Professional Documents
Culture Documents
in Peru
U N I T ED NAT I O NS H UM AN SE T T LEM EN T S PR O G R A M M E
N airo b i , 20 0 8
ii Housing finance mechanisms in Peru
HS/1019/08
ISBN: 978-92-1-132022-0 (series)
ISBN: 978-92-1-131999-6
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the expression of any opinion whatsoever on the part of the Secretariat of the United Nations con-
cerning the legal status of any country, territory, city or area or of its authorities, or concerning the
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Views expressed in this publication do not necessarily reflect those of the United Nations Hu-
man Settlements Programme, the United Nations and its member states.
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Acknowledgements:
Principal Editor and Manager: Xing Quan Zhang
English Editor: Tom Osanjo
Principal Authors: Alfonso García Mora and Paula Conthe Calvo
Design and Layout: Irene Juma
Housing finance mechanisms in Peru iii
FOREWORD
housing and infrastructure at the required scale tor and the broad economic and social sectors,
– the scale needed to stabilize the rate of slum and lessons learned from practices.
formation, and subsequently reduce and ulti- Indeed, the country review studies we pres-
mately reverse the number of people living in ent are a valuable resource for member States
life-threatening slum conditions. because it is a body of work that also shows how
It is clear that in the coming 20 years, con- human settlements finance systems and models
ventional sources of funds will simply be un- can be applied to local use and thus provide a
available for investment at the scale required to wider range of options for human settlements
meet the projected demand for housing and ur- finance. The series also serves as guidebooks
ban infrastructure. Many countries around the for policy makers, practitioners and researchers
world continue to face deficits in public bud- who have to grapple daily with human settle-
gets and weak financial sectors. Local govern- ments finance systems, policies and strategies.
ments have started to seek finance in national
and global markets, but this is only in its initial
phase.
New mortgage providers have emerged, in-
cluding commercial financial institutions and
mortgage companies. But only middle and up- Anna Tibaijuka,
per income households have access to such fi- Under-Secretary-General
nance, while the poor are generally excluded. of the United Nations
Although social housing is becoming less im- Executive Director, UN-HABITAT.
portant in Europe and in countries with econo-
mies in transition, the need to provide shelter
that is affordable to low income households still
exists, including in developing countries.
This is why the exchange of information
and knowledge on human settlements finance
systems is so important. It is why it receives in-
creased recognition in facilitating the develop-
ment of human settlements finance systems and
in turning knowledge into action for develop-
ing practical human settlements finance meth-
ods and systems for these pressing problems.
Our Human Settlements Finance Systems se-
ries documents the state, evolution and trends
of human settlements finance in member states,
and examines the factors and forces which drive
the development of human settlements finance
systems and the roles of different institutions
and actors in shaping the systems and trends,
and reviews human settlements finance systems.
It presents an interesting review of policies, in-
struments, processes and practices. It examines
the strengths and weakness of these systems
and practices, their relations to the housing sec-
Housing finance mechanisms in Peru
Table of Contents
X Population and V Housing Census in Peru,
undertaken in the summer of 2005 by the Instituto
Nacional de Estadísticas del Perú (INEI, National
Institute of Statistics).
Housing finance mechanisms in Peru
(roof, exterior walls, floor) into three catego- sewage systems across the country, over 30%
ries: durable, medium quality, and precarious. of dwellings still do not have access to all basic
Dwellings built with materials in this third cat- services.
egory are included in the housing deficit. The second criteria in determining the qual-
In accordance with this criteria, the Cen- itative housing deficit, degree of overcrowding,
sus 2005 revealed that a minimum of 800,000 is quantified in terms of the number of people
households (the actual number is probably per room in a home. More than three people
much higher, considering many of these homes per room is considered by the INEI to justify
house more than one family unit) are inad- the need for a bigger/additional home and
equately housed. thereby represents an unmet demand forhous-
Another aspect to take into considera- ing that must be taken into account. Although
tion when considering the housing shortage the Census 2005 has not collected information
is that, while many homes may have been on households’ characteristics, the last House-
built with adequate materials and using sat- hold Survey undertaken in 2004 estimated the
isfactory techniques, they may still not meet average number of members to be 4.5, rising as
minimum living standards and thus contrib- high as 5.4 for the lowest-income quintile and
ute to the country’s qualitative housing defi- falling to 3.4 for the highest. Based on this fig-
cit. The Institute of Statistics uses two criteria ure and collecting the information on number
to determine when living standards are ad- of rooms and households per dwelling, the
equate: on the one hand, the access to serv- number of overcrowded dwellings in Peru at
ices such as water, sanitation and electricity present appears to exceed 1.1 million.
and, on the other, the degree of overcrowding. Based on this pondered analysis and meth-
The Census 2005 report brought to light odology, the housing deficit in Peru is found
that although notable improvements have been to be much higher than suggested by the dif-
made over the past few years with regard to ex- ference between number of dwellings and
tensions of the electricity network, water and households in the country, although the exact
Metodología de Cálculo del Déficit Habitacional en el
Perú published by the Oficina General de Estadística e
Encuesta Nacional de Hogares 2004 (ENAHO 2004).
Informática, Unidad de Estadística in 2004. Instituto Nacional de Estadística del Perú.
Housing finance mechanisms in Peru
PRECARIOUS
800,000
TOTAL
TRADITIONAL NO BASIC HOUSING
HOUSING DEFICIT SERVICES DEFICIT
(Households - Dwellings) Over 1 million
1.9 million
OVER
CROWDING
1.1 million
Housing finance mechanisms in Peru
number is difficult to determine since it would negative growth from 1999 to 2001. This situ-
be reasonable to expect that many of the dwell- ation inevitable restricted availability of formal
ings built with precarious materials are also the housing and led to large amounts of informal
ones without many basic services and facing settlements.
significant overcrowding. Since 2003, however, the construction sec-
Yet, although the information available tor has flourished, although this recent spurge
does not allow the crossing of all these variables has not translated directly to a reduction in the
to come up with an exact figure, it would ap- housing deficit, a situation which seems to sug-
pear that using any one of these three methods, gest that the source of the housing problem in
the Peruvian demand for dwellings is estimated Peru is to be found in low affordability condi-
at over 1 million in every case, i.e. almost 15% tions and a mismatch between existing demand
of households at present, and, in one case, even and available supply, rather than in an outright
over 2 million or 30% of households. And, con- lack of housing construction activity.
sidering new household formation in coming An analysis of the current supply and de-
years, this demand is only likely to grow. In- mand for construction in the Lima Metropoli-
deed, all efforts directed towards reducing the tan Area and Callao for 2004, broken down by
current backlog in housing must also take into price, reveals the noticeable mismatch between
account the continuous increase in demand the two, with excess supply of expensive hous-
resulting from population growth. Based on ing units and over 40% of unmet demand in
demographic projections made by the National the lower echelons.
Institute of Statistics in 2001, the number of
people between 20 to 30 years increases in about This mismatch is hardly surprising given
500,000 every year, resulting in approximately that construction, despite important changes
250,000 more couples demanding a home. brought about by Programs such as MIVIVI-
ENDA and Techo Propio presented later on in
this report, is still concentrated in profitable
1.2 DEFICIENT AFFORDABILITY
large projects while income levels in Peru re-
CONDITIONS AND NEED main extremely low. Poverty levels in the coun-
FOR HOUSING FINANCE try are, indeed, very high. As presented in the
The explanation behind the huge housing 2006 IMF Country Report,18.1% of the popu-
needs faced by Peru at present is extremely com- lation lived on less than 1 USD a day in 2001,
plex. On the demand side, massive internal mi- with the 2015 target set at 9.1%.
gration movements from rural to urban areas, Assuming an average housing price of
the economic crisis and natural disasters such as 30,000 USD, it would take a household in
the recent El Niño phenomenon have undoubt- the B group (with an average monthly income
edly contributed to the high unmet demand per capita of 107 USD) almost 6 years to buy
for housing in the country at present. On the a home if it dedicated its entire income to the
supply side, the construction sector has suffered purchase. For those in the C strata, it would be
from—in addition to this limited demand—in- 8, 13 for D and as high as 23 for the poorest
adequate urban regulation and excessive bu- section of the population, E.
reaucracy, registering three consecutive years of
Housing activity data is unavailable for the country
This figure is obtained assuming almost everybody as a whole. Available information is exclusive to the
marries and there’s a 1:1 female to male ratio. This Lima metropolitan area and Callao and is provided
figure will be higher if not everyone marries, as well as by the Peruvian Construction Chamber (CAPECO), an
if other reasons to demand houses are also considered organization that has been funding studies on the
such as renovation of stock, second hand houses, etc. construction sector in this area since 1996.
Housing finance mechanisms in Peru
The huge housing needs in the country and In recognition of the magnitude of the
the unfavourable affordability conditions — housing deficit and affordability problem in
with housing price to income ratios of as high Peru, the Government has historically been
as 23 in the Lima metropolitan area even for the very active in promoting housing finance and
richest quintile of the population — evidence improving households’ access to housing in the
the need for a housing finance system that can country, at times with greater success than oth-
improve the Peruvian population’s access to ad- ers.
equate housing.
placements of close to 200 million and 100 At best, these weaknesses aggravated the finan-
million USD, respectively, in 1982. The mar- cial difficulties faced by the institutions during
ket faced some difficulties in the period from the crisis and accelerated their collapse.
1983 to 1985, particularly in the case of BCHP, One of the main problems faced by the
which gradually lost market share to mutuals, public system was moral hazard. In a context of
but activity resumed once again in 1986, with high inflation and falling incomes, households
mortgage loans granted in 1987 amounting to a in difficulties were reluctant to spend their wan-
record 500 million USD. ing earnings in paying back loans that had been
Despite its initial success, though, this granted by the State, particularly since many
housing finance system was doomed to fail as a considered the Government largely to blame
result of a number of factors, several exogenous, for the recession. Default rates on mortgage
but many endogenous to a public housing fi- loans, which were below 8% in the early 80s,
nance model that flourished in many Latin had already reached 20% by the middle of the
American countries in the second half of the decade and increased even further at the height
20th century only to later collapse by the end of the crisis, drastically reducing capital inflow
of the 80s. And Peru was to be no exception. into mutuals and BCHP. Costs, in the mean-
In 1989, the number of housing purchases fi- time, were still very high due to inadequate ad-
nanced fell drastically, from 18,000 in 1987 ministrative and financial management. In the
to barely 2,000, and by 1990, the BCHP and case of mutuals, for instance, operational costs
mutuals financed the acquisition of scarcely 655 were as high as 34% of financial revenues dur-
dwellings in total. ing the second half of the decade (Rivas Gómez
A large part of the blame for the Peruvian y Castro Suárez, 1997), largely due to the lack
system’s downfall in the 1980s is certainly to be of competition, as a result of market distortion
placed on the effects of exogenous factors such and the crowding out effect of the private sec-
as the economic crisis and hyperinflation. In- tor—unable to compete with advantageous
deed, a brief glance at the historical evolution of rates offered by State subsidies—, which pro-
the mortgage market in Peru, as in most coun- vided few incentives for improvement. The
tries, provides clear evidence that the expansion growing number of non-performing loans com-
of the mortgage market has generally been posi- bined with high costs resulted in a significant
tively correlated with the economic cycle, evolv- reduction in revenues for the Peruvian housing
ing in line with peaks and troughs in GDP. The finance institutions.
years between 1988 and 1990 saw economic ac- At the same time, BCHP and mutuals faced
tivity decrease by 10% and inflation exceed 7%, significant restrictions in funding, which were
a situation which led to a significant reduction traditionally limited to only three sources: (i)
in the population’s income and, unsurprisingly, savings deposits, on which they offered more at-
to the subsequent deterioration in the credit tractive rates than other financial intermediaries
portfolio quality. in order to raise sufficient funding to direct to-
Yet although the relevance of economic fac- wards housing finance; (ii) resources from exter-
tors is undeniable and abundant literature ex- nal sources; and (iii) subsidized credit lines from
ists documenting the need for macroeconomic BVP, whose funds, in turn, generally came from
stability for a primary housing market to thrive, Fondo Nacional de Vivienda (FONAVI).
the endogenous weaknesses of a State-dominat-
FONAVI was an institution created in 1979 to provide
ed housing finance market (and of public bank- housing loans at preferential rates to its contributors.
ing systems in general) are also largely to blame It received regular contributions from government
employees and other segments of steadily employed
for the system’s inability to cope with the crisis. workers, as well as residential construction companies.
Housing finance mechanisms in Peru
international and regional standards. The bank- pointed out, achieved very little in terms of im-
ing sector in itself, in fact, was still very limited proving the population’s access to housing. In-
in size and scope. deed, although commercial banks’ involvement
The second observation to be made is that in mortgage lending guaranteed independence
the mortgage market growth was quite mislead- from State funds and the whims of changing
ing in terms of judging the success of the hous- governments, in addition to significantly im-
ing finance system, since the 1990s saw scarce proving financial and administrative manage-
improvement in the population’s access to hous- ment, the new system was unable to cope with a
ing or in the reduction of the housing deficit. A number of factors that limit the effective supply
huge percentage of the population—more of- and demand of mortgage loans in developing
ten than not, the group with the greatest need countries.
for housing—was unable to meet conditions By the late 1990s it was apparent that neither
on conventional loans and was left outside the the State dominated housing finance system of
growing mortgage market in the 90s. the 1980s nor the solely private system were able
to adequately deal with the housing problem in
2.4 ANOTHER FAILED HOUSING Peru or the challenge of boosting the develop-
FINANCE MODEL ment of the financial market while at the same
time alleviating the population’s housing needs.
After the expansion of second half of the However, important lessons were learned and
nineties, the mortgage credit market began to applied in the design of an innovative housing
experience a slowdown in 1999. One of the rea- finance Program which has achieved great suc-
sons for this decline was, yet again, the coun- cess in Peru in the first years of the 21st century,
try’s macroeconomic situation. The Asian crisis Crédito MIVIVIENDA.
that shook the global financial markets in 1997, Mortgage Finance for Medium and Low
swept across Latin America and took its toll on Income Households: Fondo and Créditos MI-
Peru as well, where financial institutions inevi- VIVIENDA
tably experienced the credit crunch.
But financial market fluctuations were
2.5 ADDRESSING HOUSING
once more only partly to blame for this stall in
FINANCE MARKET NEEDS
mortgage lending activity in Peru. The growth
of the private sector housing finance system in The development of the private sector hous-
the 1990s was fuelled by the scarce few who ing finance system in Peru during the 1990s un-
could afford and meet conditions on loans. fortunately achieved little in terms of resolving
Once these wealthy groups’ needs were met, the housing and affordability problems for a major-
number of mortgage loans being granted began ity of the population and evidenced the need
to wan, inevitably slowing down the housing for public support in coping with the issue. At
finance market. the same time, however, the crisis of the 1980s
In fact, what the crisis brought to light was cautioned against an excessively invasive role of
that despite the initial surge—driven primarily the State that might eventually lead to the mar-
by demand from the highest income groups— ket distortion and inefficiencies plaguing public
the burgeoning private sector mortgage market, banking institutions around the world. Having
while offering important advantages with re- learned from the experience of the previous two
spect to a State-dominated scheme, still faced decades, the Peruvian Government faced the
significant limitations to its development and, challenge of continuing to promote the devel-
even more importantly, as has already been opment of the private sector housing finance
10 Housing finance mechanisms in Peru
BOARD OF DIRECTORS
FMV Regulations1 set out a Board of Directors made up of 7 member.
The President of the Board is the Minister of Housing, Construction and
Saneamiento, accompanied by the Minister of Economy and Finance, the
Viceminister of Housing and Urbanismo, a representative of the Executive
Power and a representative of the Corporación Financiera de Desarrollo
EXECUTIVE COMMITTEE
(COFIDE), as well as two representatives from the Private Sector.
The Minister of Housing, the Minister of
Functions and Responsibilities Economy and a representative from the Private
• Establishing directives to manage, administer and direct FMV resources Sector make up the Executive Committee.
• Take necessary measures to protect FMV resources
Functions and responsibilities
• Approve financial conditions on credit lines to IFI
• Take necessary measures to protect FMV resources
• Determine conditions and limitations to credit risk
• Approve financial conditions on credit lines to IFIs
insurance on loans and other credit guarantees
• Determine conditions and limitations to credit risk
• Determine financial incentive schemes for beneficiaries
insurance on loans and other credit guarantees.
such as Premium for Good Payment (PBP)
INVESTMENTS COMMITTEE
The Board of Directors determines the size and composition of this committee, in which the
INTERNAL AUDITOR OFFICE FMV Executive Secretary acts as Secretary.
Functions and responsibilities
• Approve the use and placement of FMV resources
• Approve eligibility criteria for entities in which FMV resources
are placed, as well as limits to placement of funds
• Approve eligibility criteria for financial institutions that will be receiving
FMV funds for financing, as well as limits each IFIs exposure
• Approve terms and conditions under which FMV resources are made available to IFIs
• Make proposal to Board of Directors on financial conditions on credit
lines granted to IFIs to finance mortgage credit activity
• Approve Credit Regulation and any amendments
• Make proposal to Board of Directors on conditions on credit risk insurance
EXECUTIVE SECRETARIAT
11
The Executive Secretariat is in charge of managing FMV in accordance with guidance lines
determined by the Board of Directors and it operates with technical, economic, functional and
administrative autonomy. The Secretariat is headed by the Executive Secretary, appointed by the
Executive Committee and designated by Supreme Resolution ratified by the Ministry of Housing.
FONDO MIVIVIENDA ORGANIZATIONAL STRUCTURE (II):
MANAGEMENT AND DAILY OPERATIONS
12
EXECUTIVE SECRETARIAT
Heads five Gerencias and a Legal Support office that are in charge of the daily operations of FMV
foster the growth of banks’ long-term lending Programa Quinto Suyo (The Fifth Region Pro-
activity but is not necessarily sufficient to en- gram) and Savings from Remittances
courage banks to service lower income groups. A growing trend in recent years given the
To address this issue, the FMV provides Co- large number of Peruvians living abroad and
bertura de Riesgo Crediticio (Credit Risk Insur- sending money back home to their relatives has
ance), commonly referred to as CRC, which been the promotion of savings from remittances
reimburses financial institutions with 1/3 of and their use in home purchases through the
subordinated loss in case of default. Quinto Suyo Program. Thanks to agreements
signed with foreign financial intermediaries,
Promoting targeted savings by several Peruvian commercial banks10 currently
households for home purchases offer Peruvian migrants in a growing number
Given the size and scope of the informal of countries (currently, US, Spain, Italy and Ja-
economy in Peru, many households and indi- pan, but soon also Chile) advantageous condi-
viduals are left outside the mortgage market tions on remittances that are directed towards
due to the difficulties they face in proving to financing Créditos MIVIVIENDA for relatives
banks their access to a regular source of income. back home. The Fondo Mivivienda and the
A number of savings mechanisms have been de- Ministry of Housing are participating in these
veloped to help resolve this issue. efforts, appearing in numerous conferences and
fairs abroad, along with representatives from
Ahorro Hipotecario Previo (Pre-Mortgage Savings participating commercial banks, to promote
Account) this savings mechanism which, based on the
In the numerous instances in which poten- same principle as Ahorro Hipotecario Previo,
tial beneficiaries of Crédito MIVIVIENDA offers migrants the possibility of purchasing a
may be able to afford the loan but do not have home for relatives in Peru that do not have ac-
any proof of regular income in the form of a cess to mortgage lending. The next step, given
pay slips, contracts or even monthly invoices the market potential and most migrants desire
(given the low levels of bancarization), they to return to their home country in the future,
may resort to Ahorro Hipotecario Previo. This is to modify MIVIVIENDA regulation and al-
mechanism allows individuals without proof low Peruvians abroad to become the direct ben-
of formal income to qualify for loans by mak- eficiaries of the program, but a number of issues
ing regular deposits in a savings accounts for are still to be resolved in this regard.
a fixed period of time. With an initial down
payment of 30% of the property value, in or-
Suyo is quechua for region or province. The name of
der to qualify for a Crédito MIVIVIENDA the the Program, the Fifth Region, refers to the four regions
into which the Inca Empire was divided and which
potential beneficiary must previously deposit made up the Tahuantinsuyo (Four United Regions).
in a savings account every month, for a mini- The large part of the Peruvian population abroad
mum of three months, an amount equivalent is considered to conform this fifth region and the
to the mortgage’s monthly instalment, as well program has evolved over the years into an important
channel of communication and a link between
as the amount of the down payment. With a Peruvian communities in foreign countries.
down payment of anywhere between 20 to 29% 10
To date, Interbank and Banco del Crédito de Perú
of the property value, the potential beneficiary participate in this Program, although interest from
must make the monthly deposit of an amount other commercial banks is growing. Regarding
remittances, the Postal Services of Peru (SERPOST) also
equivalent to the mortgage payment for a pe- offer advantageous conditions on remittances sent
riod of six months. back home by Peruvians abroad, although without
specifying any use to the funds.
14 Housing finance mechanisms in Peru
35 UITs11 (approximately 32,000 USD), while of the loan can mortgage his/her apartment 12
the total value of the dwelling may not exceed months prior to its completion in order to pay
50 UITs (approximately 45,700 USD). the constructor
Additional characteristics: PBP, CRC and Bien Procedural and Operational Aspects
Futuro Peru’s Corporación Financiera de Desarrollo,
In addition to the specific requirements COFIDE (Development Finance Corporation),
beneficiaries and purchased properties must acts as the financial agent, placing the program’s
meet in order to qualify for a loan, Créditos funds with qualified financial intermediaries
MIVIVIENDA differ from conventional loans (IFIs) and is in charge of collecting payments
in their offer of PBP (Premium for Good Pay- from them.
ment) and CRC (Credit Risk Insurance). An- The IFIs are eligible to receive FMV re-
other characteristic of these loans is they finance sources under certain conditions:
bien futuro (future house). MIVIVIENDA of- n They must be under supervision of the
fers a 12 month grace period on payment for SBS, either directly or indirectly
homes that are planned or under construction. n They must not be under surveillance of
This means that, for example, the beneficiary
11
UIT (Unidad Impositiva Tributaria) Peruvian Tax Unit
used as a reference in fiscal regulation to maintain
taxable amounts, deductions etc in constant terms.
Currently equivalent to S/.3,200.
16 Housing finance mechanisms in Peru
the SBS nor be subject to any sanctions or nominated banca múltiple in Peru) have been
process of financial restructuring required responsible for most of the Program’s activity,
by SBS or any other legally recognized su- granting 90% of Créditos MIVIVIENDA. But
pervisory authority although their share of the market has been rel-
n They must not have any litigious disputes atively constant, this has not been the case for
or legal actions pending regarding FMV other entities such as CMAC, CRAC, Edpymes
n Any other conditions deemed necessary by or Financieras. CMAC are quickly becoming
the FMV Board of Directors the second biggest players in the market, hav-
The channelling of resources from Fondo ing granted almost 5% of all MIVIVIENDA
MIVIVIENDA to the final beneficiary works loans over the past three years, while the CRAC
in the following way: for their part have lost much of their relevance
The conditions offered to financial interme- (from a share as high as 14.2% in 2000 to barely
diaries on financing are as follows: 2% in 2005). Edpyme and Financiera’s share in
the market is less noticeable but their progress
2.9 EXTRAORDINARY GROWTH has also been steady over the past few years.
IN RECENT YEARS Incidentally, there is little difference in MI-
VIVIENDA players’ share of the market in
The impressive growth experienced by terms of debtors and of volume outstanding,
Créditos MIVIVIENDA over the past three which suggests that MIVIVIENDA loans be-
years has made up for its slow initial start. In ing granted are fairly homogeneous in terms of
2002 only 5,500 households were beneficiar- volume regardless of the type of lender.
ies of a Crédito MIVIVIENDA, while at the In terms of geographic distribution, there is
end of 2005 this number has risen to almost a strong concentration in the area of the capital.
30,000. The total volume outstanding of MI- Close to 80% of Créditos MIVIVIENDA have
VIVIENDA loans has also followed this same been granted in Lima. Trujillo and Arequipa
trend and at end 2005 amounted to approxi- follow far behind with less than 5% of total
mately 200 million USD, more than six times loans having been granted there.
the 2002 volume.
Although one of MIVIVIENDA’s aims
2.10 THE SECRETS TO SUCCESS
was to involve a greater number of players in
the mortgage market, commercial banks (de- After the failed experiences of the previous
MIVIVIENDA PROGRAM
Banks
Financieras
Cajas Municipales
20-year term HOUSE
Mortgage BUYERS
Loans
$0'*%&
Funding for Cajas Rurales
Financial
.*7*&/%"
institutions
Edpymes
Cooperatives
Housing finance mechanisms in Peru
CRC PBP
17
18
ENDA was only to be expected, given that the FMV Offices across Peru
program caters exclusively to a sector of the
population in grave need of housing finance
but otherwise unable to obtain a mortgage loan
from commercial banks. Créditos MIVIVIEN-
DA offer, nevertheless, attractive advantages to
beneficiaries and creates incentives to encour-
age prompt payment
On the one hand, Créditos MIVIVIENDA
offers the PBP or Premium for Good Payment.
On the other, Créditos MIVIVIENDA also of-
fers Bien Futuro, which allows for a 12 month
grace period in the cases of homes that are
planned or under construction.
7% 6,4%
6%
5% 4,5%
4,1%
4% 3,4%
3%
2%
1%
0,2% 0,3% 0,3% 0,3%
0%
June 03 Dic 03 June 04 Dic 04
er-builder is responsible for the construction of During construction, the role of BANMAT
the project and beneficiaries must be grouped in is to grant funding and supervise. Once the
an associations of no less than 20 (e.g. a group of builder has completed construction and ben-
teachers, post office staff, etc.). The beneficiaries eficiaries have received their homes, the only
must be under 60 and be able to prove owner- relationship that remains is that of BANMAT-
ship of a piece of land by one of the individuals beneficiary, as is the case in Vivienda Progresiva
or by the association. The Vivienda Básica pro- and Vivienda Nueva.
gram fund up to 90% of the project, to a maxi-
mum of 14,000 USD. Loans are granted with a 3.3 OTHER INITIATIVES
maturity of 20 years, without any prepayment
penalties, and the annual interest rate charged In recent years, the Ministerio de Vivien-
is approximately 9%. The monthly payment to da, Construcción y Saneamiento in Peru has
income ratio must be below 3 and beneficiaries launched a number of programs which do not
must have saved the initial 10% quota. offer direct financing of home purchase, con-
The guarantees on the loan for BANMAT struction, or improvement for individuals—and
in the case of Vivienda Básica are twofold. On can therefore not be considered housing finance
the one hand, the beneficiaries mortgage the mechanisms as such—, but which contribute
property. On the other, the builder offers a let- nonetheless to the enhancement of housing and
ter of guarantee. living conditions of lower income groups in the
country and thus play an important role in the
reduction of the existing housing deficit.
BANMAT
Supervises
Financing In charge of technical, legal
Agreement Credit contract
and credit evaluation
Loan Mortgage
payment
16.000.000
14.000.000
12.000.000
10.000.000
8.000.000
6.000.000
4.000.000
2.000.000
-
2000 2001 2002 2003 2004 2005
30%
28%
25%
20%
15% 13%
12%
9%
10%
5% 2% 1% 4%
0%
-1%
2000 2001 2002 2003 2004 2005
-5%
-5% -5%
-10%
Total loans(%) Total housing (%)
case of soles-denominated mortgage loans, al- standing and number of household debtors,
though these currently represent only 4% of the although the distance is quickly being reduced,
total mortgage portfolio. with MIVIVIENDA at the source of 75% of
The crucial contribution to mortgage mar- the growth experienced by the overall mortgage
ket expansion in Peru at present, however, has market in Peru in recent years.
come from the success of Créditos MIVIVI- Indeed, the Peruvian mortgage market has
ENDA, which has stimulated banks’ expansion expanded at the pace of the MIVIVIENDA
into the mortgage business through innovative program. In 2000, MIVIVIENDA credits rep-
instruments, as well as ensuring the existence resented barely 1% of the total mortgage port-
of effective demand for mortgage loans and folio, amounting to 11 million USD of a total
thereby guaranteeing the sustained expansion portfolio of less than 1 million USD. In 2005,
of the market (versus what happened in earlier this Program’s share had risen to 32%, account-
episodes in the nineties). Effectively, the pro- ing for 626 million USD in a market that has
gram has also divided the Peruvian mortgage doubled in size in the past few years and is still
market into two complementary but very dif- on the rise. With regard to the number of debt-
ferent submarkets: conventional mortgages and ors instead of volume outstanding, MIVIVI-
MIVIVIENDA loans. ENDA’s relevance is even greater. In 2000, the
number of Credito MIVIVIENDA beneficiaries
Market Segmentation amounted to barely 600. By end 2005, 28.781
The traditional mortgage market at present households were beneficiaries of a Crédito MI-
is still significantly larger than the MIVIVI- VIVIENDA, a number that accounts for 44%
ENDA market, both in terms of volume out- of total households with a mortgage loan (of a
total of 65,400). In the period spanning from
50.000
45.000
40.000
35.000
30.000
25.000
20.000
15.000
10.000
5.000
-
2000 2001 2002 2003 2004 2005
50%
44%
45%
40%
35% 30%
30% 28%
25%
18% 18%
20%
13% 14%
15% 12%
10%
10% 6% 6%
5% 1%
0%
BCP BBVA BWS/Sud Interbank BIF Del Others
Trabajo
2002 to 2005, 68% of volume outstanding and cant differentiation between traditional mort-
72% of new debtors may be traced to MIVIVI- gages and Créditos MIVIVIENDA. Both must
ENDA. still be improved however in order to meet in-
With a 96% total market share, commer- ternational standards applied in OECD coun-
cial banks (“Banca Múltiple”) unquestionably tries.
dominate the Peruvian mortgage market as a Based on all the above, it is not surprising
whole, although some differences arise between that the marked segmentation of the mortgage
submarkets. In the case of traditional mortgag- market in Peru is very visible in terms of the
es, the commercial bank predominance is even customer profile.
greater, with practically a 100% share. In the
case of MIVIVIENDA, however, CMAC, Ca- Potential for Growth
jas Rurales and Edpymes represent a growing, It must be noted, however, that despite
although still very small, share of the market its spectacular expansion during the past few
portfolio (60 million USD). years, given its low initial levels, the Peruvian
With regard to terms and conditions on mortgage market is still very small, compared
loans, as is to be expected, there is still signifi-
25%
21,2%
20,0%
20%
14,4% 14,8%
15%
10%
4,5%
5%
2,4%
0%
Colombia Chile Perú
not only to OECD standards but also to other mortgage activity and a series of other risks that
Latin American countries. affect the financial system as a whole, such as
One of the factors to take into account is the existing currency and maturity mismatch,
the low level of bancarization of the economy as well as the limited funding available for the
and that fact that lending activity in general continuation of housing finance programs.
is very limited. Although the Peruvian bank-
ing sector has experienced significant growth in Scarce effective demand
size and scope during the past four years, cur- for mortgage loans
rent bancarization ratios continue to be well be- In spite of the existing quantitative and
low international, and even regional, levels. To- qualitative housing deficit, effective demand
tal loans, for instance, currently represent only for mortgage loans is still low in relative terms
15% of GDP in Peru, whereas this percentage and, as we have seen, in many cases even the
exceeds 20% in neighboring countries such as subsidized mortgage market is insufficient to
Chile or Colombia and over 100% in EU coun- improve most Peruvians access to housing. The
tries and the US. This limitation is best illus- fundamental reasons that explain the scarce ef-
trated by the fact that although mortgages as a fective demand for mortgage loans in Peru—
percentage of total loans have risen from 9.1% and in other emerging markets—are three: the
to 14.8% from 1999 to 2005, their size relative population’s inability to (i) pay, (ii) show proof
to GDP has only increased in 0.3 percentage of income and (iii) show proof of ownership.
points over the same period of time.
And even taking this into consideration, Inability to pay
the percentage of mortgage loans to total lend- The slow foreclosure procedures and inad-
ing continues to be low, 14.8% in Peru versus equate market risk management available to
21.2% in Colombia, and 20% in Chile. The many banks results in banks offering very de-
good news is that the potential for growth of manding financial terms on mortgage loans.
the mortgage market in Peru continues to be In the current context of low income levels and
huge, a conclusion also backed by the scarce high housing prices, conventional mortgage
amount of households that have a mortgage loans are thus unaffordable to more than 90%
loan at present. Only 65,400 households are of the Peruvian population. And with 50% of
mortgage debtors, barely more than 1% of total the population living below the poverty level,
households. even subsidized State-supported instruments
such as Crédito Mivivienda and Techo Propio
4.2 CONSTRAINTS cannot reach all of the population.
For growth in the Peruvian mortgage mar- Informal economy and unemployment
ket to continue, however, a number of obstacles In addition to the high percentage of the
must be dealt with, many of which are already population that cannot afford a loan outright,
being addressed by current and new State-de- there is also a considerable number that can
signed housing finance mechanisms, but a afford the monthly payments but is unable to
number of which do not pertain exclusively to show adequate proof of regular income—such
the area of housing or finance and face difficult as a pay slip or a contract—to the bank in order
solutions in the short-term. to obtain it. This is the case, for example, of
The main issues at hand are the scarce ef- the estimated 1,670,000 Peruvian (10% of the
fective demand for mortgage loans, combined adult population) that live on remittances re-
with banks’ cautiousness in expanding their ceived from relatives working abroad in North
34 Housing finance mechanisms in Peru
America, Europe, Japan and other Latin Ameri- population has quadrupled from 1.5 million to
can countries17 or those working in the informal almost 7 million18. Most of this massive expan-
economy. Although its size is difficult to deter- sion has been driven by poor migrant families
mine, the high rates of unemployment suggest from the Peruvian countryside who have built
that the informal sector—as is the case in many their homes on the outskirts of the city, without
other emerging markets—irregularly employs a legal title or formal recognition and, more of-
significant share of the working population. ten than not, in dismal conditions. Over time,
The size and scope of the Peruvian informal many of these informal settlements have devel-
economy and the low level of bancarization oped into full-fledged urbanized areas, some
and relation with financial institutions justifies with running water and electricity, but no legal
bank’s caution in asking for reliable proofs of formalization has taken place.
income before granting loans to new customers In the absence of registration documents,
(particularly in the absence of adequate credit these “owners”-builders have no collateral to of-
information sharing mechanisms), but it makes fer to banks and thus find themselves outside
underwriting criteria applied by banks, albeit the mortgage market despite the fact that many
theoretically meeting international standards, earn some type of informal income and often
particularly restrictive since the constraint is no save up during years to be able to finish their
longer being able to afford the loan, but rather self-built home or make necessary additions.
being able to prove it. Fondo Mivivienda and This group of people would actually be able to
Ministerios de Vivienda’s initiatiatives such as afford small, short-term loans to make home
Ahorro Previo and Programa Quinto Suyo have improvements and enhance their living condi-
so far achieved remarkable progress in this re- tions, perhaps even build additional construc-
gard and allowed a high percentage of the pop- tions in their family plot to house relatives, if
ulation access to loans they could previously they had proof of property.
afford, but were being denied. Efforts must still
be made, however, to formalize large sectors of Caution from the supply
the economy. side in granting loans
The obstacles to further development of the
Lack of registered property
housing finance market are not only limited to
A large part of the population is cut out of
demand but closely linked to supply as well. In-
the market as a result of legal issues, namely the
deed, the scarce effective demand for housing
lack of ownership titles on built property that
loans is largely determined by the conservative
is often in dire conditions and could greatly
underwriting criteria and demanding financial
benefit from money invested in improvements.
terms offered by commercial banks, who often
The large number of Peruvians that do not have
cater exclusively to the highest income groups
adequate proof of ownership of the homes they
and effectively leave most of the population
live in is largely a result of migration movements
outside the private mortgage market (as was
during the past fifty years. Since 1960, Lima’s
the case during the 1990s). Which is not to say,
17
Although this percentage is lower than in other
however, that under current conditions banks
countries in the region (38% in Dominican Republic,
28% in El Salvador, 18% in Mexico), the close to 2,500 can be blamed for not fostering population’s
million USD which entered the country in 2005 are the greater access to housing. Peruvian banks’ cau-
main source of income for approximately 1 in 10 adults tiousness in granting loans is legitimized by, on
in Peru. The average remittance in Peru is estimated
the one hand, inadequate credit and market risk
at 166 USD and is received nine times a year. Source:
Inter-American Development Bank. (Nota de Prensa management associated to a lack of credit his-
diciembre 2005) 18
2005 Census.
Housing finance mechanisms in Peru 35
19
Foundations of Housing Finance. Chapter 15
36 Housing finance mechanisms in Peru
working towards resolving them, offering ad- execution of the property), to a maximum of
vantages, for instance, to soles-denominated one third of the outstanding volume.
loans with the objective of reducing the dollari- In addition to this effort to undercut moral
zation of the economy. To manage this prod- hazard, another important change is that the
uct. FMV has created two distinct funds, one fee charged for CRC will vary in accordance
for PBP and another for CRC, each separately to the maturity of the loan, i.e. a loan with a
administered and with individual investment longer maturity will be charged a higher fee.
policies that will ensure their respective pay- Fees, in all instances are determined in each
ment capacities. specific case by a financial model that takes
More specifically, with regard to CRC, the into account Probability of Default (PD), Loss
new product reduces the existing guarantee in Given Default (LGD) and Exposure at Default
order to ensure financial institutions participate (EAD). Although it may appear that charging a
in all potential losses and thereby align their fee means that CRC is no longer subsidized by
interest with those of FMV and ensure they the State, one of the key inputs in the model in
maintain the utmost standards in the origina- determining this fee is actually the capital held
tion and administration process. In this new by the CRC fund. Since this initial capital is
scheme, CRC is reduced from covering one provided by the State (through FMV), a sub-
third of the subordinated of the loan balance sidy still clearly exists even if FMV is charging
to simply covering one third of the losses (after a fee.
The Premium for Good Payment (PBP) has Product Nº2: Standardization and Financing of
also been reduced under this new scheme, from Mortgage Portfolios
20% to 15%. As is the case with CRC, the ma- Since FMV will not act as a second tier bank
turity of the loan has also been taken into ac- in this new phase, new problems may arise.
count when calculating the fee to be paid by Larger banks will continue to have ready access
the financial institution (and transferred to the to liquidity thanks to their expanding deposit
consumer). Even though the PBP does not re- base and the possibility of direct issues to the
quire a subsidy, FMV will maintain a partial capital market. Medium and small financial in-
and temporal subsidy, in order to avoid a pos- stitutions, however, with a lower market share
sible slowdown of the mortgage market. FMV of deposits and insufficient rating may face li-
will therefore only subsidize the PBP of loans quidity problems if they continue their current
denominated in local currency and with a 20 rate of expansion of mortgage activity. Further,
year maturity that will not be securitized, ef- they will be crowded out by larger institutions
fectively decreasing the interest rate on these with the possibility of obtaining financing at
loans and therefore contributing to the process much more advantageous rates.
of dedollarization of the economy and decreas- In order to avoid this segmentation of the
ing the credit risk of borrowers who earn their market, FMV has developed an alternative
income in soles and in most cases belong to the mechanism for those institutions that are not
lowest income groups. well-capitalized and lack the capacity to attract
low-cost long-term funding on their own to
Product 2
Housing finance mechanisms in Peru 41
support mortgage lending. In Product 2, FMV It is expected that large banks will continue
will provide credit enhancements to securitiza- to use their own funding to offer MIVIVI-
tion of MIVIVIENDA loans, based on a specif- ENDA loans, while contracting PBP and CRC
ically designed financial model that determines (Product 1) separately in order to reap the ben-
initial capital required to face different stress efits of the subsidies and maintain the popular
scenarios and thus reduces the financial cost of MIVIVIENDA product in their portfolio. Me-
process, making it a viable and attractive option dium and small financial institutions, for their
for medium and small banks. parte, are expected to contract both Product 1
and Product 2.
5.3 MORTGAGE MARKET With FMV’s new products, larger banks
OUTCOME AND POTENTIAL that have access to liquidity, through their ex-
panding deposit base and direct issues to the
FOR GROWTH
capital market, will be able to purchase the
The products have yet to be implement- guarantee in itself.
ed but prospects are positive. With this new
scheme, FMV will effectively mobilize private
sector capital for middle and low-income hous-
ing, ensuring the sustainability of the Program
for as long as it is needed and with only a rela-
tively limited subsidy from the State.
42 Housing finance mechanisms in Peru