Reaching Low Income Household with Affordable Housing Finance By Sothany Chun CEO, First Finance September 2015 1
About Cambodia A country in mainland South-east Asia, bordering Thailand, Laos, Vietnam and the Gulf of Thailand. Total population of 15.5milions Estimated population below the poverty line 20% (the World Factbook) 2
Financial Institution Target middle high income customers Offer variety of financial products including housing loans Required hard title Low income household feel uncomfortable visiting bank branch Target low-middle income households Offer short term loan mainly for income generating purpose housing loan not included Accept soft title What about housing finance for low income household?
Why Bank excludes low income household? Small Loans No evidence of income Soft title Risky and Not profitable
Why MFI excludes Housing Finance? Big Loans Long Term No skills/expertise Risky and Not profitable/ sustainable
So How do we do? Loan size bigger than general MFI but smaller than bank Credit Assessment as robust as bank but in a more flexible way Interest rate cheaper than MFI but higher than bank
How First Finance Survives? Accept soft title but do mortgage registration No cash handling, less branch Innovative Build the required skills Use EMI to help with maturity gap
What do We Offer? Description Home Loan Long-term loan for purchase of home collateralized against the property purchased Fixed interest rate, with opportunity to revise every 12 months after the 3 rd year. Maximum 15 year; Market Need No options for soft title home loans beyond rolling MFI loans Limited bank loans due to stringent lending criteria and hard title requirement Home Improvement Loan Description For renovation, construction and repair Collateralized against property built on. Fixed interest rate, with opportunity to revise every 12 months after the 3 rd year. Maximum 10 years Market Need Limited home improvement products with short-tenures High interest-rate MFI productivity loans often applied for home improvement use Pricing Strategy Description Home Equity Loan For Business and personal use in conjunction with other housing loan products provided; Share collateral with home loan or home improvement loan; Applicable to existing home loan and/or home improvement loan clients Fixed interest rate (3 years revised) Maximum 10 years Market Need First-time home owners have limited cash available for purchase of household equipment and expansion of business Based on actual funding and operational costs, fair price above the banks and below MFI lenders
Whom Do We Target? Age range of 25 35 years old Not currently a home owner Monthly average household income per applicant of USD 200 USD 1,000. Self Employed (including street vendors, Tuk Tuk and motor driver, farmers, construction workers, etc) and employed (including junior salary employee, factory workers, maids, wait staff, etc) Actual Client by Household Income < = 200 201-400 401-800 > 800 24% 11% 25% 40% 9
Available Affordable Housing Borey Sen Sok and Borey Santepheap II - House size : 4m x 12m to 4m x 16 m - Price range : USD15,000 USD 40,000 - Distance: About 15km west of Phnom Penh - Number of bedroom: 1 2 with a toilet - Possibility to add one more floor Urban Village - House size : 4.2m x 8m to 4.2m x 10 m - Price range : USD7,000 USD 36,000 - Distance: About 10km south-west of Phnom Penh - Number of bedroom: 1 2 with a toilet - Possibility to add one more floor House Construction (Land not included) - House size : 4m x 10m - Construction Cost : USD5,000 USD 10,000 - Distance: usually around 10km from Phnom Penh - Number of bedroom: 1 with a toilet - Usually have access to pipe water, connection to electricity within 6 months. 10
Where are We now? Loan portfolio USD18.26 millions Client > 1500 families or > 7,500 Cambodians from 4 branches Ranked #12 out of 46 MFIs in term of loan portfolio Lenders/Investors: Oikocredit, Cambodia Lao Development Fund CLDF, Phillip Bank, Norwegian Investment Fund for Developing Countries NORFUND, Finnish Fund for Industrial Cooperation Ltd. FINNFUND, Triple Jump, BIO, Blueorchard, Incofin, Deutsche Bank Trust Company Americas Ownership: 11.25% Founding company Ownership: 33.73% Leading Asian Financial House Ownership: 35.53% Social Venture Capital Fund Ownership: 19.49% Capital Fund 11
Do We Have Challenge? Funding Access to MFI funding sources due to being difference Accessing long term and low cost funding Technology MIS for MFI but meet banking requirement Customers Evidence of income Mentality toward housing finance 12
Do We Have Challenge? Property Ownership document Speculation Competition Bank, MFI, and Property Developer Loan Quality Higher past due rate compared to MFI but lower loss rate due to full collateralized Managing and presenting Portfolio At Risk 13
How Do We Overcome? To be more Innovative Networking to learn and develop ourselves Improve customer services focusing on meeting customers needs 14
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