Rules and Regulations for the Approval and Provision of Housing Microfinance

January 6, 2010

BSP CIRCULAR NO. 678-10

 

SECTION 1. Statement of Policy. — The Bangko Sentral ng Pilipinas adopts a holistic approach in addressing social and economic objectives through microfinance. Microfinance has been confined to mean financing for microenterprises or small livelihood activities. It has been proven, however, that clients of microfinance also need a wide range of financial services including housing finance. Further, it is typical that some microfinance clients also use their access to credit for their homes. IDAESH

Housing microfinance involves the application of microfinance principles and methodologies to the provision of housing finance and consists mainly of loans to existing clients of microfinance institutions and other poor and low-income households. With adequate and appropriate risk management measures, the product will enable institutions to appropriately service the housing needs of those who are unable to access traditional housing finance. The provision of housing microfinance is also seen as a way to improve the living conditions of the enterprising poor and the low-income households which will contribute to better health, productivity and quality of life.

Housing as a shelter is a necessity. As a sector, it spurs economic activity and creates employment through the multiplier effects generated in the downstream industries by the procurement of construction materials. It is therefore important to support this sector.

Toward this end, the following rules and regulations that shall govern the approval of banks' housing microfinance products are hereby prescribed. Memo to All Banks — 2008 — 15 issued last 19 March 2008 is hereby amended.

SECTION 2. Minimum Criteria to Determine Banks' Capacity to Offer Housing Microfinance. — The BSP will review the application based on the following basic principles:

1. To ensure that the banks have the capacity and technical capability to offer housing microfinance

2. To ensure that the provision of housing microfinance uphold adequate and appropriate risk management systems and procedures as well as the microfinance best methodologies and technologies

Based on the above principles, the BSP may approve the banks' housing microfinance product upon satisfaction of the following requirements:

1. The bank must have a track record of at least two years in implementing sustainable microfinance programs, including acceptable portfolio-at-risk (PAR) levels as evaluated against prevailing BSP standards.

2. The bank must have an appropriate housing microfinance product manual where the product will be included in the bank's microfinance manual as one of the types of services or products offered to prospective clients. Loan/account officers must be trained about the housing microfinance product and that the details of the program can be communicated clearly to the clients. EAaHTI

3. Appropriate verification of the following:

a. latest CAMELS rating of at least 3 and a management score of at least 3

b. capital adequacy ratio (CAR) of not lower than 12

c. no major supervisory concerns as to warrant initiation of Prompt Corrective Action (PCA) under existing regulations

d. no arrearages in microfinance borrowings

4. Appropriate certification of the banks' commitment to implement the housing microfinance product following the guidelines set forth in the submitted manual.

SECTION 3. Basic Product Characteristics. — The housing microfinance product shall have the following basic characteristics:

Subject		Particulars
Purpose	✓	House construction
	✓	House and/or lot acquisition. Lot acquisitions
		should be for housing/business
	✓	Home improvement/repairs
Eligibility	✓	Existing microfinance clients
	✓	New clients who will normally be eligible for
		microfinance loans based on banks' policies
	✓	Borrowers who have qualified for the Credit Surety
		Fund credit enhancement program provided they
		qualify with the banks' policies.
Loan Amount	✓	Up to P300,000 for house construction and/or lot
		acquisition (must show tenure security)
	✓	Up to P150,000 for home improvement/repairs
	✓	Incremental loan amounts to support incremental
		building
Loan Value	✓	Up to 90% of the appraised value in case of REM
	✓	Acceptable valuation in cases of usufruct, leases,
		etc.
	✓	Capacity to pay based on household cash flow
		analysis
Payment	✓	Frequent amortization
	✓	With savings component
	✓	Loan payments should not exceed a reasonable
		percentage of clients' income as determined by
		cash flow analysis and to determine capacity to pay
		as well determined through a clear credit process
Terms	✓	Up to 15 years for house construction and house
		and/or lot acquisition, subject to banks' credit
		policies
	✓	Up to 5 years for home improvement/repairs

 

The product must share the characteristics of the microfinance loans, as found in Circular 272, Series of 2001, except for the following:

1. The maximum loan amount may be PhP300,000.

2. The loans have longer terms with a maximum of five years for home improvement/repairs and fifteen years for house construction and house/lot acquisition.

3. For House construction and house/lot acquisition loans, secure tenure instruments will be used as collateral. (See attached Secure Tenure Instruments and Valuations, Annex A)

SECTION 4. Appropriate Risk Management. — Due to a risk profile that may be different from the typical microfinance loan, the following risk management elements must be highlighted and embedded in the product:

1. Clients' ability to repay based on cash flow analysis and affordability, especially the new clients. DACaTI

2. Opening of a savings account shall be required for clients with no existing savings account

3. Secure Tenure instruments as collateral/collateral substitutes for loans over PhP150,000

4. Adequate loan monitoring, collection, control, provisioning which is to also be included in the banks' housing microfinance manual

5. Additional risk cover may be availed from government guarantee programs

6. A lien or mortgage covering the house and/or lot financed by the loan shall be executed by the borrower in favor of the lending bank

7. Mortgage redemption insurance shall be required to cover against death or permanent disability

SECTION 5. Application Procedure. —

1. The bank shall apply for specific product approval of its housing microfinance lending program with the BSP.

2. The bank may submit a housing microfinance lending program as a participant in a broader housing microfinance lending program based on a common business model and organized by a group of banks or industry association.

SECTION 6. Regulatory Treatment. — The approved housing microfinance product will be considered as a microfinance loan and will have the following incentives in addition to existing incentives applicable to microfinance loans:

1. Housing microfinance loans shall be eligible as alternative compliance to mandatory credit allocation to agrarian reform and other agricultural credit. These are also eligible for rediscounting with the BSP subject to existing rules and regulations governing rediscounting. AHDTIE

2. The loans shall have an assigned risk-weight of 50% risk when not guaranteed and as low as 0% when guaranteed by duly recognized government guarantee programs.

3. For housing microfinance loans secured by REM, a 90% loan valuation may be allowed for loans with a government guarantee component.

4. Secure tenure instruments such as freehold, usufruct, leasehold and right to occupy and/or build shall be recognized as collateral/collateral substitute subject to approved loan valuations. (Annex A)

Banks that will offer housing microfinance shall also comply with the following:

1. The bank must maintain a sub-control ledger for the housing microfinance product

2. The housing microfinance loans shall not exceed 30% of the total loan portfolio

3. Recording of portfolio at risk (PAR) and the provisioning requirements shall be strictly in accordance with applicable BSP regulations

SECTION 7. Effectivity. — This Circular shall take effect fifteen calendar days following its publication either in the Official Gazette or in a newspaper of general circulation. AICEDc

FOR THE MONETARY BOARD.

(SGD.) AMANDO M. TETANGCO, JR.Governor

ANNEX A

Form of	Nature and	Terms and	Appraisal	Loan Valuation
Secure	Description of	Conditions	Methodology
Tenure or	Acceptable
Property	Instrument
Right
Usufruct	Usufruct	The Term of Lease	Valuation of	70% of the
	agreement or	must not be less	Leasehold Interest	appraised value of
	contract — Duly	than the term of		the collateral
	executed contract	the loan.
	executed by the
	owner of the
	property granting
	the usufructuary/
	beneficiary/client
	the right to use,
	possess, and
	enjoy the real
	property including
	its fruits and other
	rights or benefits
Lease	Lease agreement	The Term of Lease	Valuation of	70% of the
	or contract — Duly	must not be less	Leasehold Interest	appraised value of
	executed contract	than the term of		the collateral
	granting the lessee	the loan.
	the right to use
	and possess the
	real property for
	a fixed long-term
	period in
	consideration of
	rental payments
Freehold	OCT/TCT —		Market Data	90% of the
	Torrens title issued		Approach	appraised value of
	by the Register of			the collateral
	Deeds evidencing
	absolute ownership
	of real property
	Interim Title,	Adjustment of	Market Data	90% of the
	Contract to Sell or	appraisal value	Approach	appraised value of
	Conditional Sale  —	due to		the collateral
	Duly executed	documentary
	contract or other	nature or status of
	legal instrument	instrument must be
	issued by the	taken into account
	appropriate
	government
	agency indicating
	full payment for the
	purchase of the
	property or its
	conditional sale
	or conveyance to
	be perfected upon
	full payment of the
	purchase price
	and/or the
	fulfillment of other
	conditions
Right to	(1) Certification	Adjustment of	Market Data	70% of the
occupy	validly issued by	appraisal value	Approach (as to	appraised value of
and/or build	the appropriate	due to	the improvement or	the collateral
	government	documentary	housing unit)
	agency stating that	nature or status of
	the borrower/client	instrument must be
	has the right to	taken into account
	occupy, build
	and/or acquire the
	property he/she is
	possessing being
	an eligible
	beneficiary of a
	public or private
	social housing
	program or a
	Presidential
	proclamation, or
	(2) certification or
	written
	acknowledgment
	from the owner of
	the property that
	the borrower/client
	has the owner's
	consent and
	permission to
	occupy and build
	on such property
	(Includes CELA or
	Certificate of Lot
	Assignment which
	is issued by NHA,
	SHFC, relevant
	government
	agencies)