Este artículo está también disponible en / This post is also available in: Spanish
There are few things that improve people’s quality of life more than having access to decent housing. However, the deficit of this type of housing in Latin America and the Caribbean (LAC) is currently more than 45% and it is estimated that it could reach 90% in 2050 if nothing is done to fix it.
Closing the current housing gap in the region will require an investment of at least US$310 billion, or 7.8% of its gross domestic product (GDP). To meet future demand for housing, investments of at least US$70 billion a year are needed. In this context, the role of financial institutions is especially relevant when it comes to meeting the needs of both the demand and the supply of affordable housing, with low carbon emissions, resilient to climate change and with a gender approach.
In today’s blog, which is part of a series on the situation of the housing sector in LAC, we address five examples of financial innovations that the IDB Group, through IDB Invest, has put into practice to close financing gaps of housing. Read on for more details!
Five innovations that help close the housing financing gap
The solution to the housing deficit is being coordinated from many angles, both in the public and private sectors, but one of the most promising, and least known, is that of financial innovation. In recent years there have been great advances in access to financing for housing purchases with new approaches to gender and environmental sustainability.
Below, we comment on some examples of financial innovations that the IDB Group, through IDB Invest, has put into practice to seek to close the gaps in housing financing:
1. Social bond with a gender approach:
In 2020, IDB Invest structured the world’s first social gender bond with incentives linked to objectives, issued by Davivienda for US$100 million. This was the first issuance of a gender-related bond in the world, with incentives based on the achievement of results, and included a component so that women who are heads of families can acquire Social Interest Housing in Colombia.
Additionally, IDB Invest complemented the financing with technical assistance services. It received funds from the Women Entrepreneurs Financing Initiative (We-Fi) program to support Davivienda in designing a value and positioning proposal focused on serving the segment of Women’s SMEs.
2. Support for the first affordable and zero-carbon housing fund in the region
IDB Invest announced an investment of up to $10 million in the first fund to develop affordable, zero-carbon housing in the region. This fund will be managed by Paladin Realty, which has extensive experience and track record in the field. This financing seeks to increase the availability of capital for the development of sustainable housing, built by medium-sized developers and destined for homes in Mexico, Colombia, Brazil and Peru. The transaction has resulted in the first private capital fund to support the development of this type of housing in the region.
IDB Invest support consists of a US$5 million equity investment complemented by a US$5 million blended finance investment with resources mobilized from the Clean Technology Fund (CTF), one of two multi-donor trust funds Climate Investment Funds (CIF). The blended capital component will provide an additional incentive for the fund manager to increase sustainability levels in the fund’s portfolio. Additionally, IDB Invest will provide technical advisory services to support the Fund in the EDGE Zero Carbon certification process. In addition, the technical assistance will include a gender, diversity and inclusion (GDI) advisory to augment Paladin’s internal policies for equal opportunity hiring and GDI.
3. Support through a storage facility (warehousing line)
IDB Invest supported Banco La Hipotecaria in December 2021 through a $25 million storage facility with the objective of increasing access to affordable housing financing for low- and middle-income sectors in Panama and El Salvador.
Additionally, IDB Invest will provide advisory services to La Hipotecaria with the objective of developing a gender, inclusion and diversity strategy for the institution based on the gaps identified through the WEP (Women’s Empowerment Principles Gender Gap Analysis Tool) tool. . The strategy will allow La Hipotecaria to take the necessary actions to improve its internal gender and diversity policies for the attraction, retention and development of talent.
4. Structured financing through Fintech platforms
In July 2022, IDB Invest granted a US$50 million revolving line of credit to a private investment fund in Chile, structured exclusively to purchase mortgage assets originated and managed by Creditú, a fintech subsidiary of the AVLA Group. The resources of the revolving line of credit will be used to purchase and accumulate mortgage loans for housing in segments that are not served by banks, originated by Creditú and insured by AVLA Seguros, for a future securitization of assets in the local capital market. This will allow the creation of a new asset class in the Chilean capital markets that will eventually contribute to increasing access to social mortgages in Chile.
5. Financing in local currency to a non-bank financial institution
IDB Invest granted a loan to the Home Mortgage Bank (HMB) for TTD250 million dollars from Trinidad and Tobago, with a term of five years. With the support of RBC Caribbean, HMB will use the financing to fund the growth of HMB’s secondary mortgage portfolio supporting low- and middle-income families and individuals in Trinidad and Tobago. Additionally, it will promote the growth of the domestic financial services market and contribute to its economic development.
Additionally, IDB Invest complemented the financing with technical assistance services to support HMB in the development of a sustainable financial strategy that seeks to promote the use of financial solutions for its social and green loan portfolio.
IDB Invest is a leader in innovative financial solutions
At IDB Invest, we are promoting financial innovations through structured instruments, bonds, equity and mixed capital investments, together with advice and mobilization of third parties that help close the financing gaps in the housing segment. In this sense, we seek to generate investments that impact the countries we serve and that are sustainable, inclusive and replicable.
The participation of the private sector will be fundamental, in combination with public entities, to find the different ways to promote construction with a gender perspective and sustainable and facilitate financing so that more people can acquire their homes. We hope that these financial innovations will increase your interest so that we can expand the financing offer and close this important gap.
Interested in this topic? Register for the 2022 Housing Forum of the IDB Group
If you want to learn more about the challenges of the housing sector in LAC, and specifically about the important role played by financial innovation, you cannot miss the recording of the panel Innovation in financial products that facilitate closing the housing gap of the the IDB Group’s 2022 Housing Forum that took place in Washington DC on September 29th and 30th. You can access the video (in Spanish) here: