Policy and Programs in Real Estate Financing

The Housing Finance Group of the IFC has identified numerous challenges that must be overcome if the housing finance sector is to fulfill its objective of increasing the availability and affordability of residential housing in developing countries. These are lending restrictions (mortgage lending is often narrowly restricted to a single sector, such as government-owned lenders or highly regulated private institutions) infrastructure (emerging markets often lack the infrastructure that is fundamental to the support of home ownership, such as untargeted subsidies and disincentives for the financial sector), regulatory environment (legal and regulatory reforms that include lien registrations, property rights and foreclosure practices), capacity (the pool of skilled managers and field staff experienced in housing finance is limited in most countries), and outreach (while numerous institutions have learned how to profitably serve the housing finance sector, they have yet to rise to the challenge of massive outreach, except in a few countries)

In the following section, we address the above issues one by one in more detail.

•    If the housing problems are to be addressed more effectively, housing policies, and especially financing issues, must be taken into consideration. Stronger, more effective enabling strategies must be developed by the public sector to allow housing markets for the various tiers to leverage the activities of the private sector.

•    The objectives of the subsidy scheme should be to assist those who do not qualify for a formal sector mortgage loan, thereby increasing the number of middle-income households that can avail themselves of housing finance. However, we need to keep in mind that subsidized funding for state-owned housing finance entities creates distortions in the market and it should be stopped. Fortunately, for the last few years, BHBFC could not avail itself of any subsidized funding through the government or government guaranteed debt.

•    Real estate loan recovery rate in the public sector is very low and well below that of the commercial banks. In the past a rural house lending program, sponsored by the government through a 3% refinancing window at the Bangladesh Bank, was stopped because of alleged poor recovery rates. Over the years, major problems in loan recovery began to plague the housing portfolios and the banks gradually decreased the proportion of advances for housing. In order to develop a primary mortgage market, financial assistance to different market players through equity participation, loans, credit lines and warehouse lines is needed.

•    National housing finance systems have failed to prove them competitive in mobilizing and allocating capital efficiently. BHBFC has made only very limited progress in becoming self-sustained or in reaching lower-income households.

•    Age-old Insurance and Trust Acts are not facilitating lending by long-term investors in the housing sector. Sometimes developers are accused of not properly following the procedures for borrowing money from financial organizations. The involvement of all three parties (the developer, the landowner from whom the land was leased, and the apartment buyer) in the process makes the borrowing cumbersome.

•    However, it is evident that, over the last two government periods, most of the government-built houses were for the upper-grade government employees and political leaders, rather than lower-income government employees or poor people in general.


•    Changes in the trust laws and Insurance Act in order to allow long-term investors to participate more freely in the housing finance sector.

•    Encouragement to the larger and professionally run MFIs to set up banks or non-bank financial institutions in order to create a more vigorous domestic financial sector environment that can provide support for the emerging housing finance sector.

•    Decreasing the administrative costs related to mortgage lending make it more affordable.

•    Training in state-of-the-art mortgage lending and servicing operations for those actively involved in changing the mortgage industry in the country.

•    Extending housing rehabilitation and extension options in housing credit programs.

•    Establishing more professional micro and mortgage lending programs for housing.

•    Improving the sustainability of microfinance housing programs.

•    BHBFC Should expanded its housing loan program all over the country.

•     Lending restrictions should be smooth.

•    Mortgage insurance or other peripheral services such as credit reporting, property appraisal and evaluation should be developed.

•    Special emphasis should be given on promoting primary mortgage market and to establish a secondary mortgage market to provide alternative funding mechanisms to the primary lenders.

•    Adopting a legal and regulatory reform program to safeguard lenders.


In conclusion it can be said that the formal mortgage market can expand its lending operations to middle-income households by improving efficiency, mobilizing additional resources for housing lending from long-term investors, and redirecting present mortgage subsidies tied to government programs and institutions towards demand-oriented programs that can be implemented through the public and private mortgage lending sector. At the same time, non-collateralized housing credit can be expanded by the professional MFIs through increasing access to funds earmarked for housing, reducing the need to provide internal cross-subsidies for housing loans, broadening the target population to rural entrepreneurs and urban lower-income households in specific geographic locations, and developing more varied and professional housing finance products. The combination of these two approaches has the potential to increase access to housing credit and finance for low and moderate-income households dramatically, with related improvements in the quality of housing in Bangladesh


A.1 Bibliography
•    The experience of Grameen Bank housing program, Bangladesh, www.iadb.org/SDS/doc/IFM-ChandraBarua-E.pdf, retrieved on 1 November 2006.

•    National Budget (2007–08). Ministry of Finance, Government of the People’s Republic of Bangladesh.

•    Siddiquee, Mohammad Moniruzzaman., Hossain, Mohammad Farhad., and Islam, K. M. Zahidul (2006) Asset Securitization in Bangladesh: Practices and Impediments, The Cost and Management, Vol. XXXV, No. 2, March-2006.

•    Scheduled Banks Statistics, Bangladesh Bank.