Housing Microfinance Product

MEMORANDUM NO. M-2008-015

To   : ALL BANKS

Subject : Housing Microfinance Product

The Monetary Board in its Resolution No. 185 dated 14 February 2008 has approved the Housing Microfinance Product pursuant to the terms of the Housing Microfinance Product Manual, which include, but not limited to, the following:

a. Banks that want to provide the facility must be accredited by the Housing and Urban Development Coordinating Council (HUDCC) governed by the terms of Memorandum of Agreement (MOA) between the Bangko Sentral ng Pilipinas (BSP) and the HUDCC on the accreditation criteria and conditions that will be signed following product approval; and

b. Banks that want to provide housing microfinance not under the said program have to present the relevant product manual for BSP consideration and approval.

The approved product has the following salient features:

1. It has the following basic characteristics:

Subject

Particulars

Purpose

House construction

House and/or lot acquisition

Home improvement/repairs

Eligibility

Existing microfinance clients

New clients without access to formal housing finance institutions (but with verifiable proof of income)

Loan Amount

Up to P300,000 for house construction and/or lot acquisition (must show tenure security)

Up to P150,000 for home improvement/repairs

Loan Value

Up to 90% of the appraised value in case of REM

Acceptable valuation in cases of usufruct, leases, etc.

Capacity to pay based on cash flow analysis

Payment

Frequent amortization

With savings component

Loan payments should not exceed 60% of clients income as determined by cash flow analysis

Terms

Up to 10 years for house construction and house and/or lot acquisition

Up to 5 years for home improvement/repairs

2. The product shares the characteristics of the microfinance loan except for the following:

a. The maximum loan amount is PhP 300,000 (microfinance loans have a maximum of PhP 150,000)

b. The loans have longer terms with a maximum of five years for home improvement/repairs and ten years for house construction and house/lot acquisition.

c. While most clients for housing microfinance are existing microfinance clients who have demonstrated a track record with the financial institution, new clients may also be accepted subject to certain requirements.

d. For House construction and house/lot acquisition loans, secure tenure instruments will be used as collateral.

3. Due to the features that are different from the typical microfinance loan, the following additional risk management features are embedded in the product:

a. Clients ability to repay based on cash flow analysis and affordability (loan payment < 60% of income) especially the new clients. In addition, the new clients have to demonstrate that they can not access any other formal housing finance facility;

b. Savings typically a requirement;

c. Secure Tenure instruments as collateral/ collateral substitutes;

d. Additional risk cover may be availed from HGC cash flow guarantee program;

e. Adequate loan monitoring, collection, control, provisioning;

f. Accreditation from the HUDCC with standards approved by the BSP and formalized by a Memorandum of Agreement between HUDCC and BSP to be signed following the approval of the proposed product; and

g. Mortgage redemption insurance provided in case of death and permanent disability.

The Monetary Board approved the following incentives in addition to existing incentives available for microfinance:

a. Housing microfinance loans shall be eligible as alternative compliance to mandatory credit allocation to agrarian reform and other agricultural credit.

b. The loans shall have an assigned risk-weight of 50% risk when not guaranteed and as low as 0% when guaranteed by the Home Guarantee Corporation (HGC).

c. When the volume of loans achieved a desirable level, business transaction by larger banks (i.e. securitization, outright purchase, etc.) shall be considered as an alternative Agri-Agra compliance.

d. For housing microfinance loans secured by REM, a 90 percent loan valuation may be allowed considering the guarantee component.

e. Secure tenure instruments such as freehold, usufruct, leasehold and right to occupy and/or build shall be recognized as collateral/collateral substitute subject to approved loan valuations (Annex “A”).

f. Housing microfinance loans shall not exceed 30 percent of the total loan portfolio.

g. Recording of portfolio at risk (PAR) and the provisioning requirement under Circular 409 for home improvement/repairs. Provisioning for house construction and house/lot acquisition follows those of regular loans under Appendix 18 of the Manual of Regulations for Bank (MORB).

In addition, the Monetary Board requires that the banks which will adopt the Microfinance Housing Product must meet the following:

1. Loan product is included in the bank’s microfinance manual as one of the types of services or products offered to prospective clients; and

2. The housing microfinance product must have sub-control ledger.

For information and guidance.

NESTOR A. ESPENILLA, JR. Deputy Governor