The Housing and Urban Development Coordinating Council (HUDCC) and the Bangko Sentral ng Pilipinas (BSP) signed a Memorandum of Agreement (MOA) to support and implement an innovative housing finance program for the country's poor.  The signing followed the Monetary Board's approval last February 14 of the Housing Microfinance Loan Product proposed by HUDCC.

In a signing ceremony witnessed yesterday by Vice President and HUDCC Chairman Noli de Castro and Deputy Governor Armando Suratos, Officer-in-Charge of the BSP, the two agencies agreed to implement a housing finance program that would give poor households access to credit for home improvements, house construction, or house and lot acquisition using microfinance principles and techniques which in the past have only been previously applied to micro-enterprise finance in the Philippines. The target clients of the housing microfinance program are the poor and low-income households who are not currently being served by formal financial institutions such as local banks, Pag-IBIG, SSS, or GSIS. 

Among the notable features of the housing microfinance program are:  (1) relatively small amount of housing loans, which are based on the clients' capacity to repay (up to P150,000 for home improvements and P300,000 for house construction or house and lot acquisition; (2) relatively short repayment periods compared to traditional mortgages (from 5 to 10 years); and (3) loans are not heavily collateralized, if at all, and collateral substitutes are often used.

The MOA sets the applicable accreditation standards and procedures to determine the capacity of banks that would like to offer this loan product to their low-income clients. Under the terms of the MOA, the implementation of the housing microfinance program will be patterned initially on the design framework of the Development of Poor Urban Communities Sector Project (DPUCSP), a government social housing and community development program being executed jointly by HUDCC and the Development Bank of the Philippines (DBP), with technical and financial assistance from the Asian Development Bank (ADB).   The DPUCSP aims to reduce poverty by improving the poor's access to secure land tenure, affordable shelter, basic municipal infrastructure and public services, and financing for their shelter and livelihood needs. 

The housing microfinance program encourages and provides incentives to banks that would participate. First, banks may use the program as alternative compliance to the Agri-Agra Law.  Second, the program allows banks to lend amounts bigger than the microfinance loans for small enterprises.  Third, banks can use simpler documents for loan applications and accept collateral substitutes in the absence of  a land title.  Fourth, banks can lend up to 90 percent of the appraised value of the real property to be acquired, which is higher than the current level of 60 to 80 percent for ordinary housing loans. And finally, qualified banks can apply for retail loan guarantees from the Home Guaranty Corporation. 

Through this program, more banking institutions are expected to participate which would result in bigger funding that will be available for socialized housing.  At the same time, the program gives the poor access to funds that are usually not available to them.