A/67/286 Bank, for example, has provided more than 650,000 housing loans. 93 However, housing microfinance portfolios worldwide remain very small relative to GDP and the overall microfinance activity. 94 Housing microfinance is still heavily directed towards existing business loan clients of microfinance institutions and in typical microfinance schemes, the housing portfolio share ranges between 4 per cent and 8 per cent. 55. Housing microfinance institutions employ diversified and more relaxed collateral strategies compared with traditional mortgage collateral, including co-signers, assignment of future income, payroll deduction, other financial assets such as life insurance, and “social collateral” (borrowers’ reputations, or the social networks to which they belong). 95 Some microfinance agencies seek to minimize the need for collateral by using existing client history. 96 Many home microfinance agencies, particularly in Asia and Africa, have savings requirements, which serve both as an assessment of the borrower’s repayment capacity and as a means to acquire funds. 97 56. Although microfinance agencies’ interest rates are typically lower than those of informal moneylenders, they are much higher than those charged by formal financial institutions and have much shorter maturities. In most cases, the interest rates range between 20 per cent and 50 per cent. 98 For example, MiBanco in Peru charges a 37 per cent annual rate 99 and Compartamosbanco in Mexico charges almost 70 per cent interest on its housing microfinance programme. 100 The poorer the client, the more likely the housing microfinance agency will attempt to manage default risk by reducing the time over which the client must repay the loan, increasing the interest rate and reducing the size of the loan. 101 In some cases, the small loan amount is not sufficient and needs to be supplemented by additional borrowing from external sources, which carry very high interest rates and expose the household to increased risk. The use of floating rate interest also leads to increased interest over the repayment period, sometimes up to double the original rate. 102 High interest rates increase clients’ indebtedness and reinforce a vicious cycle of poverty and the likelihood of default. 103 In some cases, long-held family assets (such as equipment or land) need to be sold, or other income flows (remittances, pensions) to be diverted into repayment. These “fallback” strategies account for the generally high repayment rates of housing microfinance, but reduce __________________ 93 94 95 96 97 98 99 100 101 102 103 18 See www.grameen-info.org/index.php?option=com_content&task=view&id=1122&Itemid=973 (accessed 19 July 2012). World Bank, Housing Finance Policy in Emerging Markets, p. 398. UN-Habitat, Housing for All, p. 20; Sally R. Merrill, Microfinance for Housing: Assisting the “Bottom Billion” and the “Missing Middle”, Urban Institute Center on International Development and Governance, IDG Working Paper No. 2009-05, June 2009, p. 4. UN-Habitat, Enabling Shelter Strategies: Review of Experience from Two Decades of Implementation (Nairobi, 2006), p. 91. UN-Habitat, Financing Urban Shelter, p. 114. UN-Habitat, Housing for All, p. 19. World Bank, Housing Finance Policy in Emerging Markets, p. 410. See www.compartamos.com/. UN-Habitat, Housing for All, pp. 24-25. P. K. Manoj, “Prospects and Problems of Housing Microfinance in India: Evidence from ‘Bhavanashree’ Project in Kerala State”, European Journal of Economics, Finance and Administrative Sciences, Issue 19 (2010), pp. 178 and 190. UN-Habitat, Housing for All, p. 23. 12-45918