FOGARIM, as public guarantee fund for informal income groups

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FOGARIM,as public guarantee fund for informal
income groups
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Global Conference on Housing Finance in Emerging
Markets Lessons for Development from the
Sub-Prime Crisis May 28-30, 2008, Washington

• Group D Role of governments in Credit risk
  sharing
• Thursday 29 May, 2008

Nouaman AL AISSAMIDirection du Trésor et des
Finances ExtérieuresMinistère de lEconomie et
des Finances
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Contents

• Introduction Housing Finance Market in Morocco,
  Government Role
• Design of Fogarim
• Fogarim key Figures
• Fogarim prospect

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Introduction Housing Finance Market in Morocco

• Demand for Housing remains strong

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Introduction Housing Finance Market in Morocco

• Supply is rising quickly but still insufficient
  to cover deficits

Insalubrious houses currently 7,2
Households owners currently 65,1
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Introduction Housing Finance Market in Morocco

• Financial sector is consolidating its role
• 16 Depository banks, 36 Non-depository banks and
  6 offshore banks

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Introduction Housing Finance Market in Morocco

• Housing loan accessibility is improving

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Introduction Housing Finance Market in Morocco

• However, access to secondary markets is limited
• Securitization is available but used marginally
• Around 220 Million issued by a single issuer in
  two main transactions
• Main reasons Excess of liquidity, constraints of
  the current securitization law, novelty of the
  law adopted in 1999,
• No other instruments

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Introduction Role of the Government

• New housing policy
• Improvment of institutional and legal framework
  New urban law, restructuring of public housing
  corporations,
• Rationalization of the housing tax system
• Supply side new approach against unsafe houses
  and slums (VSB), allocation of public land and
  important financial resources
• Demand side mainly Fogarim
• Illustration

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Design of Fogarim

• Before 2004 demand subsidies were essentially
  based on
• Tax incentives deduction of interest on housing
  loans from the revenue tax
• Interest buy-down (IBD) system
• Free-interest advance to civil servants with
  small salaries
• Main aim was to lessen the cost of financing
  main product IBD
• A system that showed its limits
• Targeting mainly medium income wage-earners
  benefits
• High cost
• Complexity of management of the system
• Weak marginal impact
• Solution move to more targeted system focusing
  on irregular and low-income households

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Design of Fogarim

• Objective of Fogarim guarantee bank housing
  credit to finance ownership of social houses for
  targeted households
• Aim encourage banks to finance low and irregular
  (informal) income households by securing their
  loans against credit risk
• Targeting of Fogarim
• Irregular-income households precondition not to
  be a wage-earner
• Low-income households cost of houses and monthly
  payment less than 1500 DH 186
• Additional impact Not to be homeowner or to
  have benefit before of a public subsidy to access
  ownership
• Solvency practice an activity that generates
  income
• Parameters of Fogarim
• Risk-sharing The guarantee is limited to 70 of
  the loan
• Only fixed interest rates
• Guarantee commitments are limited to 8 times the
  fund equity corresponds to a credit risk of
  12,5
• Mortgage security on the house
• Life insurance covering the loan period.

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Design of Fogarim

• Fogarim Committee Ministry of Finance, Of
  Housing, CCG, Banks, Real estate developers
• Mission follow-up, evaluation and proposals

Banks
Caisse Centrale de Garantie
Government Finances and housing depts.
Convention with the fund manager
Managing Convention
Technical dispositions
Potential beneficiaries
Funding and policy decisions
Manager of the Fund
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Fogarim key figures

• Monthly production Number of beneficiaries

First stages
Development
Stabilization
Number of beneficiaries is currently 34 600
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Fogarim key figures

• Monthly production Credit guaranteed vs Cost of
  Houses

Stabilization
First stages
Development
Guarantees committed are currently 5,1 billion
DH (Around 700 million)
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Fogarim key figures

• LTV and duration

Monthly repayments limit increased from 1000 to
1500MAD
Duration in years
19,9 years
79
LTV
65
14,5 years
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Fogarim key figures

• Interest rates

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Fogarim key figures
Monthly repayments distribution
Gender distribution
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Fogarim key figures

• Deliquency (As of April 2008)

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Fogarim prospect

• Fogarim production is rising quickly, thereby
  increasing the need for public resources to cover
  credit risk

Estimated need of resources (in millions of DH)
Hypothesis (Deliquency 10 and production
increasing yearly by 2,5)
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Fogarim prospect

• First reform Implementation of a guarantee
  premium
• The Fogarim Committee agreed to the following
  system (not yet implemented)
• A premium of 0,65 applied to the guaranteed
  amount (70) which corresponds to an aditional
  interest rate of 0,46 for beneficiaries
• A deduction on the premium corresponding to the
  contribution of the beneficiaries in the
  financing the house cost For a contribution of
  20, a deduction of 20 is applied on the premium
  (premium of 0,36 instead of 0,46)

Estimated need of resources (in millions of DH)
with the implementation of the premium
Without premium
With premium
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Fogarim prospect

• Other reforms under consideration
• For a better risk management
• Modulate the premium by bank according to the
  observed credit risk of their portfolio
• Limit of guarantee by bank portfolio
• Other technical improvments
• The objective in the long run is
• To transform Fogarim into a mortgage credit
  insurance institution
• Open the capital to bank and institutional
  investors
• Fogarim portfolio insurance