Synergy between social capital with housing technology -- Habitat for Humanity Int'l 1
Synergy between social capital with housing technology
By Rajan Samuel
Recently, Rajan Samuel, senior finance consultant in housing microfinance for HFHI’s Asia/Pacific Finance department met with Dr. Ruth Callanta, president and CEO of the Center for Community Transformation (CCT), which partners with HFH Philippines in housing microfinance. The reach of the microfinance program has surpassed 100,000 clients (savers and borrowers) resulting in the expansion of other integrated programs such as evangelism, discipleship, education, life insurance, social enterprise, food security and servant leadership development.
What are your thoughts on partnership and collaboration with Habitat for Humanity?
Dr. Callanta: Poverty has many dimensions; microfinance provides opportunities for the economically active population to generate income. Housing as a consumptive loan creates a productive asset, which can be used to leverage resources. Here I see a compatibility of our vision and values. There is an excellent synergy between HFH and CCT. What we have is “social technology,” which coincides with what HFH brings on board—its expertise in the area of housing technology. CCT’s relationship with HFH dates back to early 2004.
Let’s look at a few key operational modalities in managing a viable housing microfinance. How do you address the issue of sustainability?
Dr. Callanta: The microfinance outfit within CCT is registered as a cooperative. It is owned by its members, who are also its beneficiaries. The interest we charge should cover all risks and costs. The loan term for housing ranges anywhere between three to five years. CCT charges 18 percent interest per annum.
Let me quickly run through the methodology that we employ to implement housing microfinance. Every activity in CCT is fully integrated; we do not do any stand-alone activity. In order for a client to qualify for a housing loan, first, the potential client should have been serving a business loan for two years; second, the client should have a total household income of 15,000 pesos per month (US$300) and, finally, a minimum of two earning members in the family.
In terms of the cost, in addition to normal operational expenses, we need to cover expenses related to procurement and subsidize insurance premiums for our members. There is also the financial cost that needs to be covered from the interest, such as the cost of funds and interest paid on the savings. CCT pays 7 percent interest on the savings, compared to 2 percent paid by the banks.
At the end of the year, the surplus earned income is disbursed as dividends to the members. We have two types of share holdings: preferred shares and common shares. The cost of one share is 50 pesos (US$1). During 2005, 12.5 pesos were paid as dividends for each share and, at the end of 2004, 25 pesos per share were declared. During 2006 it is expected to go up.
If we have any surplus money after covering all our costs, we are mandated by the law to pay the same toward the members’ “patronage refund.”
The Gospel is central in your ministry; activities are aimed at bringing people closer to God. How do you do this?
Dr. Callanta: As I said earlier, family is the heart of our program. Housing is an excellent entry point into communities. We have a men’s fellowship, which targets the head of the household. The weekly fellowship meetings are well structured to nurture and foster the spiritual empowerment process. Our staff and project assistants are the key in facilitating this process.
How should HFH position its program in order to make an impact in the housing microfinance sector?
Dr. Callanta: HFH is in a position to play a vital role in promoting housing microfinance in the Philippines. In order to move in that direction, HFH should consider the following:
Provide housing model templates with estimates and costing
Develop training manuals and instruct trainers
Establish a community-based resource pool of technical experts (masons, engineers, carpenters, etc.)
Advocate and lobby with key stakeholders on policy issues including land tenure and title deeds
Create a guarantee fund for housing microfinance. Asia Development Bank (ADB) is in the process of creating a fund for housing. Again it is going to be too costly for MFIs to borrow from ADB. We have another good model from the Grameen Foundation, which has created a guarantee fund for MFIs to borrow for lending capital.
What are your plans for the future?
Dr. Callanta: Currently the housing microfinance portfolio is around 10 percent of the total portfolio managed by CCT. We are all set to grow from 2,000 houses to 6,000 houses in 2007. We have engaged the services of AIM (Asia Institute of Management) to facilitate the strategic plan for CCT. They have just completed external analysis and are in the process of carrying out internal analysis.
Center for Community Transformation and Habitat for Humanity Philippines
The partnership between Center for Community Transformation (CCT) and Habitat for Humanity Philippines (HFHP) was initiated by the local staff of both organizations. CCT clients were clamoring for housing assistance (which they saw at other Habitat sites) and HFHP was looking for a more efficient way to manage its loan portfolio.
Dr. Ruth Callanta, president and CEO of CCT, was already familiar with Habitat because of CCT’s prior partnership with the Greater Metro Manila affiliate at one of its project sites. CCT was supposed to provide livelihood/microfinance assistance to the Habitat homepartners, but the partnership did not go very well. The HFH affiliate felt that the homepartners prioritized paying the loan to CCT and not to Habitat, so the affiliate was no longer eager to partner with CCT in the Habitat community.
However, at the national office we thought this was a wonderful opportunity: If clients were paying CCT, but not Habitat, it simply showed that CCT had a superior loan collection strategy. We thought that it would be advantageous for Habitat to partner with CCT.
The Save & Build concept was slowly gaining acceptance. The only limitation was that Habitat affiliates tried to organize the savings groups themselves, but Habitat staff did not have the expertise to do this.
Since “outsourcing” was already a big word in the corporate world, we wondered whether we could outsource our credit function. CCT was the ready and willing solution.
CCT was also facing pressure from its clients to provide housing loans. But CCT was reluctant to do this for several reasons: housing loans were considered unproductive; a housing loan takes a much longer payment period which was not consistent with CCT’s current credit policies; CCT had no housing portfolio to lend even if it wanted to; and, finally, CCT simply did not know how to run a housing program. So, CCT saw Habitat as an opportunity.
Both organizations’ strong Christian identity formed the foundation on which a partnership framework was agreed to guide the project details. The basic operating framework is shown below:
By focusing on its core service—housing through Save & Build—Habitat would be able to provide its expertise and the other aspects of community development would be handled by CCT, supporting the other transformative interventions.
Originally, CCT included the Habitat program as part of its overall lending program. But later they decided to separate it into a cooperative because, in the Philippines, the policy environment of cooperatives is much clearer than that of microfinance.
But what about interest? At that time, HFHP was already charging an inflation adjustment of 6 percent per annum to their loans. In addition, a 10 percent administrative fee was also included in the loans. (If the house cost/loan was US$1,000 and US$900 was spent on labor and materials, the balance of US$100 was used for the administrative expenses of the affiliate.)
For CCT to charge interest in order to cover its operating cost in running the housing loan portfolio, we agreed that Habitat would only cover the incremental cost (since CCT is running a bigger microfinance program with housing as a small component). Instead of a 10 percent one-time administration fee plus a 6 percent inflation adjustment, CCT proposed around 16 percent interest. We thought it was worth trying.
Synergy between MFI and housing microfinance
The synergy was strong because both organizations focused on their core competencies. On the upside, the new product offered by CCT (housing) resulted in a huge increase in its client base. Many borrowers who opted out of CCT earlier came back in order to avail of the housing loan. In addition, they deposited their savings as part of their counterpart. So the growth was both in terms of number of clients and deposits.
Another unexpected result was the involvement of men in the program. In the original microfinance program of CCT, only women were involved. But with the housing program, CCT made sure that men were involved in the decision-making process together with the children. In doing so, the whole family became part of the transformative process and the husbands in particular became more supportive of their wives’ microfinance activities.
For more information about the CCT-Habitat partnership, please refer to the article, “Partnering with microfinance institutions to help increase repayments: A case study of the CCT-Habitat Katuparan Project,” in the International Affiliate Update, Volume 12:4 (http://partnernet.habitat.org/intradoc/groups/hfhi/documents/periodicals/pnetdoc023469.pdf)