Regional Project on Pro Poor Housing Finance in Asia and the Pacific

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Regional Project on Pro Poor Housing Finance in
Asia and the Pacific

• A Compendium of Select Countries of the Region

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Objectives of the Project

• To review state of the housing finance system
  with a focus on pro-poor housing in countries
  across Asia and the Pacific including India,
  Thailand, Mongolia, Indonesia, Sri Lanka and
  others
• To bring together the formal and CBO on a common
  platform to identify, replicate upscale
  innovative approaches
• To bring out a compendium on housing finance
  based on country reports on the state of housing
  finance and innovative experiences in providing
  housing finance for the poor
• Promote a regional knowledge sharing forum by
  establishing a regional network on pro-poor
  housing finance involving institutions and
  stakeholders.

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Implementation Strategy

• Preparing and publishing individual country
  reports highlighting the state of its housing
  finance sector with a focus on pro-poor housing
  initiatives
• Organizing National level workshops in each
  country for reviewing and analyzing the country
  reports in the presence of various stakeholders
  as well as promoting dialogue and knowledge
  sharing at all levels
• Strengthening regional networking and linkages
  through such National level workshops
• Preparation of a comparative analysis on the
  state of pro-poor housing finance in the Asia and
  Pacific.

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SEQUENCE OF EVENTS
S.NO. EVENT/DATE/PLACE PURPOSE OBJECTIVE
1. Convening of the Regional Policy Dialogue on January 30-31, 2008 at New Delhi, India A brainstorming session to discuss the need for the establishment of a regional network on pro-poor housing finance.
2. First Meeting of the Country Reporters on January 31-Feb 1, 2008 at New Delhi, India To review and finalize the draft guidelines for preparation of the country reports.
3. Second Meeting of the Country Reporters on March 18-20, 2009 at Chiang Mai, Thailand Peer-Review of first drafts of the country report and discuss the preparation of the regional comparative analysis as also finalizing the time frame for the next steps of the program.
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SEQUENCE OF EVENTS
4. National Workshops on Pro Poor Housing Finance conducted at Thailand, Indonesia, Mongolia and India Understand and outline the key challenges in providing finance for Pro-poor Housing, review and finalize the draft country reports and discuss the outline of the regional level initiatives.
5. Regional Meeting of Housing Finance Institutions on October 15, 2009 at Bangkok, Thailand Discuss the formation of a regional network on pro-poor housing finance and launch of Special edition Government Housing Bank (GHB) Journal on pro-poor housing finance
6. Regional Symposium on Pro-Poor Housing Finance on April 19-20 at New Delhi, India Discuss challenges and highlight innovative approaches towards pro-poor housing finance in different countries of the region. Discuss the creation of a Regional Network on Pro-Poor housing finance.
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COMPENDIUM STRUCTURE

• CHAPTERS
• Pro-Poor Housing Housing Finance A Primary
  Issue
• General situation and housing conditions in
  select countries
• Government housing policies and programs
• Housing Finance system in select countries
• Constraints in the provision of housing finance
• Innovations in Pro-poor housing finance
• Conclusion and Recommendations
• Regional Support Mechanism
• Figures, Boxes and Tables on various aspects of
  Pro-Poor Housing Finance

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Housing Housing Finance

• Housing a basic and fundamental right
• A key driver of a countrys economy
• Critical role in GDP growth
• Market Housing Social Housing
• Pro Poor Housing is at the bottom of the pyramid
  of social housing major share of housing
  shortage and affordability concerns.
• Land costs
• Infrastructure
• Building materials Supply
• Finance

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Housing Scenario in Asia and Pacific

• Urbanization trends
• Population growth
• Depletion of existing stock
• Cultural changes
• Over 500 million or 45 of all urban residents of
  the region live in sub-standard housing, slums
  and squatter settlements
• Increasing growth rates in urban settlements
  creating pressure on land and infrastructure
  availability in urban areas leading to increasing
  housing costs.
• Land-to-income ratios are the highest in Asia and
  the Pacific, when compared to other regions.
• Limited access to housing finance, particularly
  for the poor and economically weaker sections.
  Mortgage Debt/GDP ratio is very low when compared
  to western countries.

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Key Indicators
Country Total Population (mn) 2007 Urban Population of total Urbanization growth
India 1,125 29 2.5
Pakistan 162 36 3.3
Sri Lanka 20 15 0.2
Thailand 64 33 1.6
Mongolia 26 57 1.3
Indonesia 225 50 4.3
Bangladesh 158 27 3.7
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OBSERVATIONS

• Most of these countries have a majority or an
  increasing percentage of their population
  residing in its urban areas and increasing
  urbanization and growth in economic activity have
  led to increasing influx of people towards the
  urban areas
• Increasing population pressure on urban areas has
  led to severe housing and infrastructural
  deficiencies
• One out of every three people living in cities of
  the developing world lives in slums.
• UNHABITAT estimates that more than half of the
  worlds slum population resides in Asia
• Poor infrastructure access to basic services in
  all countries
• Natural calamities Tsunami, earthquakes and
  floods
• Majority of the poor informal sector
• Significant Developments in Political and
  Economic Conditions
• The above presents a major challenge to the
  planners and a great opportunity for the
  financial sector

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HOUSING POLICIES AND GOVERNMENT INITIATIVES

• The National Governments in these countries have
  been taking various measures over the years, in
  meeting the housing needs for the poor through
  various programs, missions, etc. Constantly
  responding to the need to provide pro-poor
  housing solutions
• The pro-poor housing initiatives form a major
  part of the policy formulation of these
  Governments
• A wide spectrum of solutions have been adopted
  including provision of serviced land, subsidies
  be it on interest rate or infrastructure,
  participatory approaches in planning etc.

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HOUSING INITIATIVES REGIONAL COMPARISON
COUNTRY KEY INITIATIVES
INDIA Announcement of National Urban Housing and Habitat Policy in 2007. Launch of urban infrastructure development programs like JNNURM . Cash subsidy scheme like Indira Awaas Yojana (IAY) for rural poor. Interest subsidy scheme (ISHUP) for the urban poor. Project Finance assistance for housing initiatives through NHB HUDCO. Slum eradication programs like Rajiv Awas Yojana.
THAILAND Approval of National Housing Strategy and establishment of National Housing Policy. Initiation of community housing programs like Baan Eua-Arthorn (BEA) program by NHA and the Baan Mankong (BMK) Program by CODI. Existence of an integrated model involving GHB, NHA and CODI to facilitate home ownership among low income communities.
MONGOLIA The Housing Finance Sector Program (HFSP) has contributed towards establishing a sustainable, market-based housing finance system for the delivery of housing finance to meet the borrowing needs of low- and middle-income households. The launch of 40,000 Houses Program in 2005.
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HOUSING INITIATIVES REGIONAL COMPARISON
COUNTRY KEY INITIATIVES
INDONESIA Subsidized Home Mortgage (KPR) program, a housing assistance scheme for low income communities, was initiated in 1976. National Movement for One Million Houses, with its objective to provide affordable housing and improving quality of living environment, was initiated by the government in 2003 focus is on improving coordination amongst stakeholders in housing development.
SRI LANKA Post 1970, a series of significant legislative enactments were introduced to regulate the housing sector which ushered in reforms related to tenancy, rent control, house property ceiling, etc. Under the Janaudana Housing Programme, new houses are constructed with the enabling approach and participation of beneficiaries in direct construction. The Government provides land, infrastructural facilities and utilities in new housing complexes and provides housing loans at affordable rates to prospective buyers.
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HOUSING FINANCE SYSTEMS - Stakeholders

• National and State Governments
• Public Sector Institutions
• Private Sector
• Retail Lending Institutions
• Microfinance Institutions/Community Based
  Organizations
• Individuals, Self Help Groups, Community Networks
• Multilateral Institutions/Donors

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Housing Finance System
India Central State Government Housing Boards Development Authorities Apex Level Housing Finance Institution Banks, HFCs, Cooperatives MFIs, CBOs/NGOs
Thailand Government Apex Level/Specialized Housing Institutions GHB, NHA, CODI, GSB Retail Level Institutions Banks and Community Network
Mongolia Government Primary Supplier of Housing Apex Level/Specialized Housing Institutions HFC, MMC Commercial Banks - Limited
Indonesia Government Apex Level/Specialized Housing Institutions PERUMAS, BTN Commercial Bank and MFIs
Sri Lanka Government Apex Level/Specialized Housing Institutions SMIB, NHDA, HDFC, NSB Banks, MFIs, RDBs
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CONSTRAINTS IN PROVIDING HOUSING FINANCE TO THE
URBAN POOR

• Existing Programs not affordable for the
  poor
• Reach
• Meeting the total borrowing needs
• Sensitive to rise in interest rates
• Construction costs/land costs
• Terms and Conditions for mortgage

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Existing Programs not Affordable for the Poor

• In India, although public sector institutions
  like Housing Boards and Municipal Corporations
  have supplied houses to the poor, however, over
  the years, the supply of houses to such segments
  has declined.
• In Thailand, the increase in interest rates has
  resulted in affordability programs under the Baan
  Eua-Arthorn (BEA) program.
• In Indonesia, the lack of supply of serviced land
  and tedious permitting procedures has made it
  unprofitable for developers to use available land
  resources for middle and lower-middle income
  houses.

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Existing Programs not Affordable for the Poor

• In Mongolia, despite the launch of Housing
  Finance Sector project, a majority of moderate
  and low income families, could not afford
  mortgage loans on the terms of commercial banks.
• In Pakistan, the actual supply of houses under
  different housing schemes announced by the
  Government falls dismally short of the target.

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Impediments relating to the Titling and
registration processes

• In Mongolia, the land registration and titling
  are somewhat problematic as the process is
  disjointed. The titling process is also confusing
  as it involves four sequential legal
  certificates.
• In Thailand, large amounts of farmland are
  either leased from the Royal Forestry Department
  (RFD) or otherwise have no titles. True title
  deeds are only found in the developed parts of
  the country and account for only a small part of
  the livable land in the country.
• In Sri Lanka, It was observed that unless the
  urban poor were provided with adequate access to
  land, they will not be able to make use of the
  presently available financial facilities .

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Impediments relating to the Titling and
registration processes

• In India, the lack of clear and marketable titles
  has proved to be a major barrier for the poor in
  accessing housing finance from the financial
  institutions in the formal sector.
• In Pakistan, like in India the same issues in
  titling of properties, and same cumbrances in the
  recording and registration of titles,
  particularly in downtown areas of big cities, and
  their adjacent semi-urban areas, exist.

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Lack of long-term sources of funding

• Thailand
• Local banks are reluctant to join the Baan
  Mankong Program (BMK) because they are still
  unfamiliar with the concept of community-based
  lending and its level of credit-risk.
• Even in the BEA program, the long-term financing
  mismatch has been a major reason for the
  projects failure in achieving its objective of
  providing 600,000 homes for low-income Thais in
  five years.
• Mongolia
• The Housing Finance Corporation (HFC) which is
  implementing its program of 40,000 houses faces
  asset-liability mismatches, since its source of
  funds are short term bonds and lending is for
  longer periods.

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Lack of long-term sources of funding

• Sri Lanka
• The major risk being faced by the lending
  institutions is the declining margins. Unless
  long term funds at moderate interest rates are
  made available, it would become very difficult to
  sustain mortgage lending.
• India
• Access to long term funds at affordable costs,
  particularly for microfinance institutions, is
  one of the challenges for enlarging their
  operations for housing.
• Pakistan
• While the commercial banks are aggressive in
  originating new mortgages, they use the short
  term funds/deposits for long term mortgage
  lending, thus creating a clear mismatch.

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Non-availability of prior credit histories
underwriting standards for poor

• Thailand
• Under the Baan Eua-Arthorn (BEA) program, many
  buyers could not get access to housing finance
  because of lack of credit history. No credit
  ratings could be established. In fact more than
  25 of the applications were rejected for
  financing.
• Mongolia
• Banks have their own standards to underwrite
  their housing loans resulting in less access to
  housing finance for the poor.
• Sri Lanka, India, Indonesia
• Due to the volatility and variability of their
  incomes, the low income groups are not
  entertained by most of the formal sector
  institutions.

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Absence of well developed secondary mortgage
markets

• In India, limited securitization of housing
  loans.
• In Mongolia, the Mongolian Mortgage Corporation
  (MIK) was established a few years back to develop
  primary and secondary mortgage markets by issuing
  and selling mortgage-backed securities.
• In Sri Lanka, secondary mortgage market is
  non-existent.
• In Thailand, even though Secondary Mortgage
  Corporation (SMC) was set up for development of
  secondary market through securitization, it has
  very limited housing finance role. It has done
  only outright purchase of housing loans, and no
  subsequent securitization was done.

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Need for a single institution catering
exclusively to the poor

• In India, the Government is exploring and
  examining the possibility of setting up of
  companies which could focus only on micro-housing
  requirement of the lower income groups.
• In Mongolia, there is need for an institution
  that targets to develop and upgrade housing
  condition of the ger area inhabitants.
• In Thailand, there is a felt need for
  establishing a specialized housing finance
  institution that will provide home financing for
  low-income families.
• In Pakistan, the HBFC is considering forming a
  social housing bank for very poor and very
  needy people.

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INNOVATIONS IN PRO-POOR HOUSING FINANCE
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Innovative Practices Approach

• Project Identified Several
• NHB Housing Microfinance, India
• REPCO Integrated Model of Financing, India
• Baan Mankong Program (BMK), Thailand
• Womens Bank, Sri Lanka
• Poverty Reduction Program, Mongolia
• Subsidized Home Mortgage Program, Indonesia
• Community Mortgage Program, Philippines
• Ansar Management Company, Pakistan
• National and Sub-National Policies, India

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Learnings

• Success of integrated approach where one entity
  acts as a demand aggregator, another provides
  financing and the other provides
  technical/construction assistance.
• As all concerned institutions belong to the same
  group, there is increased mutual stake holding
  and co-operation.
• As a result of the integrated approach, overall
  monitoring is better, resulting in lesser default
  and delinquency.
• Commercial Banks can provide long term housing
  loans to MFIs who can pass them on to their
  members to facilitate incremental housing.
• The option of using Group Guarantee as collateral
  could be explored as peer pressure will ensure
  that the poor make timely repayments.

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Learnings

• Small/incremental loans for construction of
  toilets/kitchens, etc. for improving
  infrastructure.
• Exploring alternative forms of collateral like
  savings, etc.
• Urban poor communities and their networks need to
  be at the center of decision making with respect
  to funding and implementation of the project -
  their preferences and ideas are given primary
  importance.
• Institutions need to act as a facilitator and
  also provider of technical support
• The Government institution need to work with
  community networks to achieve scale
• Importance of saving for housing loan need to be
  emphasized among the community
• Community networks need to interact with a wide
  variety of actors to achieve housing solutions
• Provision/ security of land tenure a need for
  success of the program.

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CONCLUSIONS RECOMMENDATIONS
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NEED FOR RISK MITIGANTS

• The creation of a Credit Guarantee Fund/Risk Fund
  by the Government
• Title insurance
• Credit bureau
• Alternative forms of collateral
• Consumer finance and education
• Construction and technical assistance

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CREATION OF AN AFFORDABLE HOUSING FUND

• Provision of credit guarantee to financial
  institutions.
• Providing subsidies to the poor in the form of
  infrastructure, interest rates etc.
• Low interest loans to financial institutions.
• Directly finance innovative projects.
• Support research projects/studies.

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Others

• The success of the BMK program implemented by
  CODI in Thailand and the Community Mortgage
  program in Philippines clearly point that
  channeling of funds through community networks
  can work to the advantage of the community.
• There is a strong need for strengthening of laws
  related to the recovery of Housing loans.
• There is need for continuous dialogue and
  dissemination among various stakeholders at all
  levels.
• There is a need for creating Exclusive of
  Intermediate institutions which will act as a
  bridge or link between the community and the
  formal sector institutions.

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KEY RECOMMENDATIONS

• Common issues and varied experiences common
  issue with varied dimensions
• Physical and virtual platform for knowledge and
  experience sharing
• Low cost construction technologies NHB/Monitor
  Group, India
• Low cost construction materials Research and
  Development Institutions
• Long term funds and Liquidity Facility - MFIs
• Product innovation Savings loans, Progressive
  Housing Finance
• Policy initiatives and programs by different
  governments Need for SWOT Analysis
• Land bank and provision of serviced land to
  counter rising land prices
• Promotion of Housing Micro-Finance
  Institutions/Social Housing Banks
• Regional Co-operation

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REGIONAL SUPPORT MECHANISM
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Felt Need

• The need for establishing a Regional Network on
  Pro-Poor Housing Finance was felt by participants
  at the Regional Policy Dialogue on Pro-Poor
  Housing Finance, held at New Delhi, India from
  January 30-31, 2008.
• Later, meetings held within the framework of the
  NHB UNESCAP UNHABITAT project, including
  those held in Chiang Mai and Bangkok in 2009,
  further emphasized the need for such a network.
• Discussions on the nature and shape of the
  network were also held following the SAHF meeting
  in 2010 in New Delhi. During the meeting it was
  agreed that the existing initiatives of SAHF,
  UNESCAP, UNHABITAT and NHB would be merged into
  the new Regional Network.
• Subsequently an additional meeting was held in
  Bangkok in March, 2010, where the modalities for
  the setting up of the network were presented and
  discussed.

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KEY AREAS IN ASIA PACIFIC WHERE REGIONAL ACTIONS
ARE NEEDED

• Norms and standard setting.
• Creating regional funds and institutions to
  promote networking.
• Exchange of information and experience.
• To build capacities of formal and MFI/NGO/CBO
  based housing finance institutions.

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ROLE OF A REGIONAL NETWORK

• Link institutions across the entire spectrum of
  housing finance provision.
• Undertake research and analyses of innovative
  practices in pro-poor housing finance, policy
  options and frameworks enabling the establishment
  and successful functioning of wide-spread
  pro-poor housing finance mechanisms in Asia and
  the Pacific.
• Training and capacity building at all levels
  including virtual communication and face-to-face
  exchanges.
• Region-wide advocacy of pro poor housing finance
  issues.
• The regional network would not only allow for a
  better exchange of information, but would also
  offer opportunities for collaboration between
  various housing finance institutions.

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• Thank You All