Credifamilia: Homeownership within Reach in Colombia Innovative Mortgages for Low-Income Families Colombia’s housing deficit is estimated at 3.5 million families. There is a shortage of housing, and new construction can’t keep up with demand. Low-income Colombians, whether formally or self-employed, face another hurdle. Often, they can’t obtain a mortgage without a credit history or steady income. Credifamilia Compañía de Financiamiento Comercial S.A. is a new, regulated financial institution in Colombia that applies microfinance principles to housing loans for low-income homeowners. Credifamilia will allow tens of thousands of Colombians from the base of the byramid to get a loan and buy a home. The Opportunities for the Majority Initiative (OMJ) is providing Credifamilia with a $5 million partial credit guarantee so it can borrow up to $9 billion Colombian Pesos from the local market and attract additional capital to finance its mortgage portfolio. Shortage of Affordable Homes and Loans The recent global economic downturn had little effect on Colombia’s economy, and mortgage lending increased. Yet, low-income Colombians were largely shut out of the home buyers’ market, as their access to financing is very limited. Compounding the problem is a housing shortage exacerbated by the country’s worst floods and torrential rains which left tens of thousands homeless, and hundreds of thousands of houses severely damaged. New construction is underway. However, to manage risk and avoid empty inventory, Colombian builders require full payment before building. Future owners must make down payments and obtain mortgages before they move in. Housing, including low-income housing, is a government priority and considered a crucial pillar of poverty alleviation and economic growth. Yet, the traditional banking industry has not offered mortgages to large numbers of Colombians at the Base of the Pyramid because of costs and risks to tailor operations,
analysis and portfolio management for loans to individuals with little or no credit history or collateral.
Tailoring Low-Income Financing while Managing Risk Credifamilia started operations in the first quarter of 2011 as a new kind of financial institution. Rahul Desai, Opportunities for the Majority Project Team Leader says, “It is the first regulated financial institution in Colombia dedicated exclusively to the low-income housing market.” Seven big low-income housing builders are Credifamilia’s largest shareholders; they bring experience and knowledge of the market. To reach buyers, Credifamilia operates through commercial offices in partnership with homebuilders and often originates loans within existing projects. Loan officers check sales, cash flows, financial records, inventories, and professional reputations of low-income self-employed applicants. They use innovative ways to check credit of formally employed individuals with small but steady incomes who are often rejected by traditional banks. The minimum mortgage is US $3,000 and the maximum is US$28,464. By law, borrowers must have a 30 percent down payment. Loan officers work with eligible clients to access government housing subsidies, and to finance the remainder. Credifamilia has begun lending in Colombia’s capital, Bogota, and surroundings, and will offer mortgages in other major cities like Cali, Medellin and Bucaramanga. It will originate loans in urban and suburban areas where large low-income housing construction projects are underway. Regulations do not allow Credifamilia to take out a foreign currency loan since its mortgages are in Colombian Pesos. OMJ’s partial credit guarantee allows Credifamilia to access a loan from the local market with a five year maturity—terms not available to a start-up financial institution in Colombia. During the life of the loan, an estimated 16,000 low-income mortgages will be originated. Credifamilia’s success in providing those at the base of the pyramid access to mortgage financing could increase ownership and spur other financial institutions to offer low-income loans.
For more information about the program, contact: OM-IDB@iadb.org