Asian Pacific Union of Housing Finance Conference Housing Finance: New Approaches for Access to Finance

1. Asian Pacific Union of Housing Finance ConferenceHousing Finance: New Approaches for Access to Finance • April 11, 2013 • Ira G. Peppercorn • Housing Finance Group • Finance & Private Sector Development

2. Shortage of Affordable, Safe Housing World Urbanization in 2010 – 50.5% Slum Dwellers grew from 777mm to 850mm 2000-2010 Positive factor: 227 million moved from slums; doubling MDG goals World needs 4,000 houses an hour to keep up with demand (UN-Habitat)

3. Nairobi

4. Why Does Housing Finance Matter for the World Bank and its Clients? • Many households aim to improve living conditions and are in need of finance; self construction often slow • Housing Finance helps make long term investment into housing more affordable and accessible for households • Housing Finance can help to support housing demand which is a key economic driver and job creation engine

5. World Bank: Critical Factors for Development of Housing Finance Markets • “Value for Money”, i.e. maximize the impact of public resources, leveraging government initiatives with the involvement of the private sector, with the goal of achieving a higher multiplier • Coordination, i.e. ensure the coordination between administrations and public/private sectors, to maximize the efficiency and effectiveness of the programs • Public sector role, i.e. from provider to enabler of housing • Inclusive housing finance, i.e. include non-salaried borrowers • Progressivity, i.e. ensure an equitable allocation of resources • Incremental housing, i.e. consider alternative instruments and mechanisms to promote incremental housing products

6. Rising Demand is not Matched with Access to Finance • The mismatch in housing finance market development is evident across regions, with North America, and East Asia and Pacific regions showing the highest mortgage depth and penetration, and South Asia and Sub-Saharan Africa the lowest. • Though the fastest growing urban cities are located in South Asia and Sub-Saharan Africa, these regions currently have relatively underdeveloped mortgage markets.

7. Development Challenges-Access to Finance • For lower income economies there is much greater reliance on informal sources of financing, e.g. family or friends • Home Loan Penetration by use of formal accounts – Adults ages 25+ with an outstanding loan to purchase a home or apartment Source: 2012 Global Findex Survey

8. Challenges in Serving Low Income and Informal Borrowers (i) • A large part of the population has non-salaried income, whose creditworthiness cannot be verified using conventional techniques • The existence of a large part of the population that cannot afford the down payment needed for a mortgage • The inexistence of deep and stable capital market that provides easy access to long term funding • Lack of suitable products in area of rental, self-construction and home improvement finance • Policy actions often not consistent with stated policies: i.e. low income policies and interest rate subsidies used with mortgages • Legal and regulatory structure often undeveloped or ineffective • Differentiation between regulation of mortgage finance and microfinance

9. Challenges in Serving Low Income and Informal Populations (ii) • Shortage of safe, affordable housing • Many properties informal without title: lack of asset security • Inconsistent or nonexistent standards for safe building • Land and permitting regulations and processes inefficient • Availability of inexpensive land in city centers • Lower cost housing often far from urban core • Infrastructure not always developed

10. Port au Prince

11. Moving to Solutions: Some of World Bank Current and Forthcoming Partnerships • India: Funding and technical assistance for mortgage and housing microfinance for low income people • Bangladesh: Cooperative housing finance for slum upgrading • China: Financing and managing public and social housing • Ecuador: Subsidy restructuring, construction finance for affordable housing, and access to finance • Egypt: Liquidity facility and smart subsidies • Indonesia: Subsidy effectiveness, expand mortgage market, public rental housing and housing microfinance • Tanzania: Funding and technical assistance for housing microfinance

12. Low Income Housing Finance Project - India • $100 million World Bank Financial Intermediary Loan Funder through IDA • National Housing Bank is implementation agency • Funds flow to housing finance corporations and micro finance institutions • Distribution partnership with Small Industries Development Bank • Target population: Income under Rs 15,000 • Main target: formal property; informal income • Microfinance will be used • Pilot projects for informal/informal • Technical assistance key component

13. Example: India Low Income Housing Finance Project High Income 75% of population 3% of housing loans EWS, LIG Low Income

14. India - Distributional benefits of expanding access to finance

15. Delhi

16. Benefits of Increasing Financial Tools to Low Income People • Low income people can enter formal financial markets • Increase in demand through finance can motivate increase supply • Houses can be improved or constructed faster and more efficiently • Rental housing can be a component of home expansion • Can integrate safety standards into loans • Jobs can created in construction industries • Improvement in housing can mean an improvement in people’s lives

17. Thank YouDownload: Peppercornand Taffin, Rental Housingatdocuments.worldbank.orgContactInformationMichel Noel, Manager, Non-Bank Financial InstitutionsMnoel@worldbank.orgAlfonso Garcia Mora, Lead Housing Finance SpecialistAgarciamora@worldbank.orgSimon Walley, Housing Finance Program CoordinatorSwalley@worldbank.orgIra Peppercorn, Senior Housing Finance SpecialistIpeppercorn@worldbank.orgTuo Shi, Housing Finance SpecialistTshi@worldbank.org