EXPANDING HOUSING DOWN MARKET IN AFRICA THROUGH HOUSING MICROFINANCE Roland Igbinoba, President

1. EXPANDING HOUSING DOWN MARKET IN AFRICA THROUGH HOUSING MICROFINANCE Roland Igbinoba, President/CEO, Pison Housing Company @ The African Union of Housing Finance Conference � Maputo, Mozambique. 8th September, 2009.

2. Introduction Housing Crisis; - Supply Gaps (concept, finance, regulations etc) - Demand Gaps (finance, etc) The Finance Gap; - Analysis of the Gap - Housing Microfinance � a solution Options, instruments, structures, cases, etc PRESENTATION OUTLINE

3. INTRODUCTION In many African countries, a wide gap exists between housing needs and housing supply. In Nigeria for example, a backlog of 17 million housing units exist and it�s only able to supply, through the formal housing sector, 5,000 units per annum. In Uganda, there is also a backlog of 70,000 housing units with a national supply of only 5,000 units annually.

4. In Tanzania, it is said that there is a national shortfall of over 2 million housing units. In many countries, the problem is compounded by a complete lack of finance mechanisms for housing, and the failure to deliver enough houses is not just a social problem but a huge repercussion in terms of economic development. INTRODUCTION Contd�

5. Why is it a crisis? It�s a basic need � a welfare issue The sheer number of people involved in Afrcia i.e. % of population Therefore, the solution must be numbers driven! HOUSING CRISIS ?

6. A UN data shows that over 72 % of sub-Saharan Africans live in slums and squatter settlements without adequate shelter or basic services. The UN Millennium Project estimates that upgrading slums and meeting Goal 7, Target 11 of the MDGs on improving the lives of 100 million slum dwellers while preventing the formation of new slums will require investing US$4.2 billion per year or US$294 billion (US$440 per person) over the period from 2005 to 2020. SOME DATA�.

7. Experts say with the recent estimates, there are indications that the number of slum dwellers in developing countries would increase by more than two billion people over the next 25 years while these countries must employ a fast and sustainable way to curtail the problem. BUT�..

8. Housing microfinance functions by providing small, short-term loans to match step-by-step housing construction that poor people can afford. Technical support ensures that people get the best possible housing for their investments. This trend requires continuing development and professionalism, while complementing traditional and very effective group savings mechanisms. SOLUTION: HOUSING MICROFINANCE?

9. It appears that well managed housing microfinance is a better investment than those that led to the recent collapse of the American sub-prime mortgage market. It is pertinent at this juncture to differentiate the subprime market and Housing Microfinance. The recent global crisis has no direct relationship with Housing Microfinance. HOUSING MICROFINANCE VS SUBPRIME

10. The crisis has evolved as a result of compromise and/or undermined underwriting procedures by loan originators who aggressively pursued the �originate to distribute business model,� since these loans were not going to be on their balance sheet. The lessons for Africa therefore as a matter of strategic policy framework is that when we seek to move lenders down market, we should adopt policies that include a variety of financing methods and should allow for rental or purchase as a function of the financial capacity of the household and not undermine the origination standards. HOUSING MICROFINANCE VS SUBPRIME Contd�.

11. 140 million Nigerians 70 million (approx - 50%) active population Between 15 - 20 million are unemployed (UN CR) Over 40 million in low income / informal sector (CBN) Less than 10 million are in formal employment Between 1 � 1.5 million are civil servants Less than 500,000 are in high paying formal employment (banks, oil, telecoms companies MARKET PROFILING - NIGERIA

14. Focus of housing sector etc in developing nations should be the low-income people; WHY? - sheer number: 70 - 90% Nigerians - sheer volume : over 50% of total income/ economy (GDP) Prosperity of Africa is hidden in �informal sector� Still, traditional housing and housing finance players continue to ignore this core/ deep market / potential clients SUPPLY GAPS - Focus

15. Public sector funding is predominantly inadequate Available private sector funding are shallow & short term in nature Foreign capital not available SUPPLY GAPS � Finance

16. Policies that incentivize private sector participation are largely absent � taxes, capital markets etc Public sector too predominant in the sector. The public sector should rather be an enabler Strategy to attract foreign direct investment or multi & bi-lateral support to the sector not apparent SUPPLY GAPS � Regulatory

17. Poor or lack of basic infrastructures to support housing development adds to cost of housing SUPPLY GAPS � Infrastructure

18. Mortgage credit culture at best is poor Available mortgage alienates the poor & low income people Microfinance Banks are still young and currently focusing on working capital needs of poor Existing funding pool not adequate for mortgage DEMAND GAPS � Finance

19. Microfinance banks to be supported to offer micro Mortgage credit. For example in Nigeria the Central Bank microfinance policy does not cover housing microfinance DEMAND GAPS � Regulatory

20. HOUSING MICROFINANCE TO THE RESCUE! There has being a growing interest in housing microfinance in reaching down markets as it concerns housing provision globally. An insignificant part of the African region has tapped into this model but it is a model that the region needs to substantially invest in.

23. It is footwear; never fashion!

24. Loans to low-income people to finance housing needs Housing needs financed include: renovation of an existing; Expansion of an existing house i.e. add more rooms, fence, facilities etc; Buy land; Complete on-going building project i.e. roofing, painting; Start construction of a new house or buy a new house; HOUSING MICROFINANCE SOLUTION

25. Housing Microfinance Mortgage often progressive lending one time lending various housing needs buy or build not secured by property secured by the financed property financed cashflow lending collateral lending short / medium term long term 2-5 years over 10 years financing need may finance speculation HOUSING MICROFINANCE vs. MORTGAGE

26. FEATURE DETAILS Borrower Low income household Purpose Improve, expand or build or land purchase Loan Amount Ranges between $250 � $15,000 Capacity determined by income Tenor Between 2 � 5 years Repayment Regular instalments (weekly/ monthly) Delivery method Individual not group Collateral Usually uncollaterised but guaranties can be obtain if available Others Savings -driven Requires some technical assistance HOUSING MICROFINANCE SAMPLE STRUCTURE

27. GRAMEEN BANK, Bangladesh - started in 1983 and now has over 6 million customers, over 2,000 branches and close to 20,000 staff - started housing microfinance in 1984 - has disbursed $121 million to date to 637,000 borrowers - helped customers build 637,000 number of houses - customers build according to cost-efficient functional design/ technology specified by Grameen � houses cost between $300 - $600 - up to 5 years repayment period - concessionary interest @ 8% p.a. - recovery rate � 99% (same as total loan portfolio) CASES�.

28. ACCION�S NETWORK - commenced microfinance around 1973 and now serves over 2 million borrowers with over $2 billion, with partners in Asia, Africa, L/America - started housing microfinance in 2000 - has a portfolio of $54 million to 19,000 borrowers @ Mar 31, 2006 - projects over $80 million to 35,000 borrowers by Dec 31 2006 - microfinance products designed on progressive build concept i.e different loans for various stages of building process - currently developing affordable whole-house product - 18 � 24 months of repayment period - interest 50 - 70% p.a. - recovery rate � over 95% (similar to total microcredit portfolio quality) CASES�.

29. CAJA POPULAR MEXICANA, MEXICO -- started housing microfinance over 50 years ago but re-packaged and re- focussed 10 years ago - has current portfolio in excess of $90 million out of total loan portfolio of about $300 million - products � both house improvements and new construction loans - house improvements loans range $200 - $15,500 and construction loans range $5,200 - $31,000 - between 18 months to 5 years repayment period - interest 50 - 70% p.a. - recovery rate � 92% (even better than total average portfolio of 17%) CASES�..

30. MIBANCO, PERU IN ALLIANCE WITH BUILDING MATERIALS SUPPLIERS - Mibanco is a leading microfinance institution in Peru with customer base of about 150,000 and loan base of about $200 million - Mibanco started housing microfinance just in 2000 and now has almost $15 million portfolio - To push its housing finance product aggressively it has entered into alliances with country�s largest cement producer ; Roof manufacturer; association of lumber dealers and carpenters etc. - every one benefits � price discounts for customers, security for bank, more volumes for suppliers, dynamism and growth in real estate sector etc CASES�.

31. CEMEX CEMENT COMPANY IN ALLIANCES WITH PROSPECT HOME OWNERS - CEMEX is largest cement company in Mexico and second largest in North America - CEMEX original focus was upper/ middle market but later realised lower income market is deep and virgin - CEMEX created market for its cement among the poor and low income people + connected with need (right) of the poor to housing and created a demand for it; helped the people to create funding capacity i.e. informal savings and loan (microfinance); entered into alliance with other building materials suppliers for discounts; created a pool of construction consultants to assist the people technically - CEMEX charges for these services - CEMEXT within a few years experienced increasing and sizeable sales to this market which it considers a major growth area for its business which had suffered from competition CASES�.

32. Deep pool of funds Both domestic and foreign capital Inflow of long term funds Cheaper funds Stable funds SECURITISATION? � YES!

33. One of the 1st Microfinance Securitisations Issuer : BRAC Microfinance Issue date : July 2006 Amount raised: $180 million Tenor : 6 years Covered by : receivables from loans securitised Parties involved: - RSA Capital (Lead Arranger) - Citibank, FMO & KfW (co-arrangers and funders) - FMO & KfW cover Fx risk for foreign investment EXAMPLES�

34. A pioneer Housing Microfinance Securitisation: Issuer : Hipotecaria Su Casita (a housing finance company in Mexico) Issue date (1st) : 2003 (latest) : April 2007 Amount raised (1st) : $50 million (latest): $260 million Issues done so far : 9 About 40% of total funds raised committed to low income people Tenor : 5 years Involved experienced parties including FMO Source : FMO Journal (Upsides) �07 EXAMPLES�..

35. Risk assessment of underlying individual assets Legal & policy framework FX risk exposure management Rating Local capital market development Pricing Tenor SECURITISATION � Important Note

36. Real estate / Housing sector stakeholders must realise that until housing is made available for the bottom masses housing crisis can�t abate Designers / developers should design creative �economy� housing models affordable and accessible to low income market Government to enable private sector to lead rather than play direct in that sector MFBs should pursue housing microfinance products as a key product LESSONS FOR AFRICA

37. Government should encourage housing microfinance through legislative institutional framework development. Banks, real estate players/ builders/ building materials suppliers should club/ syndicate to tackle this virgin market MFBs and other firms providing housing microfinance to embrace �securitization� to deepen funding base LESSONS FOR AFRICA

38. Keeping their smile, and profitably too

39. Thank you