managing risk.pdf

70 Chapter 5 - Progressive Housing Microfinance: One Room at a Timetied to on-time repayment. For example, a World Bank–sponsored land fund project in Honduras rewardedborrowers who had a perfect on-time repayment record with savings held in accounts established at the startof the loan cycle. Subsidies could also be linked to technical assistance, to lengthen the grace period (loweringthe effective interest rate).Subsidies can serve other important purposes for MFIs and their clients. For example, MFIs might wantto use the subsidies to cover land and title formalization processes. Subsidies can also pay for investment innew technologies, thereby lowering loan delivery costs over time (Painter, Campa Sole, and Moser 2006: 18;Robinson 2002).The Role of Government and Risk ManagementMost governments in Latin America have adequate policies for housing microfinance products. However,to mobilize sufficient capital to meet the growing demand for housing microfinance, MFIs and governmentregulators must meet the challenge of reducing risks, especially after a natural disaster. By reducing the risk oflending to the poor, governments encourage private sector lenders to enter the market. To that end, governmentregulation should be neither premature nor heavy handed. Governments should avoid interventions thatdistort the market. Governments can also encourage private sector lenders to enter the market through specialprograms in underwriting, marketing, servicing, and collateral guarantees.Examples from Latin AmericaExperiences in Mexico and Peru demonstrate that housing microfinance can be a profitable business. As thoseexamples show, the average loan size is larger, the loan term is longer, and yet, the outstanding loan portfolio isoften smaller than microcredit for working capital. Creative alliances with services providers (such as buildingmaterials providers, universities with architecture and engineering students, and supermarkets) can makehousing microfinance more affordable and can streamline repayment.Housing and Habitat Foundation in Mexico (FUNHAVI)As microfinance has grown and become more sophisticated, housing microfinance has expanded. As of 2007, forexample, the housing portfolio of the housing pioneer Cooperative Housing Foundation (CHF International)included US$16.2 million out of a total portfolio of US$79.4 million in 11 countries. CHF Internationalprovides housing loans and technical assistance. Its credits range between less than US$1,000 to more thanUS$3,000. The repayment periods are between 12 and 18 months. 3One of CHF International’s most successful programs is the Housing and Habitat Foundation (FundaciónHabitat y Vivienda A.C., FUNHAVI). Established in 1996, FUNHAVI began as a pilot program to supportcommunity banks and provide health services to the newly arrived workers in the assembly plants (maquilas)in Ciudad Juárez, Mexico. Two years later, recognizing a growing need for housing, FUNHAVI implementeda full-scale housing microfinance program. Loans range from US$510 to US$2,590, with an average loansize of US$1,550. During its first 10 years, FUNHAVI made loans worth a total of US$8.2 million to morethan 5,300 low-income families. FUNHAVI now operates in three locations in Ciudad Juárez and one in3. See CHF International, http://www.chfinternational.org.