The Bangko Sentral ng Pilipinas (BSP) has approved a housing loan scheme that would allow low-income borrowers access to micro-financing to build low-cost houses.
The scheme, which also provided incentives for banks and micro-finance institutions, would allow for small loans that borrowers could be paid in frequent but small amounts.
BSP Deputy Governor Nestor Espenilla Jr. told reporters over the weekend that the micro-loan model has been tried and tested among low-income borrowers already used to schemes such as the traditional paluwagan and hulugan models.
“To start with, housing loans already have a very high repayment rate,” Espenilla said. “It’s in the culture of the Filipino to want to own a home and not to lose it.”
According to Espenilla, the scheme approved by the BSP would allow low-income borrowers to access financing from formal financing institutions that they otherwise would not be able to access.
The Housing Microfinance product, Espenilla said, would address the shelter needs of the economically active poor that were currently not being served by financial institutions.
Espenilla explained that the Housing Microfinance product involved 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.
Espenilla said the home improvement loans have a maximum of P150,000, similar to microfinance loans, while house construction and acquisition may be up to P300,000.
As an incentive to participating financial institutions, Espenilla said the product would be classified as a type of microfinance loan which would 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,” he said.
Espenilla said the BSP’s Monetary Board has also agreed to allow housing microfinance loans to be considered as alternative compliance to the mandatory credit allocation to agrarian reform and agriculture activities as required by PD 717.
To implement the program, Espenilla said the BSP would enter into a Memorandum of Agreement with the Housing and Urban Development Coordinating Council (HUDCC). He said they would agree on the accreditation criteria and standards that would be applied to the banks offering this product.
According to Espenilla, the specific risk management features have been 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 were slightly different from regular microfinance loans, Espenilla said additional risk mitigants were required for banks that would offer this product.
“One distinct feature is the possible use of secure tenure instruments as collateral substitutes,” he said. ”In the absence of a land title, these legal instruments effectively provide proof of legal use, possession or ownership of a property.”
Although large commercial banks are not expected to be able to engage in housing micro-financing, Espenilla said the BSP expected significant take-up among rural and cooperative banks as well as micro-finance institutions that already exist.
“These institutions already have the capability and expertise in giving out small loans and undertaking the close supervision that it would require,” he said.
“The idea is for low-income but economically active borrowers to be able to secure the loan that they could pay back in small amounts with higher-than-usual frequency,” he said.