housing Microfinance

Due to rapid growth in population in the Philippines, the demand for housing continues to rise. The ADB estimated that from 2001-2004 housing need was at 3.6 million units and actual housing provision was just about one-fifth of this total, resulting in a huge unmet demand particularly among the poor and informal sector. Between 2005 and 2010, potential demand is projected to reach 3.76 million units, including housing units for new households of 2.58 million.

However, MABS demand survey in 2008  found home ownership to be high among households with micro businesses, among micro depositors, and non-bank clients residing in local communities. The survey showed that 72% of 485 respondents owned their housing units, while 28% were either renters or living rent-free. The survey also indicated a strong demand for home improvements, particularly among the home owners. Nevertheless, 54% of those renting and living for free plan to build or buy their own house at a median cost of PhP300,000.

MABS Housing Microfinance Target

Following the housing demand survey, MABS, in partnership with MICRA, and the pilot banks designed a microfinance housing loan product tailor-fitted to the market of each bank. Following the principles of the MABS Approach, the pilot testing of the product proceeded in 3 banks that plan to further roll out their respective product during the first two quarters of Year 3. So far, the pilot testing has revealed that providing housing microfinance loans using the MABS Approach works with both the banks and their clients. 

Housing microfinance under MABS-4, Year 3, will continue with helping participating banks help meet the credit demand of microenterprise households and other low income clients for home improvement or building a new home progressively. 

MABS program goal during the life of the project ending in 2013 is to reach 5000 borrowers with at least 50 branches offering housing microfinance loan products. The target by the end of September 2010 is to reach 500 additional clients and add at least 10 more rural bank branches.

Major activities during the period October 2009 to September 2010 include the following:
  • Rollout housing microfinance to 2 to 3 additional bank branches each quarter. Provide training and technical assistance for market research, product development,and pilot testing of bank product to rollout banks and bank branches. MABS will focus on banks with strong interest and commitment to meet the demand of theirclients for housing.
  • Work with existing pilot banks to rollout their housing microfinance product to at least 1 or 2 branches per bank. The number of branches offering housing microfinance among the pilot banks as of September 30, 2009 totaled 33. Together with the new rollout banks, the total cumulative target number of branches will increase to 43 by the end of September 2010. Conduct in the 1st quarter of FY 2010 (October 2009) a product review of 2 pilot banks with more than 100 HMF borrowers and assist these 2 banks improve their products and marketing. Test the use of SMS blast messaging as a marketing approach to notify depositors in at least one pilot bank about the availability of HMF loan product in the bank. Based on the 2008 demand study, micro depositors of the banks have a strong demand for home improvement and have the cash flow capability to support a micro housing loan.  This system may also be tested in locations where clients were affected by recent typhoons in order to assist clients who need to repair or rebuild their homes. Monitor product performance monthly and provide feedback and advise to the banks.
  • Disseminate through training and other events the new BSP regulations concerning housing microfinance product.
  • Conduct a housing microfinance practitioners’ forum in the last quarter of FY2009-2010.

BSP Rules and Regulations for Housing Microfinance

Date Issued: 01.06.2010

CIRCULAR NO. 678
Series of 2010

Subject: Rules and Regulations for the Approval and Provision of Housing Microfinance

Section 1.   Statement of Policy. The Bangko Sentral ng Pilipinas adopts a holistic approach in addressing social and economic objectives through microfinance. Microfinance has been confined to mean financing for microenterprises or small livelihood activities. It has been proven, however, that clients of microfinance also need a wide range of financial services including housing finance.  Further, it is typical that some microfinance clients also use their access to credit for their homes.

Housing microfinance involves the application of microfinance principles and methodologies to the provision of housing finance and consists mainly of loans to existing clients of microfinance institutions and other poor and low-income households. With adequate and appropriate risk management measures, the product will enable institutions to appropriately service the housing needs of those who are unable to access traditional housing finance. The provision of housing microfinance is also seen as a way to improve the living conditions of the enterprising poor and the low-income households which will contribute to better health, productivity and quality of life.

Housing as a shelter is a necessity. As a sector, it spurs economic activity and creates employment through the multiplier effects generated in the downstream industries by the procurement of construction materials. It is therefore important to support this sector.

Toward this end, the following rules and regulations that shall govern the approval of banks’ housing microfinance products are hereby prescribed. Memo to All Banks – 2008 – 15 issued last 19 March 2008 is hereby amended.

Section 2.   Minimum Criteria to Determine Banks’ Capacity to Offer Housing Microfinance. The BSP will review the application based on the following basic principles:

1. To ensure that the banks have the capacity and technical capability to offer housing microfinance

2. To ensure that the provision of housing microfinance uphold adequate and appropriate risk management systems and procedures as well as the microfinance best methodologies and technologies 
Based on the above principles, the BSP may approve the banks’ housing microfinance product upon satisfaction of the following requirements:

1. The bank must have a track record of at least two years in implementing sustainable microfinance programs, including acceptable portfolio-at-risk (PAR) levels as evaluated against prevailing BSP standards.

2. The bank must have an appropriate housing microfinance product manual where the product will be included in the bank’s microfinance manual as one of the types of services or products offered to prospective clients. Loan/ account officers must be trained about the housing microfinance product and that the details of the program can be communicated clearly to the clients.

3. Appropriate verification of the following:

a. latest CAMELS rating of at least 3 and a management score of at least 3

b. capital adequacy ratio (CAR) of not lower than 12

c. no major supervisory concerns as to warrant initiation of Prompt Corrective Action (PCA) under existing regulations

d. no arrearages in microfinance borrowings

4. Appropriate certification of the banks’ commitment to implement the housing microfinance product following the guidelines set forth in the submitted manual.

 

Section 3.   Basic Product Characteristics. The housing microfinance product shall have the following basic characteristics:

Subject

Particulars

Purpose

House construction
House and/or lot acquisition. 
Lot acquisitions should be for housing/businessü Home improvement/repairs

Eligibility

Existing microfinance clients
New clients who will normally be eligible for microfinance loans based on banks’ policies
Borrowers who have qualified for the Credit Surety Fund credit enhancement program provided they qualify with the banks’ policies

Loan Amount

Up to P300,000 for house construction and/or lot acquisition (must show tenure security)
Up to P150,000 for home improvement/repairs 
Incremental loan amounts to support incremental building

Loan Value

Up to 90% of the appraised value in case of REM
Acceptable valuation in cases of usufruct, leases, etc. 
Capacity to pay based on household cash flow analysis

Payment

Frequent amortization
With savings component
Loan payments should not exceed a reasonable percentage of clients’ income as determined by cash flow analysis and to determine capacity to pay as well determined through a clear credit process

Terms

Up to 15 years for house construction and house and/or lot acquisition, subject to banks’ credit policies
Up to 5 years for home improvement/repairs

The product must share the characteristics of the microfinance loans, as found in Circular 272, Series of 2001, except for the following:

1. The maximum loan amount may be PhP 300,000.

2. The loans have longer terms with a maximum of five years for home improvement/repairs and fifteen years for house construction and house/lot acquisition.

3. For House construction and house/lot acquisition loans, secure tenure instruments will be used as collateral.  (See attached Secure Tenure Instruments and Valuations, Annex A)

Section 4.   Appropriate Risk Management. Due to a risk profile that may be different from the typical microfinance loan, the following risk management elements must be highlighted and embedded in the product:

1. Clients’ ability to repay based on cash flow analysis and affordability,especially the new clients.

2. Opening of a savings account shall be required for clients with no existing savings account

3. Secure Tenure instruments as collateral/ collateral substitutes for loans over PhP 150,000

4. Adequate loan monitoring, collection, control, provisioning which is to also be included in the banks’ housing microfinance manual.

5. Additional risk cover may be availed from government guarantee programs

6. A lien or mortgage covering the house and/or lot financed by the loan shall be executed by the borrower in favor of the lending bank

7. Mortgage redemption insurance shall be required to cover against death or permanent disability

Section 5.   Application Procedure

1. The bank shall apply for specific product approval of its housing microfinance lending program with the BSP.

2. The bank may submit a housing microfinance lending program as a participant in a broader housing microfinance lending program based on a common business model and organized by a group of banks or industry association.

Section 6.   Regulatory Treatment. The approved housing microfinance product will be considered as a microfinance loan and will have the following incentives in addition to existing incentives applicable to microfinance loans:

1. Housing microfinance loans shall be eligible as alternative compliance to mandatory credit allocation to agrarian reform and other agricultural credit.  These are also eligible for rediscounting with the BSP subject to existing rules and regulations governing rediscounting.

2. The loans shall have an assigned risk-weight of 50% risk when not guaranteed and as low as 0% when guaranteed by duly recognized government guarantee programs.

3. For housing microfinance loans secured by REM, a 90% loan valuation may be allowed for loans with a government guarantee component.

4. Secure tenure instruments such as freehold, usufruct, leasehold and right to occupy and/or build shall be recognized as collateral/ collateral substitute subject to approved loan valuations. (Annex A)

Banks that will offer housing microfinance shall also comply with the following:

1. The bank must maintain a sub-control ledger for the housing microfinance product

2. The housing microfinance loans shall not exceed 30% of the total loan portfolio

3. Recording of portfolio at risk (PAR) and the provisioning requirements shall be strictly in accordance with applicable BSP regulations

Section 7.   Effectivity. This Circular shall take effect fifteen calendar days following its publication either in the Official Gazette or in a newspaper of general circulation.


FOR THE MONETARY BOARD.

 

AMANDO M. TETANGCO, JR.
Governor

 

Source: http://www.bsp.gov.ph/regulations/regulations.asp?type=1&id=2490

 

Download Signed Document

 


Loan Administration and Management

Description: Loan administration and management is critical in the MABS Approach to microfinance. Two of the critical components are the assessment of credit worthiness and capacity to pay of borrowers. The information provided by these is vital and considered to be valuable in microfinance operation.

Microfinance loans are based primarily on the character and reputation of the applicants. An accurate and complete CIBI report enables the bank to screen out high-risk applicants and avoid having serious loan delinquency problems later on. Cash flow analysis on the other hand, helps the bank determine how much should be given as loan to a client. Without cash flow analysis, banks would be giving out loans that could either be too small for their clients' requirement (in which case, disgruntled clients would go to other lenders) or too big (in which case, clients will have a hard time repaying their loans).



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