Housing Financein Emerging Economies World Bank Group Board Presentation - June 9, 2005

*Outline

Why Housing Finance ?How to Expand Housing FinanceWorld Bank Strategy, ProductsIFC Strategy, ProductsChallenges for the World Bank Group

*Why Housing Finance?

Engine of equitable economic growth Key for investment, households wealth, savings, consumption, labor markets, fiscal returns, retirement systemCollateral to unlock capital (dead housing assets, De Soto)ECA housing stock privatization: > $ 1 trillion (asset rich, cash poor)

Meet a growing housing demand (urbanization, demographics)Prevent slum proliferation (cities built the way they are financed)Reduce poverty (asset building, retirement, empowerment, community strengthening, improved living conditions)

Take part in the financial sector liberalization (banks, non bank lenders, domestic bond markets, pension funds, etc.)

*How to build inclusive and sustainable HF system?

Sizeable & durable investment that needs debt leverage

Required sound foundationsRelative macroeconomic stabilityWorkable legal system (titles, foreclosure)Risk management, funding tools & regulationsCompeting private lendersAffordable housing (cf. supply constraints)

Enabling role of the State Less of direct lender/builder, rather build conducive market environment, catalyst role to expand accessibility

*How to Expand Housing Finance

ProductsCredit products (term, rates, amortization) Broader distribution channelsMicro finance applied to housingHousing saving schemesConstruction, infrastructure and rental finance

PolicyAffordable land use & urban development rulesEfficient registration of property titles & liensSmarter HF-related subsidiesInstruments to reallocate part of the additional risks

*Bank Project Opportunities (Loans, Guarantees, TA)ENVIRONMENT/INFRASTRUCTUREPRIMARYMARKETSECONDARYMARKETLand use, urban development and housing policy Property title registration and effective foreclosureConstruction quality, security and financeLand infrastructureProfessional real estate intermediariesEffective rental marketsSmarter subsidies Finance lower income housing Safe lending regulations & standards Consumer information & protectionRisk management tools (insurance, guarantees)Micro finance, housing savings, Islamic financeCapacity building & funding of lenders, insurersChoice of proper model (s)Legal and regulatory frameworkAccess to longer-term matched fundingTake off funding or guarantee support

*IFC Programmatic Approach Legal/Regulatory Property Rights/Foreclosure Building Viable Mortgage Markets in Emerging Market EconomiesMacroeconomic Stabilitylocal currencyRole of Gov.Financial Sector Dev.Securities marketsPension FundsInvestment Technical Assistance and Information Building

*IFC Investment ProductsCAPITAL MARKETSMORTGAGE FINANCECONSTRUCTION FINANCE Debt:Credit LinesWarehouse Credit LinesLiquidity FacilitiesEquity:ConduitsMortgage Ins.Servicing Co.Originators Structured Finance:Credit En. Risk SharingCapital MarketsMortgage FinanceConstruction FinanceLand FinanceIn. Risks investments at different levels in the value chain given the risks

IFCDeveloper-cum-mortgage originatorHome Buyers

Security Vehicle SecuritizationPhase IIPhase ICredit LineMortgagesCollateral for IFCMortgage Warehouse Line (for a Developer cum Originator) Local Mortgage MarketInternational Finance MarketLocal Capital MarketInstitutional InvestorsTrustee

*IFC: the Challenges for the FutureHow to get to true poor? (The case of Mexico)Microfinance for housing; and Remittance mortgages

Impacting the supply side Increase house production via developer financingEnsure affordability

Creating new products/relationships to expand impactAccess to long term local currency (NCPIC program)Islamic housing financeEnergy efficiency productsMortgage finance provided by sub-sovereigns

*World Bank Group Role

Develop housing finance markets Set up infrastructure, legal and regulatory framework for marketsMake housing markets more affordable & secure property rightsDevelop framework for risk management and funding toolsIFC to support private transactions

WBG comparative advantagesHonest broker roleLong-term presence during a process of reformsWorld expertise & knowledge transfer Integrated approach: urban & finance, public & private sectors

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