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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.
Managing Risk and Creating Value with Microfinance71the city of Chihuahua, and plans to open three more locations in the following year. It is noteworthy that theprogressive housing loans are small (average loan balance of US$716), but the short-term portfolio qualityrisks are significant (with portfolio at risk over 30 days over 30 percent). Table 5.2 shows standard performanceindicators as of December 31, 2007.Table 5.2 FUNHAVI Performance Indicators, December 31, 2007Number of acve loans 1,138Value of loansUS$866,516Average loan balanceUS$716Loan porolio as percentage of total assets 75.6Women as percentage of total borrowers 40Porolio at risk over 30 days (percent) 30.2Source: CHF Internaonal, hp://www.chfinternaonal.org/.FUNHAVI’s success is based on a simple, streamlined three-step process that includes technical assistance, theinnovative use of partners, and the necessary safeguards to minimize credit diversion and misuse of funds. Theloan preparation process lasts no more than 15 days. Households must demonstrate a monthly income of twicethe minimum wage. No savings or credit history is required, but the client must be able to show recent paystubs, provide the name of a guarantor, and offer proof of land (a less stringent requirement than formal landtitle). In addition, the community where the house is located must be stable. It cannot be in a flood plain, closeto a river, or subject to intensive erosion.Technical assistance consists of a 30-minute educational presentation to ensure that clients understandtheir rights and responsibilities and basic information about suppliers and budgets and a visit byan architect who reviews the construction plans and provides a budget for materials and labor. Thearchitect’s service fee of US$22 is the only charge in the loan preparation process. Most households takeadvantage of the architect’s service. Very few clients leave the program after this stage (Daphnis et al. 2002;Goldberg and Motta 2003; Schumann 2008).SOFOLs in MexicoAnother successful example of the growth of the housing microfinance market in Mexico is the LimitedObjective Financial Society (Sociedad Financiera de Objeto Limitado, SOFOL). The SOFOLs emerged outof the reorganization of the financial sector that resulted from the North American Free Trade Agreement.In the past decade, they have grown to cover a significant part of the housing microfinance market.SOFOLs are specialized financial institutions that grant mortgages and consumer, automotive, agricultural,and working capital loans, among others. They serve the middle- and lower-income market. When mortgageSOFOLs began operations, there were no sources of funds. In December 1994, the “Tequila Crisis” resultedin the biggest economic crisis in Mexican history and the collapse of the Mexican banking system. Becausethe SOFOLs were just starting operations, they had no loan portfolio and were not affected by the crisis. Asa result, the mortgage SOFOLs soon became the sole intermediaries of government-sponsored mortgageproducts.
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Eco-AuditEnvironmental Benefits Sta
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