POWERING

INNOVATIONS
IN MICROFINANCE
conference on microfinance
July 24 - 25, 2008 * Asian Development Bank, Manila, Philippines
 Edited by Foxit PDF Editor
Copyright (c) by Foxit Software Company, 2004 - 2007
For Evaluation Only.

CONCURRENT WORKSHOP SESSIONS

Friday, July 25, 2008

11:00 a.m. - 12:30 p.m.

Early Experiences in Housing Microfinance Auditorium Zone A & B

Housing microfinance cater to the financing needs and affordability of the poor in a sustainable and non-subsidized approach. The practice
involves the application of microfinance principles and best practices to the provision of housing finance for home improvements, house
construction as well as house/ lot acquisition. It is seen as a powerful way to improve the living conditions of the enterprising poor and the low-
income households which will contribute to better health, increased productivity and improved quality of life.
This session will consist of presentations from Mr. Eduardo C. Jimenez, who was part of the Development of Poor Urban Communities Sector
Project (DPUCSP), which is an Asian Development Bank-assisted social housing and community development program jointly executed by the
Housing and Urban Development Coordinating Council (HUDCC) and the Development Bank of the Philippines (DBP). The DPUCSP presented
the Housing Microfinance Product to the Bangko Sentral which was approved last 14 February 2008. There will also be a presentation by Mr.
Ignacito Alvizo of Enterprise Bank, one of the early adopters of the Housing Microfinance Product of the DPUCSP. The session will be rich with
both concepts as well as practical applications of the housing microfinance.
Resource speakers: Facilitator:
Eduardo C. Jimenez, Microfinance Consultant, Pia Roman, Bangko Sentral ng Pilipinas
Bangko Sentral ng Pilipinas Documenter:
Ignacito Alvizo, Director, Enterprise Bank Noemi Bonaobra, Bicol Microfinance Council
HOUSING MICROFINANCE
and the
HOUSING MICROFINANCE
PRODUCT MANUAL

JULY 2008
 Outline of the Presentation

• Definition and importance of housing

microfinance
• Housing microfinance and mortgage finance
• Microenterprise lending and housing
microfinance
• Policy action plans for pro-poor housing
provision
• Housing Microfinance Product Manual:
Summary of Credit Policies and Procedures
 What is Housing Microfinance?

Housing microfinance involves the application

of microfinance principles and methodologies to
the provision of shelter finance and consists
mainly of loans to the poor and low-income
households for (i) home improvement/repairs, (ii)
housing construction, (iii) house and/or lot
acquisition, and/or (iv) access to basic
infrastructure or public services.
Source: Consultative Group to Assist the Poorest (CGAP), World Bank
Housing microfinance links mortgage finance and
microenterprise finance and constitutes a more
appropriate lending methodology for serving the
housing finance needs of the working or
entrepreneurial poor.

Housing Microenterprise
Mortgage Finance Microfinance finance
 Importance of Housing Microfinance
•Considered a non-subsidized, sustainable approach tailored to meet the
housing needs of the entrepreneurial and working poor
•Results in asset creation for the poor at the needed scale as demand for
social housing continues to grow
•Addresses poor cost recovery efforts in past government housing
programs and corrects market distortions caused by interest rate
subsidies
•Supports mass housing which has been reaffirmed as the centerpiece
program of government in poverty alleviation
•Increases the value of services received by MFI clients
•Increases transparency of MFI transactions by treating housing loans
distinctly from microenterprise loans
 Mortgage Finance and Housing Microfinance
MORTGAGE FINANCE HOUSING MICROFINANCE
•Bigger loan sizes •Loan sizes are smaller than mortgage
finance but larger than microenterprise
finance
•Requires a mortgage lien; full legal title •Works with paralegal or substitute titles
to property
•Formal employment sector; middle and •Low-income and informal sector
upper income households
•Long repayment periods (typically from •Repayment periods are shorter (often
15 - 30 years) 2-10 years; may be up to 15 years)

•Housing units are constructed •Fits the incremental building process

commercially and sold as a complete and self-help home improvement and
unit expansion needs of the clients
 Microenterprise Lending vis-à-vis
Housing Microfinance
Typical Microenterprise Loans Housing Microfinance Loans

•Loan affects borrower’s income •Loan affects borrower’s asset base and
may impact income (home based
enterprises)
•Offer smaller loan amounts •Relatively larger incremental amounts

•Lending methodology can be individual •Usually individual loans

or group loans
•Repayment capacity often based on •Repayment capacity based on
generation of future income borrower’s current income
Policy Initiatives to Accelerate Pro-poor Housing
 Forms part of the inter-agency policy action plan
developed in October 2002 (Urban Land Reform
Conference)
 Improving the proclamation, land conversion and registration
processes for pro-poor housing
 Distributing secure tenure through rights-based secure tenure
approaches
 Adopting appropriate methodologies to make shelter financing
more catered to the needs of and more affordable to the poor.
 Housing microfinance is one of the key initiatives
 Approval of DPUCSP>>> ADB/HUDCC/DBP Partnership
 Submission by HUDCC of Policy Paper and Housing
Microfinance Product Manual to the BSP
Policy Initiatives to Accelerate Pro-Poor Housing
 BSP/Monetary Board approval on February 14, 2008
 Signing of MOA between BSP and HUDCC on April 2,
2008
✓ Define the roles and responsibilities of the BSP and
HUDCC in the implementation of the program
✓ Set the applicable accreditation standards and procedures
for banks that will be offering housing microfinance
services to their existing or new low-income clients.
 Housing Microfinance Product:
Summary of Credit Policies and Procedures
ELIGIBILITY CRITERIA
Existing Clients :
• Must be an active borrowing member for at least 2 years
• Consistent 95% repayment record and at least 90% attendance in center meetings if
applicable for the past 2 years
• Should have an operating and earning enterprise
• With other verifiable sources of income
• Capacity to put up the required equity
• For housing construction and house and/or lot acquisition, with tenure security or proof of
legal use, possession or ownership of their residence (for both house and lot, when
applicable)

New Clients:
• Generally, low-income earners with no access to conventional home finance institutions (e.g.
Pag-IBIG, SSS, GSIS)
• With verifiable proof of regular income and savings
• Capacity to put up the required equity
• Willing to participate in all activities that will be undertaken within the framework, systems and
principles of microfinance such as training and transformational activities
• For all housing microfinance loan types, with tenure security; proof of legal use, possession or
ownership of their residence (for both house and lot, when applicable)
In the context of housing microfinance, a client or
borrower has secure tenure when the following
conditions exist:

• The client has legal use, possession or ownership of

the property at the time the loan application is made or
will be acquiring those rights because of the loan

• It is determined that the client will not be forced to

vacate the property during the time it takes to repay the
loan; and

• The client’s right is supported by valid proof or legal

documentation.
 Summary of Credit Policies and Procedures
LOAN TYPES AND PURPOSES

Home improvement/ • finance improvements (both major and minor) to the

repair loan structure of the home, including but not limited to replacing
doors, windows and roof, adding rooms, installing utilities,
toilet facilities, connection to basic services, painting,
repairing walls, ceiling or floors, replacing foundations and
building second floors above the client’s businesses

New housing • finance the construction of a new house on a lot owned

construction by the borrower;
• finance the purchase of housing materials in relation to a
planned housing project

House and/or lot • finance the purchase of serviced land parcels for
acquisition loan individual households
• purchase of an existing house (includes acquisition of a
house or unit such as those in a low-cost or socialized
housing subdivision)
 Housing Microfinance Product:
Summary of Credit Policies and Procedures
LOAN SIZE
Determining Factors:
• Purpose of the loan: House repair, construction, or house and lot purchase

• Client’s capacity to repay: Demonstrated ability to repay based on the

household income; a benchmark for affordability is that the loan payment
should be less than or not exceed 60% of the client’s income as determined
by an analysis of the client’s total household cash flow.

• Amount of savings with the MFI: The amount of savings a client has in the
bank can determine the maximum loanable amount that he/she may be
entitled to during a particular loan cycle.

• Type of tenure security for collateral: The type of tenure security or legal
right enjoyed by the client over the house and/or lot may be used to
determine the value of the loan
 Summary of Credit Policies and Procedures
TERMS AND CONDITIONS OF LOAN
Home Improvements House Construction House and/or Lot
Purchase
Depends on the project cost (typically higher than the average enterprise loans)
MINIMUM AMOUNT

MAXIMUM AMOUNT P150,000 P300,000 P300,000

LOAN TERMS Up to 5 years Up to 10 years Up to 10 years

Market-based Market-based Market-based
INTEREST RATES Home improvement loans Loans for housing construction and house and/or lot
may have the same or acquisition that have longer terms may have lower
lower interest rates as interest rates than short-term enterprise loans
enterprise loans

DELIVERY
Provided to individuals rather than groups
METHODOLOGY Groups or Individuals

REPAYMENT Daily, weekly, semi- Daily, weekly, semi- Daily, weekly, semi-
TERMS monthly, monthly monthly, monthly monthly, monthly
 Summary of Credit Policies and Procedures
TERMS AND CONDITIONS OF LOAN (continued)
Home Improvements House Construction House and/or Lot
Purchase

•Co-maker Same as home improvement lloans; other guarantees

•Savings
GUARANTEES • Household goods and
business assets
•Spouse’s signature
•Postdated checks
•Assignment of insurance
proceeds
•Land, property rights
•Government guarantees
may include the mortgage or assignment of:
• Land title (OCT/TCT)
• Deed of Sale
• Contract to sell
• Other proof of ownership such as tax declaration,
order of award, sales / free patent
• Proof of legal use and possession such as
usufruct, lease contract, certificate of entitlement
for lot award and other rights-based instrument

If the loan funds are not used for the purpose applied for and approved by the
PENALTIES bank, the loan shall be automatically become due and demandable

OTHERS •Clients will be required to open an account with the bank

•Qualified clients will be allowed to have simultaneous loans provided they have the
ability to pay both loans
 Summary of Credit Policies and Procedures
LOAN PROCESSING
Loan Application • Borrower prepares and submits loan proposal to the Account Officer
(AO). AO assists the borrower where necessary.
• Payment of loan application fees, if any.

Loan Appraisal •The bank will base credit decisions on a client’s demonstrated
capacity and willingness to repay as determined by a detailed analysis
of the client’s financial situation.

Loan • Completion of basic loan documents must be done before loan can
Documentation be disbursed.

Loan •The Account Officer makes a recommendation.

Recommendation • Approval is done at the Branch Level (Credit Committee)
and Approval
Loan disbursement • Directly to the client, either through the client’s account with the bank
or a check unless a different arrangement is agreed upon by the bank
and client.
• Must be disbursed within 5 working days from time of application
 Summary of Credit Policies and Procedures
LOAN PROCESSING (continued)

Loan Monitoring •Conduct of loan utilization checks

(current loan)

Loan Collection •Zero tolerance to arrears shall be strictly observed

(Past due loan) •For home improvement loans, the bank will follow BSP Circular No.
409
•For housing construction and home acquisition loans, the bank will
apply Appendix 18 of the Manual of Regulations for Banks.

Reporting •Generation of up-to-date reports on loan portfolio and client status

 Summary of Credit Policies and Procedures
INTERNAL CONTROL

• An efficient internal control system is essential for

managing financial and operational risks, in particular the
risk of fraud.

• Compliance with the bank’s internal control policies as

contained in the internal control and/or audit manual of the
bank.
 Summary of Credit Policies and Procedures
MANAGEMENT INFORMATION SYSTEM (MIS)

• An MIS that can handle a new product, use differing

repayment schedules such as weekly versus monthly, service
clients with more than one loan outstanding at any one time,
and handle longer loan terms.

• Covers the entire loan process from client information,

investigations, loan appraisal, loan recommendation and
approval, repayment schedule, loan disbursement,
repayment/savings transactions, and post-loan performance
analysis.
 Loan Loss Provisioning

•For home improvement loans that are similar to

microfinance loans, BSP Circular No. 409 will apply.
•For HGC guaranteed loans, HGC guidelines will govern.
•For all other loans, general loan loss provisioning rules
will apply (Appendix 18, Manual of Regulations for
Banks).
 Key Reforms and Features Approved by the BSP

• Distinguishes housing microfinance loans from

microenterprise loans but entitled to the same incentives
as microfinance loans
• Authorizes bank MFIs to provide lot acquisition, house
and lot acquisition, and home improvement loans to
clients up to 90% of appraised values
• Allows banks to give non-collateralized housing
microfinance loans and/or to accept collateral substitutes

• Alternative compliance to Agri-Agra Law (PD 717)

• Availability of HGC guarantee (0% risk-weighting of loan
assets)
MICRO HOUSING
LOAN PROGRAM
Enterprise Bank’s
Beginnings

• Founded on May 10, 1976

• Lianga, Surigao del Sur

• Mission:

To provide credit to local

businessmen and spur economic
development in Lianga
Enterprise Bank’s
Beginnings

Founding Name
New Rural Bank of Lianga

Manpower
Compliment

11 employees
 EBI today

Enterprise Bank, Inc. has Davao Branch

expanded to a network of 10
branches and 16 service
outlets all over Mindanao,
with a total manpower
complement of 368
employees as of June, 2008

Head Office
 The core values of hard work, loyalty,
sense of belonging and commitment have
sustained EBI for 32 years.
Personalized service to every client’s need
will carry the bank through the years
ahead.
Loan Products

Small Business Lending

Microfinance

Consumer (Salary) Loans

 Portfolio – 617 M
as of May, 2008

Php109 M
Small
Business
Php146 M
Loans Microfinance
(18%)
(24%)

Php361 M
Consumer Loans
(58%)
EBI’s Flagship
Product

Kalisod Mo, Tabangan Ko

A credit program which
adopts the basic Grameen
Bank model of solidarity
lending, paved the way for
EBI to become a leading
microfinance institution in
Mindanao today.
KMTK Microfinance Loan Products

• KMTK Regular - Livelihood

• Microfishing
• Micro agri
• Micro transport
• KMTK E-load (Smart, Globe and Sun Cellular)
• Health Plus (generic drug distribution)
• KMTK Kahayag (solar panels)
• KMTK Pabahay (home repair and improvement)
 The KMTK – Pabahay Program
(Micro Group Housing)

Objective:

Provide KMTK Clients with access to credit with

flexible terms and effectively utilize the proceeds for
house repairs and other improvements that will make
their homes more habitable and fit to live in.

EBI believes that a decent home will enhance

the clients’ well being and ultimately, their
ability to sustain their livelihood and capacity
to pay off their loans.
 KMTK Pabahay priority projects:

• Building and repairs of toilets

• Construction or de-clogging of septic tanks

• House repair and improvements or building

of additional room
 KMTK Pabahay priority projects:

Walling, ceiling, roofing, flooring,

replacement of foundations,
drainage, fencing, gate
construction, plumbing

Connections to basic services like water

and electricity
 Product Updates

Product launched on June 30, 2006

1,141 clients as of May, 2008

Php 4,959,791 portfolio

Currently implemented in Tagum, Davao,

Cagayan de Oro, Tandag, Butuan and San
Francisco (Agusan del Sur)
 Features of the KMTK- Pabahay Loan
Loanable Maximum P25,000.00
Amount
Minimum P5,000.00

Average P6,000
(based on the most frequently issued loan size)

Loan Terms 6-12 months (with options to preterminate or

pay in advance
Interest Rates 24% per annum

Other Fees Service Charge 5% of the loan

Gross Receipt Tax 7%

Repayment Terms Weekly

Loan Disbursements 70% of the loan amount is provided in the form

of materials
30% in cash
 Who are eligible to avail
• No past due account upon application

• Attendance rate is at least 80%

• 18 to 60 years old

• Resident of a 1st Class Municipality

• A bonafide KMTK Class A client for 1 year with continuous

availment and savings of not less than P3,000
• Borrower owns the property being upgraded
• If rented, must have a valid lease contract during the entire
period of the loan
 Early Challenges

• MIS of the bank

The system could not separate the micro housing
product from the livelihood loan; the information had
to be extracted manually.

• Quarterly loan payment scheme was

difficult to monitor
Hence, the bank decided to change the loan payment
into weekly, along with the payment for the livelihood
loan.
Early Challenges

• Capacity of AO to market the loan product

Marketing house repair loans was extra load to AO thus
affecting their productivity and efficiency.

To resolve this, the bank created a separate unit that

handled the marketing, client evaluation and
monitoring of housing loans.
Success Factors
• Top to bottom involvement of the EBI
management in product development
and implementation

• Clear target market and eligibility criteria

• Control measures

The Bank imposes a Maximum Credit Limit (MCL)

using the formula “amount of savings x 230%”.

This ensures savings as well as fair and

transparent administration of the loan

The 70-30 disbursement prevents the loan

from being diverted to another use.
Success Factors
By understanding client needs,
demand and preferences, EBI
was able to design a demand-
driven loan product that
complements the KMTK
Livelihood Program and meets
the clients’ need for access to
credit for home improvements.
 “microfinance - the core of
our institutional strength -
is also our invaluable tool
and meaningful participation
in helping eradicate poverty”

IGNACITO U. ALVIZO
Founder, EBI
Thank you.
Edited by Foxit PDF Editor
Copyright (c) by Foxit Software Company, 2004 - 2007
For Evaluation Only.