Market Survey Results and Implications for Product Design

TRAINING WORKSHOP FOR BANKS INTERESTED IN OFFERING HOUSING MICROFINANCE

Background

• Total Number of Respondents: 100• Period of Survey: 2010

March 15 - April 15• Location of Survey: Municipalities

of X and Y

12 barangays

Table on Distribution of Respondents

Number %

Microfinance Client 38 38%

Salary Loan Client 0

Depositor 30 30%

Non-client/New 32 32%

No response 0

Total 100 100%

Is there demand for housing loan?

Demand for HMF

• 88.10% of the respondents are interested to get a loan for housing purposes

POINTS TO CONSIDER Given the data gathered, is there a demand for HMF?

POINTS TO CONSIDER Is the demand manifested in past and planned home improvements?

Table on Past and Planned Home Improvements, in Percent Past Year Next 2 Years

With Home Improvements

59.60% 84.85%

Demand for HMF

Sources of Majority of Funds for Past Home Improvements

POINTS TO CONSIDER Where did the majority of funds for past improvements come from?

personal cash/ savings

78%

Loan from banks17%

Contrib from family

members5%

Demand for HMF

• Of the 38 respondents who received a loan from the RB in the last 2 years, 33.33% used a part of these for housing purposes.

• % of loan amount used for the purpose cited: minimum of 2% maximum of 100% and median of 60%

POINTS TO CONSIDER Is there a demand from existing borrowers?

home improvement94%

buy another house3%

Child's home improvement3%

What are the loan purposes to be financed by housing MF?

Loan Purpose

Table on Types of Past and Planned Home Improvements (multiple answers)

Improvements Past Year Next 2 Years

Extra room for household purposes 9 32

Extra room to rent or backyard room 10 9

Extra room or space for business 8 15

Build a kitchen or improve finishes 20 31

Build a bathroom or improve 11 23

Improve or put on a roof/ceiling 15 38

Improve or put in a floor 15 27

Paint, plaster or wall paint 15 35

Windows 10 21

Doors 8 24

Connections to an outside water line 2 9

Internal water/ plumping installation 2 12

Internal electricity/ outlet installation 2 6

Add wall or fence around property 5 11

POINTS TO CONSIDER What are their past and planned house improvements?

Loan Purpose

Housing Situationer:• Majority of houses age more than 15 years (47.47%) • Respondents and their families lived in their house for more than

15 years too (55.56%)• 71.72% have two or more bedrooms in their house• 67.68% owns both toilet/bath and kitchen while 19.19% owns

either a toilet/bath or a kitchen• Houses made from stable materials

- Roof: corrugated iron 79.8%- Floor: concrete 56.57%- Walls: Concrete 47.47%

• Piped water inside the house 56.57%• Electricity from formal power line connection 89.90%

POINTS TO CONSIDER Given their house situationer, what are the probable improvements?

What will be the loan amount & term?

Loan Amount and Term

Table on Preferred Loan Amount Term and Amortization

POINTS TO CONSIDER What will be the range of loan amount and term? How should bank configure terms relative to size of loan and amortization?

Product Features Maximum Minimum Average Median

Loan Amount P1,000,000 P5,000 P153,250 P50,000

Loan Term 36 mos. 4 mos. 14 mos. 24 mos.

Monthly Amortization P9,000 P0 P2,150 P1,800

Maximum Minimum Average Median

Cost of improvement P500,000 P1,000 P74,292 P20,000

Table on Cost of Improvements in the Past Year

POINTS TO CONSIDER Basing on how much each of this improvement will cost, what will be the loan

amount range?Table on Types of Past and Planned Home Improvements (multiple answers)

Improvements Past Year Next 2 Years

Extra room for household purposes 9 32

Extra room to rent or backyard room 10 9

Extra room or space for business 8 15

Build a kitchen or improve finishes 20 31

Build a bathroom or improve 11 23

Improve or put on a roof/ceiling 15 38

Improve or put in a floor 15 27

Paint, plaster or wall paint 15 35

Windows 10 21

Doors 8 24

Connections to an outside water line 2 9

Internal water/ plumping installation 2 12

Internal electricity/ outlet installation 2 6

Add wall or fence around property 5 11

Loan Amount and Term

What are the eligibility criteria?

Target Market

Table on Distribution of Respondents

POINTS TO CONSIDER Who are the target market of the bank’s HMF? Existing clients? Borrowers

and/or Depositors? Microfinance and/or Regular Loan borrowers? What are the risks involved in offering the product to each market?

Number %

Microfinance Client 38 38%

Salary Loan Client 0

Depositor 30 30%

Non-client/New 32 32%

No response 0

Total 100 100%

Personal Profile

• Age ranges from 21 to 70, median of 45• Predominantly female (86%) • Majority married (89%)

POINTS TO CONSIDER What age range will be eligible to apply for a loan? Should the bank offer the product to both male and female? Will the bank consider the applicant’s civil status?

• Majority of houses age more than 15 years (47.47%) • Respondents and their families lived in their house for

more than 15 years too (55.56%)• Own the house 88%,

- with title 48%, - Hired builder 78%- owned lot 68%

POINTS TO CONSIDER What will be the residency requirement, if any?

Income Source

• Most businesses are engaged in trade (81%)• For those employed, most private (42%)

Table on Regular Sources of Household Income N % Distr.

Business Income 91 61%

Respondent’s Salary 17 11%

Spouse’s Salary from within the Phils. 26 17%

Remittance within the Phils. 8 5%

Remittance from abroad 5 3%

Others: Rent/ Pension 3 2%

POINTS TO CONSIDER Should the bank offer the product to entrepreneurs or salaried employees?

Business Profile

• 42% businesses are registered

Chart on Growth of Business Profits over the Past 12 Months

POINTS TO CONSIDER Exclude or include those without permit in eligible borrowers? Why? What are the risks here?

1.doubled or more 2.less than doubled

3.stayed the same

4.less than last year

0

5

10

15

20

25

30

35

What collateral/security will be required?

Collateral/Security

Table on Types of Available Loan Collateral (multiple answer)

POINTS TO CONSIDER What types of collateral will the bank require? At what loan amount should the bank require which collateral?

N % Distr.

Building/Home 21 19%

Land/Lot 30 28%

Machinery 7 6%

Salary 10 9%

Bank Account 2 2%

Serialized Assets 23 21%

Jewelry 2 2%

Guarantors/Co-Makers 11 10%

Vehicle 3 3%

Total 109 100%

What is the product’s seasonality ?

Seasonality

Table on Preferred Months to Make House Improvements

• They are most likely to make these improvements on March, July and December; while 4% remains undecided

Months Number % Months Number %

January 0 0% July 25 33%

February 0 0% August 0 0%

March 14 19% September 0 0%

April 7 9% October 0 0%

May 7 9% November 0 0%

June 7 9% December 12 16%

POINTS TO CONSIDER What month does the bank expect higher demand?

Should HMF have a savings component? Is there a need for a separate savings product for housing purposes?

Savings – Contractual or Separate Product

• With those who have planned improvements, only 10% have savings

POINTS TO CONSIDER Should bank integrate contractual savings in the loan product design? What

will be the policy on withdrawal? Can the RB see an opportunity in this deposit market? Should the RB design a goal-related (housing) savings product? What basic

features could be included?

• While 19% have been saving building materials

Savings for Planned House Improvement

Maximum Minimum Average Median

Amount of Savings P100,000 P3,000 P29,000 P10,000

Who are your competitors?

Loans and Savings Experience

Table on Savings Deposits with BanksCurrently have a deposit account with… Rural Bank Other

Financial Inst.

Yes 98% 23%

No 2% 77%

No response 0% 0%

POINTS TO CONSIDER Given the data above, what are the opportunities of the RB in the deposit

market? Do depositors prefer the RB over other financial institution? Why? What is the RB’s competitive edge over other financial institutions?

Loans and Savings Experience

Table on Usual Source of Credit, besides the RBCredit Sources %

NGO (foundation) 1%

Cooperative 9%

Lending Investor 9%

Commercial Bank 23%

5-6 (Bombay, turko) 15%

Friends, Neighbors 19%

Relatives 23%

Others 1%

POINTS TO CONSIDER What are the products and terms/conditions offered by other creditors? How should the bank target those afraid/shy to borrow from a bank? What marketing activities/campaigns should bank undertake to increase

awareness of bank and its loan products?