Capital-Market Funding of Affordable Housing Finance in Emerging
Countries: The Business Case
Two-thirds of the world’s emerging market population subsist
with inadequate housing. India alone has an unmet housing need
of 20 million units (Trevedie, 2004). This unmet demand is
likely to increase as urban populations continue to grow
rapidly, particularly in South Asia and Africa.
Families are moving to cities with scant resources but with
an entrepreneurial spirit and a strong desire for the habitat
essential for a modern life – shelter, secure tenure to
property, water, drainage, sanitation, and electricity. A key
challenge, then, is to connect capital markets with low-income,
rapidly-urbanizing populations to improve their habitat and
living standards. These families need the basic financial
products and services that most households in developed markets
enjoy: short-term and long-term savings vehicles, credit
instruments, insurance products, and property rights. In much
of the developing world, the penetration of financial services
to the low and moderate-income majority remains remarkably
limited. Mexico, Colombia, and Honduras have a total population
of 160 million people and a share of loans plus deposits to
gross domestic product (GDP) of less than 30% (ProCredit,
2007). This compares to the over-leveraged Britons with
personal debt to GDP of over 100% (Grant Thornton, 2008).
Mortgage debt to GDP is only 3% in Brazil, 5% in India, 10% in
Mexico, against 72% in the United States (Sources: ProCredit,
Boston Consulting, World Bank, Assocham, 2007).
Some emerging countries have made substantial progress in
serving the middle class with housing finance. Founded in 1977,
Housing Development Finance Corporation (HDFC), an Indian bank,
was originally built on the provision of mortgages for the
middle class, well before adequate property rights were
available to secure for such loans. HDFC has diversified into a
full-service bank with a market capitalization of over US$8
billion, the third largest in India. In Mexico, the government
chartered wholesale financier Sociedad Hypotecaria Federal (“SHF”)
has also made serious inroads into delivering products for the
middle-class in partnership with an industry of mortgage banks
(housing Sofoles) that emerged after the Tequila Crisis in 1994.
public and private examples of success, the vast majority of the
4 billion persons that constitute the bottom two-thirds of the
income pyramid spend more than US $400 billion annually on
housing (WRI, 2007). So, given the demand, why isn't the
private sector more actively involved in supplying finance to
the 440 million households with incomes of $5 to $8/day (Warnholz,
The reasons are many. However, there are two main
bottlenecks: (1) the lack of viable institutional partners
capable of serving this market; and (2) long-term funding in
local currency. Supplying these two missing elements is a
classic chicken/egg problem. Without access to the funding, the
institutions cannot develop; but the money will not flow to the
institutions until they have adequate capacity. Successful
retail housing finance delivery requires a joint application of
institutional capacity-building and funding, partly through
capital-markets development. The following discusses each of
these key bottlenecks and the process for overcoming them.
Who currently addresses this market?
At the frontlines of delivering credit to this market are
microfinance institutions (MFIs) – regulated and unregulated –
non-profit foundations, credit unions, cooperatives, finance
companies, banks, and home improvement retailers. Microfinance
institutions have an estimated total loan portfolio of US$25
billion (Deutsche Bank, 2007), with roughly 20% in housing.
Little data is publicly available on home improvement retailers’
portfolios of consumer credit for building materials. However,
some recent studies in Brazil (Cities Alliance, 2007; Ashoka,
2007) suggest that these retailers finance approximately 20% of
housing investment in that country alone – approximately US $5
billion per year. Since building materials retailers extend
consumer credit in many dynamic emerging markets (e.g.
middle-income Latin American countries, India, Indonesia) to
remain competitive, the total volume of affordable home lending
through this mechanism most likely far exceeds others.
Robinson has estimated that only 200 MFIs were commercially
viable in 2001 worldwide. Perhaps 100 have sufficient scale,
operations and experience to address housing finance now. A few
MFIs are, indeed, expanding their housing finance operations
rapidly. Housing portfolios (home improvement and mortgage
lending) at seven MFIs in the Accion network are growing at
around 50% annually (ACCION, 2007).
However, MFIs have for the most part focused on
higher-margin, short-term working capital lending , more than
housing. Many MFIs have introduced a home improvement product
over the years, recognizing that the home is also the
workplace. Some have also ventured into longer-term housing
loans for new construction and purchase of new units.
Many MFIs view longer-term housing loans, in particular, as a
defensive product, aware that commercial banks will otherwise
poach their best customers in highly competitive markets. MFIs
that seek to offer a full suite of financial products and
services to their clients believe that housing is an essential
credit product. Properly managed, housing’s long term
asset/liability financial structure should increase stability,
enhance overall revenues, and reduce risk. To understand this,
MFIs must fully study the costs and benefits of housing finance
from a complete lifetime customer value perspective.
Increasingly, larger MFIs have converted into regulated,
deposit-taking banks – a process that requires improving their
governance, transparency, and operational capabilities – the
preconditions to MFI success in housing finance. Uniquely
suited to address informal low-income workers, large, regulated
MFIs are becoming excellent potential channel for housing
Cooperatives have strengths similar to those of MFIs, with
the added benefit that they have achieved substantial scale in
many markets. They have also been able to mobilize low-cost
savings and are typically regulated. Housing is very important
to their membership. In certain markets such as Peru and
Bolivia, cooperatives are among the strongest financial
institutions in the market. In Mexico, they are large, but not
as operationally efficient. Due to the non-profit associative
structure of cooperatives, risk management and governance
quality varies greatly.
Credit unions have traditionally served salaried workers with
slightly higher incomes than MFIs. They offer many of the
benefits of MFIs and, as cooperatives, have the ability to take
deposits. While credit unions are usually regulated by their
central banks, their nonprofit ownership status can create
challenges in managing a housing finance product. For example,
in attempting to pursue recovery of a loss in the event of a
default on a housing loan, the credit union might face legal
obstacles as the recipients of these loans are also their
members/shareholders. When credit unions have a high exposure
to one cyclical industry or company, their reliance on salaried
workers can also increase credit risk.
Consumer Finance Companies
Some large-scale consumer finance companies have entered the
home improvement finance marketplace in large economies such as
Brazil, Mexico, India, and Indonesia. Financiera Independencia
in Mexico recently expanded its offerings to include a housing
microfinance product that joins low-cost funding and a subsidy
to households from SHF (see the paper by Bruce Ferguson,
“Housing Microfinance: Is the Glass Half-Full or Half-Empty?”,
in this issue of Global Urban Development Magazine for
details on this case). The results have been an astonishing
growth in clients.
Consumer finance companies spend much less time evaluating
the creditworthiness of their borrowers, and generally have
higher arrears rates than MFIs. Depending on the strength of
their underwriting, they could face substantial trouble in a
recession. Although consumer finance companies offer short-term
home improvement loans, they usually avoid longer-term, larger
housing loans for other purposes.
Home Supply Retailers and Home Builders
In dynamic economies with limited sources of institutional
housing finance, large homebuilders frequently supply purchasers
with home credit in some form. In Brazil, large homebuilders
often require that purchasers commit around half the purchase
price in advance of building and accept the remaining half in
the form of a few installments over a period of time after
Homebuilding materials manufacturers and retailers have also
realized that they are leaving large segments of the population
without the credit necessary to purchase their products. In
Peru, Maestro Home Center, the country’s largest home
improvement retailer, has partnered with a bank to issue credit
cards to the informal market. Corona, a large home retailer in
Colombia, has an internally-managed home improvement credit
product that is marketed through a network of low-income,
neighborhood female sales representatives (see the case study by
Gutierrez in this issue of Global Urban Development Magazine
for details). The company has plans to expand this popular
product from a pilot phase.
Long-term funding in local
Competitive interest rates and longer terms in local currency
are essential to funding housing credit.
Structuring capital markets issues for housing finance in
Achieving such competitive funding on capital-market debt for
housing occurs through structuring issues properly.
Capital-market debt issues typically have “senior” tranches
that offer priority in payment in return for a lower investor
interest rate. In turn, “junior” tranches subordinate payment
to the senior tranches in exchange for higher investor returns.
The greater security of senior tranches (called the level of
subordination) and the credit rating of the institutions and the
countries where lending occurs (called the “sovereign risk”,
which generally is also the ceiling for the nations’
corporations) are key factors in attaining “investment grade”
ratings from credit rating agencies (e.g. Standard & Poor's,
Fitch etc.). Due to the emerging nature of investment,
institutional investors generally have required AA or AAA
ratings for senior tranches. Higher-risk junior tranches are
typically held by development finance institutions (DFIs) such
as the private-sector arms of multilateral donors, non-profit
foundations, or other socially minded investors.
From the perspective of capital markets, long-term
transactions in countries with marginal credit ratings become
very expensive, and require very high levels of expensive
subordination to achieve investment grade senior tranches of a
transaction. Assembling a portfolio of housing loans from
various MFIs, credit unions, and home retailers in emerging
countries with a wide range of sovereign risks might produce an
overall credit rating of BB – significantly short of investment
grade. To achieve an AA rating on the most senior tranche might
require 40 to 60% of the transaction structured with subordinate
debt. As the subordinate debt carries much higher pay rates,
this can quickly escalate the cost of overall blended cost of a
structured debt transaction.
A central issue in structuring issues is to remind rating
agencies that defaults have been rare in microfinance, and that
commercial loans (most housing transactions would be structured
as secured commercial loans to international financial
institutions) in emerging markets have quite high recovery
rates. Fortunately, considerable empirical evidence exists to
back up this conclusion. A 27 year study conducted by
Citibank, showed an average loss in the event of default
(“LIED”) of only 31.8%. In other words, investors should expect
to recover 68.2% of the default amount for commercial and
industrial loans (Citibank, 1998). There is far less data on
losses and recoveries for low income borrowers in emerging
markets. However, the risks of home lending in emerging
economies display some considerable differences with those in
high-income countries that require explanation to investors,
rating agencies, and others involved in the investment process:
versus unsecured lending
In high-income countries with solid legal systems, loans
secured by mortgages carry much lower risk than those without.
Correspondingly, the ratio of the loan amount to the appraised
value of the property holds crucial importance for mortgage
portfolios in advanced economies.
For many reasons, securing housing loans with mortgages
increases security and reduces risk much less in emerging
countries. Homeownership in emerging countries is much more
crucial to families’ economic and social security then in
affluent countries. A survey conducted by the Inter-American
Development Bank in 2007 indicated that the two most important
needs for emerging market consumers were housing construction
finance (47%) and health/life insurance (47%).
The importance of housing shows up in the housing portfolio
statistics of microfinance institutions. A survey conducted by
ACCION International (2007) shows that delinquency rates at
seven MFIs in Latin America and the Caribbean ranged from 0.5%
and 2%, consistently better than portfolios of working capital
loans at the same institutions. At BancoSol in Bolivia, the
portfolio at risk (“PAR”) greater than 30 days, in effect those
paying more than 30 days late, for housing loans that are
secured or unsecured both average less than 1%. Compare this to
a PAR greater than 90 days of more than 6% in the United States
Most homeowners in emerging markets lack full legal title to
their homes, but still have security of tenure. As Hernando de
Soto likes to say, the dogs know the boundaries between
properties in most emerging markets. With the exception of the
Newly Independent States and Eastern European countries – which
have well-established real property records – there are only a
few emerging countries (such as Peru and El Salvador) where
governments have instituted reliable, low-cost property
registries that can conduct a title search or record a mortgage
quickly. In federal countries such as Brazil and Mexico, state
governments make real property laws, operate real property
registries, and often employ the police and other agents
involved in executing foreclosures and other processes related
to real property. Not surprisingly, the performance and the
accuracy of real property registries vary tremendously among
states. When loans do go into foreclosure, the experience is
usually slow and expensive; a three-year foreclosure period is a
reasonable estimate for a majority of emerging markets.
Once the property is finally foreclosed, the financial
institution may have great difficulty selling the home to recoup
their cost because of thin real estate markets. Many households
buy and occupy a home for life, and then pass the property to
their heirs. Thus, resale markets are spotty.
In summary, foreclosing on mortgages is so difficult and
costly that it is impractical in many contexts. As the
portfolio qualities of secured property loans are so high,
experiences with delinquencies are rare. Where there is a
willingness to pay, the vast majority of loan officers will make
every effort to re-negotiate the loan terms. As a result,
microfinance institutions and other low/moderate income home
lenders focus great effort and attention on underwriting
informal borrowers so that they can avoid foreclosure in the
Non-mortgage forms of security and lending practices hold
more importance to reducing risk. Some MFIs have been able to
reduce risk by using very conservative cash flow-based
underwriting techniques. Where property rights are difficult to
manage, MFIs may require co-signers, group or solidarity
guarantees, and/or assignments of non-fixed, personal assets to
Especially in low-income markets, prudent lenders extend
credit based almost exclusively on capacity to pay.
Non-salaried workers are often a safer bet than salaried workers
– the reverse of high-income countries, where lenders prefer
salaried workers over the self-employed. Independent
entrepreneurs do not rely on employers for their livelihoods,
and cannot be fired. They offer goods and services less tied to
the global economy and may be more resistant to the frequent
fluctuations of emerging economies.
Some lenders limit principal and interest on debt service
payments to 50% of self- or informally-employed borrowers’ free
cash flow after deducting all debt service and living costs.
Because there usually aren’t tax returns or pay stubs to
validate, MFIs must go to elaborate steps to create cash-flow
statements and balance sheets for their micro- and small-scale
borrowers. Mortgages lenders, banks and credit unions in the
same markets may use the more familiar maximum ratio of 30% of
housing debt to after tax income for underwriting home loans to
salaried workers. Loan-to-value ratios of up to 80% are common.
In addition to the conventional risks of lending, political
risk is always a reality with housing. After the credit crisis
in Colombia in 2000, the government capped real interest rates
at 11% for low-income borrowers and 13% for all other secured
home loans of greater than five years’ duration. These
interest-rate caps have greatly restricted the use of
government housing subsidies because they must be joined with
home credit, which interest rate caps has made unavailable to
most low-income households, in order to complete the amount
necessary for the housing improvement or purchase. In Nicaragua,
the government has recently intervened in state-run microfinance
operations. Political risk insurance from entities such as the
Overseas Private Investment Corporation (OPIC) may be warranted
in selected emerging markets. Efforts should be made to lift
interest-rates caps in order to attract more capital sufficient
to develop large-scale efficient operations and, eventually,
lower interest rates.
Any properly structured global housing transaction should
facilitate lending in local currency, or the expected final
borrower’s primary income currency (some emerging countries
operate mainly with or have officially converted to the US
dollar). Investors, on the other hand, don’t usually want to
take the currency risk and seek to hedge this hazard. Until
recently, private investors have been unable to obtain hedging
solutions for some currencies (e.g. Nicaraguan Cordobas) for
periods greater than three years. Long-term local currency
hedging issues can often be resolved by new currency exchanges
offered by the World Bank and TCX, the currency exchange. TCX
absorbs the currency risk by swapping hard currency
(Euro/Dollar/Yen) positions with local positions for up to 15
year periods on a floating or fixed basis.
Real interest rates on funding to intermediary financial
institutions (which are called “wholesale” interest rates) must
be positive to attract investors, both local and international.
The expectations for return of international investors vary
depending upon institution – foundation, donor,
socially-motivated investor, and others. Depending on the
transaction, institutional investors will invest in various
pieces or “tranches” of transaction. There is generally one or
more junior or subordinate tranches in a structured deal. Given
the current risk environment, conservative institutional
investors will typically focus on senior, highly-rated AAA and
AA tranches at small yields over the 10-year LIBOR (the London
Interbank Offered Rate is the rate at which banks lend to one
another) swap rates. The 10-year LIBOR swap rate converts a
local floating rate to a fixed 10 year loan, usually at a small
premium over the US dollar or Euro treasury bond rate. DFIs and
non-profit foundations have been willing to invest in this area
at concessionary rates to help develop long-term capital markets
and to support housing finance for low and moderate- income
borrowers. The DFIs are also willing to invest in the technical
capacity of the local financial institutions (called here
“intermediary financial institutions”, (IFIs)) that lend these
funds to the final household borrower.
The local intermediary financial institutions must also earn
a margin high enough to cover their costs, earn a profit, and
capitalize their organization so that they can grow. MFIs and
others that extend credit to low-income borrowers typically must
charge real rates (that is, the nominal rate minus the inflation
rate) of 8% to 15% per annum for long-term mortgage finance
(known as “retail” interest rates) to build or purchase a new
home in order to be profitable.
In turn, low and moderate-income households typically can
afford to borrow smaller amounts in the form of unsecured credit
at higher rates for key housing improvements. In Latin
America, households accept paying 3%-5% per month as the cost of
doing business for credit for the purchase of building materials
to replace a dirt floor with tile or cement, or to add a room.
While these rates seem high, they reflect the small loan
balances ($500 - $5000) and high underwriting and servicing
costs as well as the lack of competition. Competition among
lenders joined with stable macro- financial conditions does
eventually push rates down. For example, these factors have
forced rates for small home improvement credit down from well
over 60% per annum to around 30% to 40% per annum in Peru and
Colombia over the last five years.
In practice, balancing risk and return to arrive at
appropriate interest rates for funding affordable housing
finance is an art more than a science. Windows of opportunity
open and close with changes in global and local financial
conditions. In early October 2008 (as of the writing of this
paper), the rate at which banks lent to each other reached over
4.5% above the corresponding US Treasury rate because of the
credit crunch, making capital-markets funding of affordable
housing in emerging countries unfeasible. This compares to a
premium of 0.50% in early 2007 – a level that would permit
capital to flow locally and to emerging markets.
The term of loans is a crucial factor in balancing risk and
return. Currently, most housing finance institutions in
emerging countries depend upon very short-term liabilities –
such as demand deposits – to fund housing loans with
substantially longer terms. This mismatch creates substantial
interest-rate risk for the institution. Banks face four types
of interest rate risk: basis risk arises from lending and
borrowing based on different reference sources (i.e. prime rate
vs. libor rates in the US); yield curve risk comes from
borrowing short and lending long; repricing risk occurs
with mismatches between the assets and liabilities (i.e.
borrowing at a fixed rate and lending at a variable rate); and
option risk arises when loans can be pre-paid or extended
beyond expected maturities.
Terms for housing finance funds must be long, but how long?
Of course, increasing the term of housing loans reduces
monthly payments and increases affordability. Extending the
term of a loan with a 15% interest rate from five to 10 years
reduces the monthly payment by 32%, and yet extending from 10 to
15 years only reduces the payment by an additional 13%. In a
high interest-rate environment, 10 years seems to be an optimal
risk/benefit point for a loan term to household borrowers.
However, families as well as financial institutions often
resist increasing the term of housing credit. Low and moderate
income households in emerging countries live in a much more
volatile economic environment, where incomes and employment
fluctuate widely over periods typical of mortgage finance in
high-income countries (20 to 40 years). As a result, families
avoid taking long-term credit that would put their home at risk
and often pay off housing loans as soon as they can, frequently
in as little as two years for smaller home improvement loans.
To reduce risk, low/moderate home lenders sometimes require
participation in a prior savings program and a lengthy payment
history before they grant longer-term loans.
The terms offered by the Peruvian commercial microfinance
bank MiBanco – the premiere affordable housing lender of Latin
America (see Ferguson's paper “Housing Microfinance: Is the
Glass Half Full or Half Empty?” in this issue of in this issue
of Global Urban Development Magazine for more details)
illustrate how these factors play out in practice. MiBanco’s
MiCasa program offers home improvement loans of up to $10,000
for up to five years without a mortgage guarantee. The
requirements include an actual remodeling or home improvement
plan, income verification, and a valid title (but not
necessarily official recordation in real property registries).
Payments are made on weekly, biweekly or monthly basis depending
on underwriting criteria. Effective interest rates range from
33% to 55% per annum.
MiBanco’s Mihipoteca product offers a local currency loan
secured by a mortgage of up to 15 years at an effective annual
rate as low at 17.17% on amounts of $10,000 to $96,000. For
independent workers, this bank requires multi-risk insurance,
mortgage of a valid registered title, a business or association
license, and at least six months of operating history.
Thus, setting an appropriate term for funding is an
alchemical process. In the current context, terms of 10 years
for the wholesale funding extended to local intermediary
financial institutions for affordable home finance appear
reasonable. On the retail side, terms of 10 to 25 years for
mortgage finance to purchase or construct a new home often suit
moderate and middle-income households. The term of small
home-improvement credits to low-income households usually ranges
from one to five years. Frequently, lenders will set the term
of small home improvement credits within this range at the
shortest period that makes the monthly payment affordable to the
Long-term local currency funds are essential to build an
affordable housing finance market. Up until now, such funding
has been provided mainly through DFIs lending directly to local
institutions, typically through second-tier housing liquidity
facilities (see below). But there is a case to make for
private-sector actors who can listen to the market and design
products quickly and efficiently, and also reach a broader
number of smaller first-tier institutions as well.
Privately managed global, regional and national wholesale
financial vehicles can do this job. At the start, global
structures may make the most sense as they offer investors the
chance to diverse risk across countries. Private global
transactions can help local intermediary financial institutions
reach the minimum efficient scale for affordable housing lending
– at least $100 million.
Private sector issuers of debt can partner with IFIs to jump
start the market. For example, the Alsis Funds has launched a
fund to acquire mortgage assets in Latin America with funding
from U.S. Overseas Private Investment Coporation (OPIC),
International Finance Corporation (IFC), and private investors.
Regardless of the source of funding, establishment of norms
for local affordable home lending (call “loan covenants”) can
help develop the market (standardization of underwriting and
servicing procedures, lower rates for mortgage collateral).
Until the recent credit crisis, microfinance investment
vehicles (MIVs) have delivered several billion dollars in
funding over the past four years (but very little of it
earmarked for housing). While the MIVs have helped bring
sophisticated debt instruments to emerging-market borrowers, the
MIVs have generally refrained from standardizing underwriting
and documentation. However, such underwriting covenants not
only help to ensure that the transaction is safe for investors,
but also stimulate local markets to develop.
Covenants by the funding source appear particularly important
for affordable home lending. For example, SHF’s conditions for
lending have, in effect, regulated the successful operation of
the housing Sofoles in Mexico.
If local investors know that all of the IFIs within a market
must adhere to a common set of standards in underwriting and
documentation, they should be more likely to have confidence in
purchasing those assets at a future date.
Liquidity Facility and Private-Sector Investment
One way to provide long-term competitive funding in local
currency is to create a local second-tier housing liquidity
facility. This facility typically takes equity capital from
central government and, sometimes, multi-lateral donors. These
liquidity facilities then raise debt from multilateral donors as
well as the private market – first domestic and then
international – and on-lend these funds to local IFIs. In turn,
these IFIs extend home credit to the final household borrower.
Donors and governments have joined to create such second-tier
housing liquidity facilities in many of the larger,
more-developed emerging economies, including India, Malaysia,
Mexico, Peru, and Colombia.
Such second-tier housing liquidity facilities have definite
advantages and disadvantages. On the positive side, they help
to get markets moving by providing liquidity. If home lenders
know they have a well capitalized buyer in place, they may be
more likely to lend to homeowners in the first place. On the
other hand, the financial debacle in 2008 of Freddie Mac and
Fannie Mae – the enormous second-tier housing finance
institutions of the US (jointly owning or guaranteeing 70% of
the $12 trillion in home mortgages outstanding in the US) shows
that mistakes in structure and regulating second-tier liquidity
facilities can have dire consequences for the market.
Alternatively, the private sector can invest in first-tier
home lenders. Successful private-sector investment in
middle-income emerging market housing finance include SA Home
Loans in South Africa, Su Casita in Mexico and HDFC in India.
SA Home Loans was formed as a partnership between management,
Standard Bank, JP Morgan and IFC. Su Casita received $14
million in initial capital from IFC and the US homebuilder,
Pulte Homes, in 1994. Su Casita built up a $5 billion servicing
business and was sold in 2008 to a Spanish Bank. HDFC is now
the third largest bank in India. These successes serve as
examples of the market potential in responding to the home
ownership desires of the middle class in emerging countries.
Public Investment in Technical Capacity
Technical assistance funding by the public sector and
non-governmental organizations (NGOs) can enhance and speed this
process of private investment Such technical assistance
funding can help build risk, market, and treasury capacities at
MFIs, finance companies, and home improvement retailers that
provide affordable housing finance.
The technical assistance should cover areas such as: (i)
conducting and monitoring market information; (ii) developing
mortgage, home improvement, and other home related loan
products; (iii) processing and tracking forms; (iv) mortgage
lending operating manuals (operating procedures and lending
documents), including: regulatory, title, security instruments;
accessing subsidies for final beneficiaries, developing mortgage
guarantee programs; selection of service providers (i.e.
insurance, appraisers, inspectors, bankruptcy repossession);
creating underwriting standards; compliance with building
standards and codes; (v) sample loan files and tracking
reports, (vi) risk management, vii) servicing, and (viii)
refinancing, work-outs, and repossession. A high level of
standardization can be achieved through an action plan to ensure
that each IFI puts in place the procedures and controls to
ensure that they reach the required levels.
This no or low-cost technical assistance “equity” should be
invested where financial incentives are greatest or encourage
development of smaller markets. Examples of technical
assistance funds for housing include funds from GTZ (German
Agency for Technical Cooperation) in Africa, SIDA (Swedish
International Development Cooperation Agency) in Central America
(see article by Irene Vance “Putting the ‘Housing’ Back into
Housing Finance for the Poor: The Case of Guatemala” in
this issue of in this issue of Global Urban Development
Magazine), and the IFC’s Housing Toolkit for Africa.
With a major increase in appropriate long-term funding,
investments in technical capacity and second-tier liquidity
facilities, private capital should have a substantial role to
play in developing the markets and institutions to serve the
bottom two-thirds of the income pyramid with housing finance
services across the emerging world.
Experience will be certainly different by country and
region. The strongest prospects for immediate growth may not
necessarily come from commercial banks alone, despite their
financial and management strengths. Business alliances among a
range of financial institutions (commercial banks, MFIs, housing
cooperatives, and credit unions) and home suppliers
(homebuilders, land developers, building materials
manufacturers, and retailers) are essential to reach these
markets at massive scale.
James Magowan is a Managing Director and co-founder of Housing
MicroFinance, LLC (HMF), a
company dedicated to developing housing markets in emerging less
developed countries, and is also the Chief Investment
Officer of Global Microfinance Group SA (GMG), a Swiss
holding company that builds financial services for
micro and small and medium enterprises in
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