Philippines: Banks to start offering housing microfinance loan product

Apr 2008
Philippines, April, 03 2008 - Low Income earners may now take advantage of another affordable housing loan product after the Bangko Sentral ng Pilipinas (BSP) and Housing and Urban Development Coordinating Council (HUDCC) sealed an agreement to implement the housing microfinance program.

The signing of the agreement came after the central bank approved the housing microfinance loan product last February, which was proposed by the HUDCC.

The memorandum of agreement sets the applicable accreditation standards and procedures to determine the capacity of banks that would like to offer this loan product to their low-income clients.

Under the terms of the agreement, the implementation of the housing microfinance program will be patterned initially on the design framework of the Development of Poor Urban Communities Sector Project, a government social housing and community development program being executed jointly by HUDCC and the Development Bank of the Philippines (DBP). Asian Development Bank also provided technical assistance as well as $30 million in concessional loan for the development of the program.

The housing microfinance program allows poor households to avail of housing loans in small loanable amounts, higher frequency of payments to make the loan product much more affordable, and less documentation requirements.

The program offers a maximum loanable amount of P150,000 for home improvement and repairs, and P300,000 for house and lot acquisition.

The program also provides incentives to encourage banks to participate. Participation in the program can serve as alternative compliance to the mandatory credit allocation to agrarian reform and agriculture activities, as required by Presidential Decree 717. Banks can also use simpler documents for loan applications and accept collateral substitutes in the absence of a land title.

Risk assessment of the loans will be the same as the usual real estate loans, with 50% risk weighting since the central bank does not consider housing microfinance as "high risk" due to high repayment rate and low past due rate of 4%.

Banks that want to offer the product would have to be accredited by the HUDCC and DBP.

BSP Deputy Governor Nestor A. Espenilla said the country was among the first to integrate the principles of microfinance to housing loans that was previously applied only to microenterprise financing.

He also said rural and thrift banks are the ones that will likely be interested, given their experience in this kind of lending.

There are an estimated 10 million individuals living in makeshift dwellings, while the government’s housing backlog stands at around 1.93 million.


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