BSP OK's rules on housing microfinance loan extension

Poor families that want to build their own homes will have an easier time doing so after the Bangko Sentral ng Pilipinas (BSP) approved the rules on the extension of housing microfinance loans by banks. In a circular dated January 6, the central bank noted that housing microfinance loans would improve the living conditions of the enterprising poor and low-income households. It also said the housing microfinance loan product, approved by the central bank in February 2008, "spurs economic activity and creates employment" through increased demand for construction materials. Under the circular, banks that plan to offer a housing microfinance loan must have a track record of at least two years of offering sustainable microfinance loans; They must also have a housing microfinance manual and trained loan officers who can properly explain the product to clients. These banks must also have a CAMELS rating of at least 3, a capital adequacy ratio not lower than 12 percent, have not been subjected to a prompt corrective action by the BSP, and have no outstanding microfinance loans. The CAMELS rating measures a bank’s capital adequacy, asset quality, earnings, liquidity and sensitivity to market risk. The scores ranges from 1 to 5, 5 being the worst. Banks must also issue a certificate on its commitment to implement its housing microfinance product based on its manual. The BSP noted that since the risk profile of the new product may be different from regular microfinance loans, banks must carefully study the ability of clients, especially new customers, to repay the loan. The central bank also requires clients availing themselves of the product to open a savings account if they do not have one yet. It also requires banks to obtain "tenure instruments" or securities maturing in 10 years as collateral for loans over P150,000 and a mortgage redemption insurance to cover against borrowers’ death or permanent disability. Clients may borrow up to P150,000 for home improvement and up to P300,000 for house construction and purchase. Home improvement and repair loans are payable up to five years, and up to 15 years for house construction or acquisition. Under the rules, amortizations must be "frequent" and must not exceed a reasonable percentage of a client’s income. The central bank said the housing microfinance product may serve as alternative compliance with the mandatory lending to agrarian and agriculture activities under Presidential Decree 717. — Don Gil K. Carreon, BusinessWorld