managing risk.pdf

Managing Risk and Creating Value with Microfinance73• Lower administrative costs per amount lent, as a result of longer loan terms• Increased loyalty and relationships between the customer and the MFI because customers and theirfamilies hold strong emotional attachments to their homesDesigning a New Housing Microfinance ProgramThe experiences of these MFIs and others have led to a number of general insights in the design anddelivery of a housing microfinance product. An MFI wishing to design a new housing microfinanceproduct should begin by assessing whether the new product is consistent with its mission and whetherthe product will further its goals and objectives (see also box 5.1). The MFI should further decidewhether the incremental lending methodology is consistent with its own lending methodology andtechnical assistance facility and how this new product will affect current clientele. This assessmentshould further include an evaluation of the competition (or potential collaborators) and the legal and regulatorycontext. The MFI should have a well-established liquidity management system in place.Box 5.1 Can Gender be a Factor in a Housing Microfinance Program?In housing microfinance, it is difficult to establish a separate loan category based on gender—unlike othersolidarity or communal banking programs. For the most part, a loan is made to the person who holds the tleto the house or land. Gender is not relevant. The loan is based on the household’s current income. However,in most MFIs, women tend to benefit more than men because they represent a lower credit risk.Source: Authors.Given the maturity of housing microfinance products, the MFI will need access to long-term funding. Thisaccess will avoid maturity mismatch between its liabilities and its housing loan portfolio. Finally, the MFIshould assess whether the new product will increase operational expenses, require new staff members, or leadto important systems changes.The MFI could also establish strategic business partnerships with suppliers of building materials, as in the caseof MiBanco in Peru and FUNHAVI in Mexico. Those partnerships should lead to lower costs for the borrower.In MiBanco’s case, this arrangement might evolve into financing partnerships and enhance the lender’s abilityto reach more potential borrowers. With FUNHAVI, the partnership has led to low-cost integrated technicalassistance on design, building materials selection, and construction inspection.Step 1: Assess the market 5Recent experience provides some lessons learned in the design and management of a housing microfinanceloan program. For example, the design of the product should begin with a market assessment. This assessmentshould develop a household survey and include the following: 65. This section is adapted by authors from Ferguson (2004).6. Ferguson 2004.