PRESS RELEASE: BSP Approves Housing Microfinance Product to Address Shelter Needs of the Economically Active Poor

Source: Bangko Sentral ng Pilipinas (BSP).

Original press release available here.

MANILA, February 15 – The Monetary Board has approved the Housing Microfinance product that aims to address the shelter needs of the economically active poor that are currently unserved by financial institutions. This Housing Microfinance Product involves the application of microfinance principles and best practices to the provision of housing finance for home improvements, house construction as well as house/ lot acquisition. The home improvement loans have a maximum of PHP 150,000 (USD 3700), similar to microfinance loans, while house construction and acquisition may be up to PHP 300,000 (USD 7400). In recognizing the product as a type of microfinance loan, it will also enjoy the incentives granted to regular microfinance loans such as no collateral requirements or the acceptance of collateral substitutes, as well as simpler documentary requirements. This addresses the usual barriers that the poor face in accessing housing finance. This approval provides a significant push to the government’s efforts of increasing pro-poor shelter and addressing the country’s housing backlog.

With this approval, banks with microfinance operations are provided the opportunity to complement their present microfinance operations by offering this new product, to reduce the risk of business loans being applied to housing and to diversify their portfolios. The housing microfinance loans will also be considered as alternative compliance to the mandatory credit allocation to agrarian reform and agriculture activities as required by Presidential Decree 717.

The Bangko Sentral ng Pilipinas (BSP) will enter into a Memorandum of Agreement with the Housing and Urban Development Coordinating Council (HUDCC) to agree on the accreditation criteria and standards that will be applied to the banks that will offer this product.

Careful evaluation was made to ascertain that specific risk management features are embedded in the product design. Some of these features include using a cash flow analysis to determine the client’s ability to pay, requiring a good track record as a microfinance client as well as collecting savings. In addition, due to some features that are slightly different from regular microfinance loans, additional risk mitigants were required for banks that will offer this product. One distinct feature is the possible use of secure tenure instruments as collateral substitutes. In the absence of a land title, these legal instruments effectively provide proof of legal use, possession or ownership of a property.

The product approval was given following the proposal by the Housing and Urban Development Coordinating Council (HUDCC) which is implementing a pro-poor shelter and housing microfinance program together with its partners, the Development Bank of the Philippines (DBP), key shelter agencies, participating banks, microfinance institutions and private developers. This program aims to improve the poor’s access to affordable shelter, secure tenure and basic services. A key component of the program is to address the demand for much needed loan facilities that are accessible, responsive and affordable for the poor.

Overall, the approval of this Housing Microfinance product will further increase pro-poor housing finance initiatives that are responsive and cater to the needs and affordability of the poor in a sustainable and non-subsidized approach. It is also seen as a powerful way to improve the living conditions of the enterprising poor and the low-income households which will contribute to better health, increased productivity and improved quality of life.

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