managing risk.pdf
managing risk.pdf
managing risk.pdf
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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 quality<strong>risk</strong>s are significant (with portfolio at <strong>risk</strong> 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 <strong>risk</strong> 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.