HousingMicrofinanceinThePhilippines:ThecaseofTulaySaPagunlad,Inc.

(TSPI)

ExecutiveSummary
TSPIshousingmicrofinanceloanbeganasaloyaltyprogramforlongtimeborrowers.Butin6years,it has expanded to 75% of TSPI branches throughout The Philippines. TSPI quickly realized that they could reach thousands of poor Filipinos seeking to improve their shelter by offering a loan that responds to the demand of their clients. TSPI is now a recognized pioneer in providing home improvement loan products in The Philippines. What emerges throughout this case study is the role that institutional commitment from the inception stage has on the success or failure of the product pilot and institutionalization. Additionally, the case study examines the role of partnerships, specifically in the pilot phase, in the development of products. These lessons are relevant for any MFIsconsideringofferingahousingmicrofinanceloan.

I.Introduction&Background
ThiscasestudypresentskeylessonsarisingfromthehousingmicrofinanceexperienceofTSPI. Specifically,thiscasestudyseekstounderstand: 1. howTSPIfounditselfattheforefrontoftheprovisionofhousingmicrofinanceinThe Philippines; 2. lessonslearnedfromthedeliveryofhousingsupportservices;and, 3. considerationsforscale. ExampleofTSPIHomeLoan usage: TSPI1istheoldestMFIinThePhilippines.TSPIisamission drivenorganizationthataimstoprovideindividualsand communitiestheopportunitytoexperiencethefullnessoflife throughabroadrangeofmicrofinanceservicesformicroand smallenterprisedevelopment.Uponstartingoperationsin 1981,TSPIsfirstprogramwasanindividuallendingprogram targetingsmallentrepreneursandothereconomicallyactive poorsuchastricycledriverswithbusinessexpansionplansthat couldcreateeconomicopportunity.Althoughitbeganwith KitchenImprovement individuallending,TSPIbecameaGrameenmodelreplicatorin 1992.TSPIsexpansionintosocialdevelopmentloanssuchas housingwasastrategicmovealignedwiththeirmissiontohelp theircommunitiesimprovemorethanjusttheirbusinesses. TSPIsoonrealizedthatdespitehavingsuccessful microenterprisessomeclientswerestillunabletoraisethe capitalneededtoprovidesecureandsturdyhousingfortheir families.Tocelebratetheir25thAnniversary,in2006,TSPI NewHouse developedahousingrewardprogramforhighperforming clients.WhatTSPIdiscoveredfromthisbriefexperimentwith housingmicrofinancewasthatbyinvestinginthesefamilyshomes,homebasedbusinesses productivityincreased.Bythistime,TSPIalreadyrealizedthatmanyfamiliesweresiphoningoffpart
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TSPIisanonstock,nonprofitdevelopmentorganizationregisteredwithSecuritiesandExchangeCommission(SEC)..

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 oftheirbusinessloansfornonincomegenerating TableOne:HousingLoanProductKey activities,suchashousing,affectingthegrowthoftheir financialperformancestatistics(July2012) businesses. TotalAmountDisbursed US$7,000,000 In2006,TSPIestablishedapartnershipwithHabitatfor LoansDisbursed 11,000 HumanityPhilippines(HFHP)togarnertheirsupportand Avg.LoanSize US$732.00 technicalexperienceinhousingforthepoor.Underthe PAR 1.62% partnership,TSPIengagedHFHPtoprovidetechnical assistanceinthedevelopmentandimplementationofahomeimprovementloanproduct.The partnershipcombinedTSPIscompetenceinmicrofinancewithHabitatscompetenceinhouse constructionforlowincomepopulations.HFHPhilippinesprovidedinstitutionaltechnicalsupportand constructiontechnicalassistancetopilotthenewproductin4branchesinMetroManila:Taguig, Paranaque,Antipolo,andLasPinas.Bothorganizationsworkedtogetherfortwoyearsuntil completionofthepilot.FromthispartnershipTSPIwasabletobuilditsinternalcapacitytoprovide housingproducts.Managementalsorealizedtheeffectivenessofcombiningthefinancingforhousing withnonfinancialsupportservicesforthehousingandsanitationloanprogram.TSPItookthe productto128of167brancheslocatedthroughoutThePhilippines,acountrythatcomprisesa7,107 islandarchipelagointhewesternPacificOcean. ResponsetoTSPIshousingproductshasbeengood,speakingtothehighdemandforimproved housingthroughoutruralandurbanareasofThePhilippines.AsTable1shows,TSPIhasdisbursed 11,000housingmicrofinanceloansworthover$7millionsince2006.

II.FromPilottoIntegratedProduct
OpportunitiesandConstraintsforHousingMicrofinanceinThePhilippines
SeveralmillionFilipinosliveinsubstandardhousingconditions,andcontinuedmigrationintothe urbanareasisaggravatingshelterdeprivation.Thereareover500,000informalsettlersinMetro manilaand5.8millionthroughoutThePhilippines,yetthereisahousingbacklogof3.75million families.Commercialandbusinessdevelopmentsinurbanareashavenotbeenaccompaniedby housingdevelopment,especiallyinMetroManila,anditcanbeassumedthathousingdevelopment willcontinuetolagbehind.ThepoorinThePhilippinescanaccesssomeofthegovernmentssocial housingprojects,howeverthesupplyofsuchprojectscontinuestobeinsufficienttoaddressthe demand.Continuedmigrationtotheurbanareas,particularlyManila,israisingthepriceofshelter. ThePhilippinesisthemostdisasterpronecountryintheworldaccordingtoUNOCHA(2011),usually affectedby15cyclonicstormsperyear,andintheaftermathofdisasters,rebuildingmustbeboth quickandefficient. Withinthiscontext,TSPIisinaratheruniquemarketpositionasthefirstandonlyMFIproviding housingmicrofinanceproductsinThePhilippines.Despitehighdemandforhousingimprovement, renovationandrepairs,thismarketisunderservedbythehousingfinancesector.Theprimarysources offundsforhomerepairforthebottomofthepyramidincludegovernmentsubsidiesandpersonal savings/income.Additionalopportunitiesforhousingmicrofinancecouldincludeexpandingto bundledproductsincludingmicroinsuranceandmicrosavings.Despiteregulatorychangesallowing MFIstolendforhousing2inThePhilippines,themicrofinanceclimateissuchthatMFIsarenot
HousingMicrofinanceisregulatedbyBangkoSentralngPilipinaswhichissuedCircular678on6January2010recognizing loansforhousingtomicrofinanceclientsaspartofawiderangeoffinancialservicestotheMFIsector
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 movingintothisspace,mostlyduetothefocusonreducingoverindebtednessandbringingdownthe PARoftheirclients.3

1. ProductDevelopment:Keyfactorsforsuccessorfailure ThesuccessoftheTSPIshousingloangoesbacktoitsmissiondrivenfoundation.TSPImanagement studiedtheorganizationtounderstandifitwasreadytoventureintohousingloansandwas particularlydeliberateintheinstitutionalevaluationstage.Whenlookingattheresponsetotheir rewardprogram,TSPIrealized thatsocialdevelopmentloans ThestrengthofTSPIshousingmicrofinanceportfoliostartswith wouldhelptheMFIachieveits missionandvision. carefulattentiontoproductdevelopment
ThestrengthofTSPIshousing productstartswithcareful attentionandconsiderationtoproductdevelopment.Seniormanagementidentifiedaproduct championwhooversawtheproductdevelopmentprocess.Thispersonmanagedtheinternalprocess ofbringingallthebranchstaffandmanagementonboardandensuringthesystems,policiesand proceduresfacilitatedtherolloutof TableTwo:KeyFeaturesofTSPIsHousingLoanProducts thenewproduct.Staffatalllevels Sanitation,Waterand ProductFeature HousingLoan(includes werecloselyconsultedthroughoutthe ElectricalConnectionLoan improvement,repairs, extension) processnotjustsellingtheideaof Clientsbecome 2years 1year housingbutwalkingalongside, eligibletoapply otherwisetherewouldnothavebeen Amount US$360US$2,401 US$120US$480 US120US48018months, Term <$48012months, internalbuyin.
Weekly Weekly <$2,40136months, FromthebeginningofthepilotTSPI Weekly understoodtherewastremendous InterestRate 1.5%pmaddonor 18%p.a.with20%discountoninterestforprompt potentialfortheproduct.Thetestat payment. fourbranchesinMetroManila 2cosigners;Notarized Collateral Loanslessthan$480 revealedtheproductwaswell HousingLoan;Contractof requirenotarizedhousing Usufructifproofoflot loanagreement,2 receivedandthedemandwould submittedisnotunderthe cosigners,andproofoflot outpacetheavailabilityoffunds. ownership. nameoftheborroweror Withinayear,additionalbranches spouse Loansgreaterthan$480 outsideofMetroManilabeganto Requiresmortgage requeststafftobeginofferingthe contract,HousingLoan Agreement,Proofoflot homeimprovementloan.To ownership,12cosigners. strategizewheretoplacetheirlimited AdministrativeFee 5%ofthetotalmaterialsandlabor humanresources,TSPIsProduct DevelopmentteamdevelopedaprofilingtooltohelpinterestedBranchesdetermineifofferingthe housingproductwasfinanciallyviable.TheBranchprofilingtoolisasimplemarketstudytoproject demand,developaclientprofile,anddetermineifaminimumof500clientsintheareaareinterested inavailingthehousingproduct4.ByequippingtheBranchManagerswithanassessmentandprofiling

ADBOverindebetednesssurveyrevealedthattheaveragemicrofinanceborrowerinThePhilippineslendsfromnolessthan 4sources.
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TSPIhascalculatedthatabranchneedstohaveapoolof500clientstoreachfinancialviabilityintwoyears, whichistheminimumtarget.

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 tool,thereissharedownershipovertheimplementationoftheproductandcarefulstepsare followedtoensureitssuccess.TSPIleadershipemphasizedthispoint:Itwasntthemainofficewho chosewheretorollouttheproductnextbutratherweprovidedaguidetohelpourbranchesdecide whetherhiringaprojectofficerandofferinghousingloanwillbeviable. Third,wherebarriersmayhaveappeared,TSPIfoundwaystobalanceriskwithproductinnovation. Forexample,theproducttheyhavedevelopedishighlysupervised.Loansaredisburseddirectlyto suppliersandminimalcashisdispersedtotheclienttoensurethatfundsareusedasintendedfor housingimprovementandprojectsarecompletedontime.Whileahightouchhomeimprovement loanproductispotentiallyconstrainingTSPIsprofitability,theMFIisgoingthroughafullprofitability reviewtodeterminehowtobestproceed5. Finally,synergieswithhousingspecialistshelpedTSPInavigatetheprepilotandthepilotphaseof productdevelopment.TSPIestablishedapartnershipwithHFHPtogarnertheirtechnicalexperience inhousingforthepoor.HFHPsinstitutionaltechnicalsupportincludeddevelopingchecklists, brochures,andarevisedloanapplicationformatforhousingclients.HFHPtrainedTSPIstaffin housingmicrofinanceprocessesandproducts.PartneringwithHFHPhelpedTSPImanagetheirstart upriskuntilTSPIwasabletointernalizetheconstructiontechnicalassistancefeaturestobringthe producttoalloftheirbranches,particularlyoutsideofManila.

2.ThevalueofHousingSupportServices:inhouseConstructionTechnicalAssistance
Theconstructiontechnicalassistance(CTA)componentofTSPIshousingproductsisdesignedto providethetechnicaladviceneededtobytheirhighperformingclientstoimprovetheirhomes, whetherthroughhouserepair,renovation,extensionoraddingwater,sanitationorelectrical facilities.FeedbackbothfromclientsandTSPIstaffrevealthatclientsaresatisfiedwiththeCTA provided,bothintermsofthelevel Figure1: TSPIHousingLoanProductProcessFlow ofsupportfromtheproject foremanaswellastheabilityto accessmaterialsatdiscounts. Theoneyearpilotphaseofthe housingproducthelpedTSPI managementunderstandthevalue ofCTAtotheirclients.LynOnesa, DirectorofProgramsatTSPI,saysof thepilotphase:Welearnedfrom thepilotphasethetruevalueofthe technicalservicestoourclientsand itwasimportantthatwecontinue [afterthepilot]toofferthose servicestoimprovethehousingof theclients.Additionally,TSPI outsourcedtheconstruction technicalassistancetoHFHPfortwoyears.HFHPorganizedprojectforemen,masonsandgeneral oversightofthetechnicalportionoftheproductin4branchesinMetroManila:Taguig,Paranaque, Antipolo,andLasPinas.
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TheirOSSis102%

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Pilotingdemonstratedthevalueoftechnicalservicestoourclients.

Since2009,TSPIbroughttheCTA inhouseandnowofferthehome improvementloanproductin128 of167branches6.CTAisprovided witheveryhousingproductand clientspaya5%administrativefeeonthetotalcostofmaterialsandlabortocoverthecostofthe technicalservices. Intermsofprocessflow,thefollowingarethreekeyfeaturestoTSPIsproduct:inhousetechnical support,batchingclientsandminimizingcashtransactions. TSPIinstitutionalizedtheroleoftheCTA BoxOne: ClearlydefinedrolestomanagetheCTAProcess personnelbyfocusingontwokeyCTA areimportanttointegratingtechnicalstaffintotheMFI staff:aProjectOfficer(PO)andaproject structure. basedforeman.Thisteamisintegrated Theroleoftheproject TheroleoftheProject withintheMFIstaffandplaysanintegral foremanistofocusonthe Officeristofocusonthe roleinthedeliveryofthehousing constructionbatch housingloanprocess productsbymanagingtheoverallprocess managementincluding: including: (seefigure1).TheProjectOfficeris Conductingasitevisit Batchthehousing responsibleforthehousingloanprocess applicantsandprovide Creatingacost andensuringcustomersatisfaction.In estimateandbillof productorientation somecases,oneProjectOfficermay quantitiestoinform training servicemultiplebranchesinthesame theloanamount Coordinatethe Overseeingthelabor accreditedproject province,dependingonthepopulation, duringthe foreman geography,demandanddistance. Monitor the progress construction process of the housing product Close the batch Homeimprovementsfinancedwitha usage. constructionwith housingloanarefullysupervisedbya Affidavitsof Projectforeman.Thisisaservicemany Acceptance. clientswouldnotavailontheirownbut inagroupsettingitbecomesaffordable. Followupsurveysrevealsatisfactionwiththeserviceandsupportprovided.TSPIusesabatching systemforhousingloanclients,organizingthemintogroupsof10applicants.Similartothegroup lendingmethodology,batchingtheloansreducescoststotheMFIintermsofloanrelease. Additionally,deliveryofCTAservicestotheclientisorganizedaroundthebatch,whichTSPIcredits withresultinginbetterconstruction,andofferingaccesstodiscountedmaterials,asavingspassedon totheclients.Clientsbenefitfromtheadministrative,managementandtechnicalsupportprovidedby alocallyaccreditedforemanatanaffordablecost.ThebatchingsystemalsoassistsTSPIinorganizing thelowcostdeliveryofconstructionmaterialsdirectlytoclientshouses.Evenclientsinremoteand farflungareascanaccessaffordablesupplies. Theloansaredisburseddirectlytosuppliersbasedontheclientsindividualprojectplan.Theplan providesabreakdownofcostsrequiredtocompletetheprojectandspecifieshowtheloanproceeds willbedisbursed.Giventhebatching,suppliersareofferingdiscountsof510%becauseofbulk purchaseofconstructionmaterial.Additionally,thisprocessensuresthehomeimprovementwillbe completedwithinthesettimeperiodandtheloanusageisdedicatedforhousing.Thereisahighcost
Smallerbranchesthatwouldliketoofferahousingproductcancombineandspiltcostsandresourcesinorder tomeettheminimumrequirements.Theremaining40branchesarenewerandwillimplementtheproductin 2013.
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 totheinstitutionintermsofinternalizingmanyofthetechnicalservicecapacities,butitensuresarisk profiletheinstitutioniscomfortablewithtoofferthehomeimprovementproducts.

3.TakingHMFproductstoscale:Theinstitutionalcommitment,&theinstitutionalcapacity ThelastsixyearshavedemonstratedthatTSPIiscommittedtohousingmicrofinanceproduct innovationandislookingtowardscale.Ithasinternalsystemsandincentiveschemesinplaceto implementahousingproductsuccessfully.Importantly,TSPIcontinuestoseehousingmicrofinanceas apriorityintermsofsupportingtheirsocialmissionandhasbackedthatupbymakingthefinancial andhumanresourcesavailabletosupporttheproduct.

Towardthegoalofbuildingtheinstitutionscapacityandcommitment,TSPIhasintegratedthe housingmicrofinanceproductintoitsstaffincentivescheme.TSPIhassetstaffbenchmarksacrossall ofitsbranchesinthecountryandstaffarerewardedbasedonthenumberofhousingloanclients, loansize,andrepaymentrateonatrimesterbasis.Over65%ofbranchesmeettheirtargets. Feedbackfromthepilotrevealsthataccountofficersandbranchmanagershavealsoboughtintothe socialdevelopmentloanofferings,andappreciatetherolethatconstructiontechnicalassistanceplays inhelpingtheirclientsimprovetheirhomes. WhileTSPIhasreceivedsanitationproductguaranteefundsorCSRfundsfromcorporations,TSPI fundsthehomeimprovementloanprogramprimarilywithexistingloancapital.TSPIhasprojected thatwithdedicatedcapitalitcouldscaleitsoperationscurrentlytheiroutreachisonly5%ofall activeborrowers.Thedemandoftheirclientbaseisfarlarger;TSPIestimatesitcouldabsorbupwards of$5million7tolendforhousingmicrofinance.Atthesametime,TSPIanticipatesexpandingthe productintotheirlast40branchesbytheendof2013. TSPIiscommittedtoofferinghousingsupportserviceswiththehousingmicrofinanceproduct.After carefulanalysisattheendofthepilotphase,TSPIdeterminedthattofullyrealizetheirvisionforthe producttheywouldneedtointernalizethePOsintotheiroperationalstructuretosupporttherollout intheirbranchnetworkthroughoutthecountry.Twomainfactorscontributedtothis:costand efficiency.IntheMetroManilaarea,itwasfinanciallyviableforbothTSPIandHFHPtopartner, howeveroutsideoftheManilaarea,HFHPsnetworkstructurehadquitedifferentreachthanTSPIs branches.Asatransitionstrategy,itwasagreedthatHFHPwouldcontinuetoprovideinstitutional technicalassistancetoTSPIsstaff.TheresultwasaviablebusinessmodelforTSPItodeliverhousing microfinanceproductsthroughoutthecountry. Despitehavingbroughttheconstructiontechnicalassistanceinhouse,theproductcontinuestobe costlytodeliver.Thebatchingsystemisamarketingstrategytobothretaingoodperformingclients andhelpgenerateinternaldemandfromthegroupsforthehousingloanproducts.However,relying onbatchingreducesthespeedofloanreleasewhichalthoughmayhelpwithcashflow,could compromiseclientsatisfaction.Theremaybealternativewaysofpositioningthegraduatedloan productforitshighperformingclientsandTSPIandothergroupbasedinstitutionsmayexplorehow tograduateclientstoindividuallending.Institutionaltechnicalassistancetopromoteapure individuallendingstrategycouldexplorethisfurther.

III.KeyLessons

MicroBuildGlobalFund,aninitiativeofHabitatforHumanityInternational,isconsideringaninvestmentinTSPI.

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 AnumberofkeylessonsemergefromTSPIsexperienceinprovidinghousingmicrofinance,whichwill continuetoinformTSPIsfuturehousingloanproductsaswellasthesectorinThePhilippines: Institutionalcommitmentleadstobetterproductdevelopment Institutionalcommitmentiscrucialtothesuccessofnewhousingmicrofinanceproducts.Oneofthe bestexamplesoftheinstitutionalcommitmentwasthatTSPIputforwarditsowncapitaltotestthe productintheearlystages.Themanagementteamhadahighimpetustoseetheproduct developmentthroughandlaunchandstructureawelldesignedproduct. Second,whiletherewasoneofficialproductchampionattheheadofficewhofacilitatedtheproduct developmentprocess,arguablyTSPIsboard,management,andbranchstaffcreatedthesynergy necessarytomoveforwardwiththepilot.Themanagementteamsupportedtheproductwiththe policiesandproceduresnecessarytosupporttheproduct.Forexample,TSPIsincentiveschemeand staffingstrategyshowsacommitmenttomainstreamhousingmicrofinanceintotheirproductmix. Finally,theircontinuouscycleofproductevaluationandinnovationhelpspromoteinternallearning andideasgeneration.Throughfeedbackfromtheclientsandthebranchstaff,TSPIdiversifiedto morespecialtyloanproductsincludingloansfortoiletconstruction,installationofseptictanks,water connectionand,mostrecently,electricityconnection.Theirbranchprofilingtoolprovidesongoing opportunitiestounderstandtheclientandtheirpreferences.TSPIcontinuestoexpanditstechnical capacitytomeetthesediversifiedhousingneedsandiswillingtotestnewapproachesasthedemand changesorevolves. Partnershipshelpnavigatenewmarkets TSPIsleadershipbelievedthatincorporatingbestpracticesofhousingexpertswouldhelptheirnew housingmicrofinanceproducttosucceed.LynOnessa,DirectorofProductDevelopmentatTSPI, reiterated:Wewouldhavehadtospendalotmoretimeintheresearchstagebeforelaunchingthe productifitwasntforpartnership.Wedidnothaveinternalspecializationwhenwestarted. TrainingreceivedbyTSPIhelpedbuildinternalcapacityaswellasmitigatestherisksoflaunchinga newhousingmicrofinanceproduct.TSPIlargelycreditsthepilotphasewiththesuccessofoffering theproductat128ofits167branches.Even5yearsafterthepilot,TSPIcontinuestoengagewith expertstoimprovetheproductfirstwithHFHPhilippines,materialssuppliers,expertsinwaterand sanitation,andeventlocalcementcompanies. DedicatedProjectOfficersforHousing DedicatedprojectstaffforhousinghashelpedTSPIfocusonandmeettheproducttargets. TraditionallymanyNGOMFIshavenotalwaysdedicatedstaffbutratheraddedhousingmicrofinance tothealreadyfullportfoliooftheirexistingprojectofficers.Byfocusingontrainingexistingstaffbut hiringadditionaldedicatedstaffTSPIiscommunicatingtoitsteamthattheproductisofimportance toitsclients.ThisaffordsTSPIthefocustodevelop,refineandscaletheproductasthedemand warrants.TSPIcontinuestoexplorehowtoprovideabetterservicethathelpstheirclientsimprove theirhomes.Theanchorofthatbetterserviceisthroughadedicatedteammemberwhoisboth funnelingexperiencesandinformationbacktotheheadofficeaswellassomeonewhohasthetime andfocustohelpclientsaccessimprovedhousing.

IV.Conclusion

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 This case study presents the experience of Tulay Sa Pagunlad, Inc. (TSPI) in extending housing microfinance to low income Filipinos. It explores the role of product development, piloting housing supportservicesandconsiderationsforachievingscale. A number of key lessons emerge from the experience of TSPI. First, TSPIs organizational culture is committed to their home improvement loan product and sees the value this product has for its clients. This dedication translates into how the product was developed and how it is continuously enhanced.Second,partnershipwithHFHPand others inthepilot phaseoffereda uniqueopportunity to TSPI to test the product while learning from various market actors. Because there is no other MFI offering housing microfinance, TSPI aimed to understand how it could position the product to target the low income housing needs of their clients while not compromising profitability. Finally, TSPI sees the value in offering technical services to help their clients improve their lives. Within the Philippine context housing quality standards are low in both rural and urban poor communities, demand is high and access to housing finance is limited, microfinances broad network and community based approachisanefficientwaytoreachtheBOPwiththisimportantproduct ContactPerson:JenniferOomen,HFHIAPHousingFinanceManager,joomen@habitat.org LINKS TSPIWebsite:http://tspi.org/ HabitatforHumanityPhilippines:http://www.habitat.org.ph/site/index.php TSPIDataonMixMarket:http://www.mixmarket.org/mfi/tspi MicrofinanceIndustryReportPhilippines2010:http://www.microfinancecouncil.org/mcpi microfinanceindustryreport2010 BankingwiththePoorCountryProfilesPhilippines2004: http://www.bwtp.org/arcm/Philippines/II_Organisations/Microfinance%20Providers/TSPIDevelopme ntCorporation.htm

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