home - african union for housing finance - building viable and … · mortgage loans limited to no...
TRANSCRIPT
Subrata Dutta Gupta
Dr. Friedemann Roy
Thierno Habib Hann
IFC – Financial Institutions Group
Building Viable and Sustainable
Housing Finance Operations in
West-Africa
Learn how to design, implement and manage affordable
housing finance products in a given market in West Africa
Products
Operations Funding
Risks
Course objective
Outcomes/results
3
• Capable of designing right product for a given market segment in a
given country in Africa
• Understand how to underwrite and service mortgages for informal
borrowers
• Increase knowledge of risks in housing finance and funding
instruments
Proposed target group of course: affordable segment
4
Access to regular
mortgage loans
Limited to no
access to
mortgage loans
Community
based shelter
funds, savings
Upper:
(Formal income, legal title)
Moderate to lower:
(Formal/informal income
Legal title/no legal title)
Low income group:
(informal income, no
legal title)
4
5
Definition of affordable segment
Households with stable
incomes which could be formal
or informal:
• Self-employed not
professional
• Salaried employees
• Micro-entrepreneurs
6
Conundrum: how to lend to these people and make a profit?
Halina, engineer, $500
per month
Olivia, food trader,
$380 per month
Humphry, fisherman,
$250 per month
Structure of course – DAY 1
• Session 1 – Market assessment and strategy development
• Session 2 – Product design to reach “affordable segment”
• Session 3 – Underwriting and servicing of mortgage loan
portfolios
7
Source: ifia.com
Structure of course – DAY 2
• Funding - Presentation by AfDB
• Session 4 – Alternative housing
finance schemes
• Session 6 – Funding strategies
and risk management
• Presentation by CRRH
• Program closure and feedback
8
Structure of course – DAY 3
• Day 3 – Site visit to
affordable housing
project in Abidjan
9
Icebreaker – who are you?
• Who are you?
• What do you specifically like at your home
(one detail)
• Time for presentation: maximal 1 minute
10
My favorite place is the kitchen ….
11
Module II. Market Assessment and Strategy
Development
1212
Learning objectives of Session I
• Understand impact of enabling environment on your
housing finance operations
• Design market entry strategy/expansion strategy to
target new customer groups
• Group exercise: understand mortgage market
dynamics
13
Group exercise – understanding
mortgage market dynamics
• Within your group, please work on the following task:
• Prepare an overview of your country’s mortgage market
• Regulation and title regime
• Housing market (supply, demand for housing, house
prices, developers etc.)
• Housing finance market (players, interest rates,
funding etc.)
• Access of low income groups to housing and housing
and finance
14
What are the challenges or barriers to enter mortgage
market or expand current product offering?
15
Source: sowhatfaith.com
Supply of houses
Enabling
environment
Capacities
Informality
Multiple stakeholders –
increased complexity
Lack of long funding
in local currency
Affordability
Housing Finance involves various dimensions and
stakeholders and leads to increased complexity
16
→ Different perspectives/expectations → Increased complexity
16
• Your customer
▫ Affordability and reliability
• Lenders
▫ Risk management, funding and security
▫ Developers
▫ Land, materials and capital
• Investor
• Stability and adequate return in
relation to risk
• Government
▫ Access to housing and access to
finance
Stakeholders in housing sector and their interests
1717
Source: directionservice.org
18
Market
segmentation
criteria
Income
Housing
needs
Improvement of
existing home
New
home/apartment
Extension Apartment
New appliances House
Location
Rural
Urban or central/peri urban
18
Market entry strategy – first step: what is the market
in your country?
Formal/informal – income ranges
Market entry strategy – vision and strategy
The Vision
• Clear statement of what you are and what you are trying to achieve
The value proposition
• How would you deliver against the vision?
Magnitude and direction
• Define benchmark to show where you are heading
The competition grid
• SWOT analysis/environmental analysis
• Definition of business plan
Branding
• Organize approach to customers
19 19
How could this be laid out?
20
Millmillions
21
Example SWOT analysis
• Young and dynamic staff• What are your weaknesses?
• Housing finance barely tapped
market/many renters/young people• Weak legal framework
• Competition with banks?
Strengths Weaknesses
Opportunities Threats
21
What are your distribution channels?
Branches
22
Agents?
• Hardware
stores
• Developers
Others?
• Digital
• Savings
Groups
Takeaways (I)
• Housing finance development depends on
macro-economy, legal system and
institutional framework
• Supply of housing is critical to development
of housing finance
2323
Takeaways (II)
24
• A successful market entry/expansion requires clear strategy
• Vision and value proposition
• Which product for given target segment
• Which distribution channels
• Before roll-out
• Understanding of market conditions and own capabilities
• Business plan
Source: universitas21.com
Session II: Product design
2525
Learning objectives of Session II
• Learn from models of lenders from other countries and draw
conclusions for housing finance product design for your organization
• Discuss product variants to tap new market segments in your country
• Learn how to prepare a product launch/market entry
• Group exercise
26
Lessons learnt from IFC advisory experience
• Understanding of enabling environment
• What can be done under given circumstances?
• What are the low hanging fruits?
• Clear identification/definition of target segment
• Needs
• Preferences
• Capacities
• Partnerships (e.g. LafargeHolcim)
• Internal processing
• Marketing and sales strategy
• Funding strategy
27
Ideas to enhance product offer of your organization
Source: Huffington Post
• Micro rollover mortgage
• Credit linked savings products
• Housing loans in combination with
housing support services
28
General rules about mortgage design
• Never copy models from other countries without adapting to given
context!! Why?
• Inflation rate is critical factor
• Proposed design needs
• Profitability
• Robustness to changes in environment
• Income analysis
• Type of funding
• Your customers’ design needs
• Affordability
• Diverse needs of borrower
2929
How to reach
a fit between
both needs?
Which income groups do you wish to target in future?
30
Source: AUHF
Micro rollover mortgage
• Interest rate is initially fixed but will adjust
periodically (e.g. every two to five years)
• Common in Canada and Spain (and
Myanmar)
• Pre-payments may be without charge when
interest rate adjustment is pending
Source: dogs.about.com
31
Allocation pool
tLifetime of contract
Inflow of funds Outflow of funds
Savings
Redemption
paymentsDeposits
Loans
Mechanics of credit linked savings products
32
Credit linked savings products – key features
• A ‘time money’ system
• Main challenge is management of
allocation pool to balance fluctuating inflow
and outflow of funds
• Open systems: more flexibility to cover
shortfall of fund inflows
• Complement mortgage loan or are used for
improvements
33
Credit linked savings products – good brothers
Good Brothers’ are savers
who do not take out loans: the
more there are the more
quickly financial institutions
can allocate loans, and the
larger the borrowing
component can be
3434
Source: sayingImages.com
Source: Roy/Dübel
The tricky thing – managing liquidity risk
Liquidity profile of
institution managing
credit linked
products, which
lacks sufficient inflow
of savings
35
Housing loans in combination with housing support
services
Definition:
• Technical assistance to construction, financial issues around
housing finance and services that enable a household to improve
their house on their own
3636
Housing value chain and housing support services
Source: Habitat for Humanity
37 37
Types of housing support services
– 3 levels
1. Technical information:
• Brochures, videos, contact lists of masons,
construction cost estimates etc.
2. Professional services:
• Support to design and planning process, trainings, support to
permit processing, may include visits of technical staff at
borrower’s home
3. Construction technical assistance/engineering advisory
• On-site support to borrower at her/his housing unit
• Ranges from basic (repairs) to structural work (plumbing,
electrical work etc.)
3838
Example for partnership between lender and building
material supplier to organize construction technical
assistance
39 39
• Train the engineers
• Promote and pre-screen
customers
• Refer them to the
engineers
• Grant loans
• Manage the portfolio
• Allocate engineers
• Train the loan officers
• Assist the customers (conception / monitoring)
• Train masons and cinder blocks producers
• Leverage certified masons and cinder blocks producers
• Provide
construction
materials
• Ensure quality
of the materials
delivered
Roles of partners (example from Haiti)
40 40
Lender
Hardware store
CTA provider
Before After
Value of construction technical assistance (Haiti)
Source: Build Change
41
Making a home more resistant against earthquakes
(Haiti)
42
Source: Roy
42
Takeaways
• Success of IFC clients has been result of
• Good understanding of market conditions/enabling environment
• Client preferences and capabilities
• Expertise in managing mortgage lending process
• Products variants presented aim to enhance your product offer of your
organization
• If their implementation is considered, further research and testing is
recommended
43
Group exercise – product design
considerations
• Q1: Feasibility of credit-linked savings products in Africa
• Q2: Feasibility of micro-rollover mortgage/home improvement loans or
small loans to finance incremental construction
• Q3: Which additional support services can you offer and how to finance
them?
• Q4: How can you leverage your developer relationships to sell more
mortgage loans?
• Q5: Potential of shariah-compliant housing finance products in Africa?
44
Session III. Underwriting and Servicing of Mortgage
Loan portfolios
4545
Source: globalaccessibilitymap
Source: Aadhar
Source: Aadhar
Learning objectives
• Learn from Indian Shelter’s underwriting and
servicing model and compare it to your own
operation:
• Credit risk management
• Identify creditworthy borrowers
• Limit overall exposure to one market segment
• Monitor repayment behavior of existing
borrowers
• Marketing and sales/branding
• Position yourself as trustworthy lender
• Opportunity for cross-selling
46
Example India Shelter
Affordable Housing Building A Business With Respect And
Compassion
India : A Story Of Optimism And Diversity
▪ A $ 2 trillion Economy
▪ GDP Growth Rate 2015-16: 7.9%
▪ 53 towns with population > 1
million
▪ 468 towns with population > 100
thousand
▪ Population 1.2 Billion (17.5% of
World Population
▪ Urbanization – 31.16 % and
growing at 2.4% per annumm
▪ 36 Provinces
▪ 22 Official Languages
This Segment Is Getting All Round Support
Government Thrust on the affordable housing segment :
“Housing for all” mission which is addressing both
demand and supply constraints
Well Capitalized currently given
the PE interest in this segment
Servicing a large and unaddressed segment,
where borrowers do not have formal income
proof and are ignored by traditional financial
institutions
Many Factors Generating Demand Of Home Extension, Improvement And Construction
50
Home Improvement/Extension
Home
Improvement/Extension
Home Purchase
(A) New Family
formation in existing
towns creates need for
renovating and
extending current
dwelling unit
(C) Rise in income
leads to a desire for
better living
standards. Individuals
want to improve their
current housing unit
to display
repositioning in
society
(D) Migration to Industrial
cities for work
opportunities leads to
rental needs, this creates
a new source of income
for residents therefore
they look for credit to
extend homes
(B) Rural to Urban
Migration for
education,
marriage, security,
employment
Journey
522009
2010
2011
2012
2013
2014
2015
2016
16,500 + Customers 47 Branches 420 EmployeesCrossed $ 61.5 Mn. In AUM
11000 Customers 33 branches254 Employees
2000 Customers 22 Branches126 Employees
600 customers 15 branches70 Employees
6000 Customers 31 branches255 Employees
3500 Customers 24 branches152 EmployeesBroke even at corporate level
7 Employees 2 Branches
IndiaShelter Finance was conceptualised
J
O
U
R
N
E
Y
$ 40 Million Equity
Infusion
$6 Million Equity
Infusion
$ 4 Million Equity
Infusion
2.14%
9.89%
2.27%
85.70%
Promoters ESOP Other individual investors Financial Investors
Strong Capitalization And Employee Participation Is
Important To Shock Proof The Enterprise
IndiaShelter Continues To Create Significant Impact
75,000+Lives Impacted
5
4
4,209Entrepreneurs Supported
16,752 Women Financially Empowered
11,016 Washroom Created
16,754House Holds Served
53 Cities
9Provinces
55
Raising Funds Remains A Challenge But Diverse Sources
Are Available
0%
20%
40%
60%
80%
100%
120%
FY15 FY16 FY17
21%30% 36%
16%
19% 14%
48% 26%18%
13%
5%
16%25%
15%
Banks NHB NBFC/FI NCD Commercial Papers Securitisation
IT
Support
HR
Collection
Finance
Management
Operations
Credit
Sales
Total Spent : $1.9 MillionCount
1 1%
1
5%
5%
45%
13%
9%
8%
8%
5%
279
64
24
10
Cost %
9
5
27
✓ Sponsoring Training &
Development
✓ Short Term Benefits – High
variable pay out
✓ Mid-Term Benefits –
Deferred Payments
✓ Long Term Benefits -
ESOPs
Retention Strategy
✓ High energy freshers
are hired & groomed
✓ Internal job promotion
given priority
Hiring Strategy
People Management Is A Key Success Factor
To construct house on land
that has already been
purchased
To upgrade your home
eg: adding new room,
bathroom, floor plastering,
making a terrace, courtyard
etc
To Buy a New home - Third
Party or Builder
Our Full Spectrum Product Offering Improves Efficiency
Direct access
provided to the
customer to
company’s Head-
office through web,
mobile, Whatsapp,
toll free line etc
Loan without Proof
of Income Documents
Instant Approval
3 level redressal and
escalation of all
complains
Strict turn-around time
monitoring at every
stage of the process
No Third Party
Sourcing Allowed
Real Time system
generated information
given directly to
customers on their
phone
Important To Deliver Superior Customer Service To Gain
Credibility
Nature of the target customer segment
Unpredictability of income
Lack of adequate documentation
Complicated credit appraisal
Need to be present near the customer
Cost of underwriting
There Are Significant Challenges In Building Scalable
Enterprises In Affordable Housing Finance
Magic Sauce
Smart Investment In High ROI Marketing
Below the Line marketing
• Leaflet, canopy, umbrella activity at
target audience’s work place,
residential colonies, school, market
and recreational sites
• Van activity and Road shows to
attract TG
Partnerships
• with Taxi companies to service their
driver partner’s credit needs
• with cement and construction material
companies
• with Builders
Digital Marketing
• Banner Ads and sponsored
articles on Phone Applications
and Websites used by our TG
• SMS/Whatsapp/email
campaigns
• Social Media : facebook.
Referral
• Tele calling referral program
• Customer Engagement from time
to time eg: gifts during festivals
• Direct Referral program: strong
customer relationships provide a
steady flow of leads
Electronic Marketing
• Television Commercial on local
channels
• Radio Advertisements with high
frequency
Outdoor Branding
• Hoardings at strategic
locations
• Auto, Bus and Taxi
Branding
• Branding at Builder’s site
Simple And Empathetic Creatives Generate Good Lead Volumes
Leaflet
Canopy
Hoarding
DanglerCustomer
Achievement on
Social Media
63
40%
28%
24%
12%
100%
Customized Branch Wise Lead
Qualification
Loan Application Process Initiated By
Officer
Logged Into System
Loan Disbursed
Our Detailed Lead Management Process Results In Higher
Conversion Rates
Inquiry
Internet Cloud
Robust Cloud IT Infrastructure Helps Deliver High Quality Service At Low Cost
Branch
Head Office
Local Server
Internet
Cloud
Mobile App
Verification
Databases
Credit
Bureaus
Loan
Management
Sys
CRM
Credit
Decisioning
Engine
Extensively Engaged customers in a
discussion about their life story and
documented where they come from, what
they do, their revenue, spending, saving &
household expense (education+electicity)
2016
By now we had 300+ different occupations
with corresponding income figures to
create an income occupation matrix. This
served as a guidance benchmark for future
income evaluations
Automated credit underwriting
process by integrating IOM
• Radial Income, delinquency, valuations
• On field KYC verification to get quickest
possible result
• Leverage technology to reduce human
intervention and make process seamless
and cost efficient. Developed Credit
Score Card
2010-2012
2014-2015
2012-2014
Our Underwriting Process Is Evolving Continuously
66
Main Applicant
has to be a
woman
Multiple
Streams Of
Income In The
Household
Borrower Should
be within 20 Kms
of our
Office Minimum
Income of
200$ a
month
Repayment should
not be more than
30% of disposable
household Income
All Children Of
School going age
should be in school
...As The Minimum Underwriting Fundamentals Are Held Static
Aadhar Card is
Mandatory
Ensure
customer
education and no
miss-selling
2010 -2012: IndiaShelter Started With Interview Based Underwriting
Monthly Income
Daily Sales : ______
Daily Expenses:
1.Raw Material: ________
2.Gas Etc.: _______
Fixed Expenses:
1.Mobile:_____
2.Rent:_____
3.Elecricity:______
4.Commute:_____
Net Surplus:
✓ Estimated Cash Flow To
Arrive At Repayment
Obligation
2012 -2014 : Leveraged Income Data To Develop An Income Occupation Matrix Across Our Locations
Minimum 20 data points for each
occupation
Standard deviation < than 2.5x of mean
In Case customer is satisfied with loan
amount basis this income, occupation
verification done before approval else
business visit and interview based
appraisal
By now we had 300+ different occupations
with corresponding income figures to
create an income occupation matrix. This
served as a benchmark for future income
evaluations
Credit Bureau Checks
2016 Paperless Loan Processing Engine : Data Captured
Painlessly
Decision SanctionCredit ScoreData Capture
& Verification
Personal discussion
& technical
Raj Narayan Gupta
Sourabh Gupta
15/06/1990
BGTPG9802L
Efficiently capture data in the face
of keyboard unfamiliarityVerified with Public
databases
2016 Paperless Loan Processing Engine : On Field Verification
Personal discussion
& TechnicalCredit ScoreData Capture
& VerificationDecision Sanction
Technical Verifier verifies/updates/adds information about the
property. Adds photos and geo-tag of property for confirmationBranch Manager verifies/updates/adds information through
mobile on his visit to borrower. Adds photographs and geotag of
address through mobile
TotalApplications:
(Jan 13 – Nov 15)
14,107 (100%)
Accepts:9,433 (67%)
NTC:7,366 (78%)
Good:
6,127 (83.2%)
Bad:
1,239 (16.8%)
ETB:2,067 (22%)
Good:
1,766 (85.4%)
Bad:
301 (14.6%)
Rejects:4,674 (33%)
0%
10%
20%
30%
40%
Bad
Rat
e
Score Range
Bad Rate vs. Score
Development Out of sample
Differentiation between good and bad will sharpen
as we gather experience
Historical Data was segmented into NTC and
ETC based on their attributes
Rich Databases used to develop a score
card for our segment
2016 Paperless Loan Processing Engine : Score Development
Typical Origination scorecard
information
Current development
Data Capture
& Verification
Personal discussion
& technicalCredit Score Decision SanctionData Capture
& Verification
Personal discussion
& technicalCredit Score Decision Sanction
Geographical Information Systems Used To Supplement
Valuation database to
authenticate property values
Delinquency Map
Automated credit
decisioning with our
propriety rules built in
engine
Data Capture
& Verification
Personal discussion
& technical Credit Score Decision Sanction
2016 Paperless Loan Processing Engine : Underwriting Rules Applied
Approved?
Yes No Manual Review
2016 Paperless Loan Processing Engine : Underwriting Rules Applied
These are the
reasons you were
declined.”
“Congratulations,
you’ve been
approved.”
“Pleaseprovide
additional
information.”
ApprovalDecisionCredit ScorePersonal discussion
& technicalData Capture
& Verification
On-going Investments Have Reduced Unit Credit Cycle Costs
Note: Cost includes Employee Salary, Bureau, Legal, Technical &
FCU Expenses
Credit FY’15 FY’16
No of FTE 16 22
FTE Cost (Lacs) 67.11 75.69
1.18%
1.42%
0.80%
0.99%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
Cost, % of Sanction Amt Cost, % of Disbursment Amt
FY'15 FY'16
0.26%
0.18%
0.00%
0.05%
0.10%
0.15%
0.20%
0.25%
0.30%
FY'14-15 FY'15-16
Collection Cost as % Of AUM
Collection FY’15 FY’16
Total FTE 19 27
FTE Cost (Lacs ) 58.2 72.2
Credit Cost as % Of AUM
A Strong Technology Enabled Collection Process Leads To A
Robust Yet Responsible System
We see a customer as a 15 year relationship & adopt a
collaborative collection mechanism involving consistent
follow up and working with the customer to make regular
repayment a habit.
A customer pays through one of 2 modes :
Electronic (87%) and Cash (13%)
A mobile enabled collection dashboard that
alerts status real time
In case of Default, Officer evaluates
whether case is willful/permanent or
just temp irregularity.
Reminders to customer & Collection Officer
visits
Mobile Route maps for optimizing travel time to
visit customers
Early Reminders thru SMS/Phone
etc before bank debit
Collateral action to
recover
>90 Days Past due
rate @ 0.27%
30 DPD < 0.70%
Takeaways
• Underwriting and servicing process is key to credit risk management
process and achieve competitive edge
• Entails potential for cost savings (through higher degree of automation
and appropriate integration of headquarter, branches
• Arrears management – restructuring is preferred to foreclosure (if
possible)
• Borrower education is poised to help lower credit risk
77
Dr. Friedemann Roy
Global Product Lead Housing Finance
Financial Institutions Group
International Finance Corporation
Tel. +1 202 473 9838
E-mail: [email protected]
Disclaimer: The views, findings, interpretations, and
conclusions expressed in this presentation are entirely
those of the author and do not necessarily represent
the views of the World Bank Group, the IFC, its Board
of Executive Directors, or the governments they
represent.
Subrata Dutta Gupta
Principal Financial Officer
Financial Institutions Group
International Finance Corporation
Tel. +91-33-4401-1000
E-mail: [email protected]
Thierno Habib Hann
Senior Housing Finance Specialist
Financial Institutions Group
Tel. + 254 20 293 7729
E-mail: [email protected]