AIMM Sector Framework Brief
Sector Economics and Development Impact Department
International Finance Corporation

HOUSING
February 2019

Development Impact Thesis – IFC financing in this sector seeks to promote access to housing finance for households and developers
and improving their affordability. Lending to developers, along with formal housing finance for households, allow access to better
quality housing, which is positively linked with higher social benefits such as education and better health outcomes. Housing financecovers a wide range of products and services. IFC’s financing and technical advisory in this sector helps lenders develop and improve
products, access new markets, and enhance risk management capacities which:→ Increases access to and affordability of housing
finance→ Improves housing finance products→ Results in more efficient housing financecompanies and banks→ Results in job creation in housing construction

Project
Outcomes



→
→
→
→



Contributions toMarket Creation



Increases number of housing market participants
Establishes more housing finance banks/products
Diversifies sources of funding for housing finance
Results in a stronger enabling environment

Development Gaps Addressed• Limited housing finance• Few formal, affordable housing• Modest welfare gains from low
housing availability, affordability• Anemic growth and limited job
creation from housing sector• Limited financial sector
development

Rating Construct – All AIMM sector frameworks include detailed guidance notes that help define project outcomes and contributions
to market creation, aggregating to an overall assessment of development impact.
•

For project outcomes, stakeholders, economy wide and environmental effects are the key components for which industryspecific benchmarks define the context in which an IFC operation seeks to drive changes. This gap analysis is combined with aseparate set of impact intensity estimates that specify the expected results using predefined indicators.

•

For contributions to market creation, industry-specific market typologies define stages of development for five market
attributes (or objectives): competitiveness, resilience, integration, inclusiveness, and sustainability. These market typologies,
when combined with estimates of how much an intervention affects the development of a market attribute, provide thefoundation for IFC’s assessment of an intervention’s market-level potential for delivering systemic changes.
PROJECT OUTCOME INDICATORSCONTRIBUTION TO MARKET CREATION INDICATORS

Access• Increased access to residential housing finance and/or construction financeCompetitiveness
Affordability• Improvements in loan terms that bring more borrowers into the housing market• Increase in affordable housing units financed• Improvements in loan application processes
Stakeholders

Quality• Promote responsible finance (improvements in financial education, transparency)• Non-Financial Services (housing support services)• Better quality housing (comparing to prevailing housing constructed)
Impact on Employees• Improved skills in mortgage credit underwriting skills• Number of women employees• Number/Share of women in management/leading positions

Economy-wide• Impact on value-added• Impact on employment

Change in market/concentration structure
Change in mortgage terms (pricing, maturities, transactions fees, transparency)
Promotion of international best practices in credit policies
Change in product offerings and processes
Introduction or change in regulatory/legal framework related to competitiveness of
housing finance market (Advisory)

Resilience• Promote diversification of funding sources for housing finance lenders• Promote local currency funding and financing for borrowers to minimize risk
related to FX• Promote best practices in mortgage underwriting and collateral valuation troughIFC eligibility criteria• Introduction or change in regulatory/legal framework related to stability and risk
assessment of housing finance market (Advisory)

Integration• Increase in capital market instruments; creation or expansion of secondary
mortgage finance market• Improvement in value chain of housing sector

Inclusiveness• Market-wide adoption of business models including product and/or processes toreach underserved SMEs/groups and increase awareness of these groups• Market-enabling frameworks/standards supporting inclusive
businesses/interactions with underserved SMEs/groups

Sustainability• Adoption of green building and construction standards by housing market)• Capacity in the market to support adoption and certification of standards byhousing finance beneficiaries• Improvements in the enabling environment or changes to regulatory framework
related to sustainability in the housing finance market and/or to drive housing
beneficiaries to standards• Efficacy of GHG emission reductions• Water, energy and construction material savings
Environmental /Social•••••IFC’s Environmental and Social Performance Standards define IFC clients’ responsibilities for managing their environmental and social
risks. While for most IFC investments, meeting Performance Standards reflects improved environmental and social performance,
effects from implementation of the standards are only claimed in the AIMM framework where a clear counterfactual can beestablished and where the investment intent is to improve environmental or social outcomes.
Sector Specific Principles or Issues – The following principles will be applied for projects rated under this framework:
Principle or
Issue

Treatment Under Framework

Affordability

Housing affordability is strongly tied to cost of homes, household incomes as well as the cost of the mortgage. Housing markets
thrive when interest rates are relatively stable and low, and loan tenors are greater than 20 years. Benign macroeconomic
conditions are important to sustaining low and stable mortgage rates - high inflation is often accompanied by high and volatile
mortgage rates that are harmful to borrowers and risky for lenders. To maximize affordability, IFC and its clients should aim toprovide mortgage products at the lowest possible costs given the prevailing macroeconomic conditions.

Underserved
segments

Housing finance in most low and lower-middle income countries is at very low levels, and vast segments of the population do nothave access to mortgage products. In the context of the country, IFC investments should move mortgage lenders down-market ina sustainable way. However, even in relatively developed markets, there are overlooked segments of the population such as
women or those with informal income sources, who are excluded.

Demand andsupply side roles

Financial institutions (FIs) and NBFIs can play a pivotal role in the growth of the housing sector through their connection withseveral key aspects of the housing value chain. An intervention in a country where the demand and supply are not in balance maylead to adverse market effects, and ineffective interventions. IFC will consider the presence of all key aspects of the housing value
chain, and both the demand and supply, when assessing projects that tackle one side of the issues.

Liquidity
risk

Many emerging market banks face a maturity mismatch between short-term deposits and long-term mortgage loans, limiting theircapacity to provide the long tenor (20+ years) financing required to make mortgages affordable. Directly addressing maturity
transformation issues is key for financial resilience and the sustainable development of the housing finance market.

Informality

One of the greatest challenges to deepening housing markets is to develop solutions that serve informal income earners. In many
countries, informality makes up most of the population, as high as 70% in the poorest countries and is typically under-served
market even in relatively developed countries. Where informality is a constraint to further development of the housing market, IFC
housing interventions that address this population segment will be recognized and credited in the AIMM assessment.

Capital market
development

To support continued growth of the housing finance market, lenders need access to long-term funding from diverse sources. A
primary source of long-term funding are local and regional capital markets. Improved capital market access can also improve theflow of funds, facilitate a greater volume of lending at affordable rates, and allow lenders to better allocate risks. Capital market
development is one of the main opportunities for IFC to address the development gap in housing finance.

Treatment ofnegative effects

There are a few potential negative effects from a housing finance operation, both on the project outcomes and on market impact.
One important negative effect could be IFC’s inability to lend in the currency most appropriate to the FI and its borrowers. Also,
while housing construction can be a major source of GHG, IFC encourages the adoption of EDGE and “green” construction
methods. Where there is significant GHG, this could adversely affect the net project outcomes and will be noted and reflected in
the environmental component rating.

Project Outcomes – The AIMM system considers the extent of the development gap and uses a gap analysis to classify project contexts
according to the size of the deficit/gap being addressed. For each indicator, the size of the gap is measured in relation to development
goals associated with the sector. Contexts are classified into very large, large, medium or low gap, for each performance dimension.
Development gaps are defined using a combination of qualitative and quantitative benchmarks, which leaves room to consider
context-specific attributes that drive investments in the sector.
COUNTRYCONTEXT

Low Gap

Medium Gap

Large Gap

Very Large Gap

Access- Mortgage debt O/S % GDP>1 STD above EM median- % total pop age 15+ w/ O/Shousing loan >1 STD above
EM median- Average growth in 3-yr
urban pop <1 STD below
EM median- Housing deficit per capital
lower than TBD- Mortgage debt O/S % GDPwithin 1 STD EM median- % total pop age 15+ w/ O/Shousing loan within 1 STD
EM median- Average growth in 3-yr
urban pop within 1 STD EM
median- Housing deficit per capital
lower than TBD- Mortgage debt O/S % GDP<1 STD below EM median- % total pop age 15+ w/ O/Shousing loan <1 STD below
EM median- Average growth in 3-yr
urban pop >1 STD above
EM median- Housing deficit per capital
lower than TBD- Mortgage debt O/S % GDP
below EM 15th percentile- % total pop age 15+ w/ O/Shousing loan below EM 15th
percentile- Average growth in 3-yr
urban pop above EM 85th
percentile− Housing deficit per capital
lower than TBD

2“Core outcomes” for housing investments are access/affordability and quality. The key stakeholders are the beneficiary households
who will have access to housing financing, and housing developers receiving construction finance. The client financial institution (FI)may increase housing finance for mortgage customers by improving the affordability of their products or by creating processes toreach down-market or underserved customers (e.g. reaching salaried individuals or those with informal income sources). A growing
housing sector contributes to job creation and growth for the construction and building sector, as well as the secondary industries,
such as durable goods manufacturing that support these sectors. The core outcomes for housing finance operations include
improvements in access to housing finance as well as the affordability of housing finance products, both in quantity and quality. These
are the main drivers of project outcome potential. The rating guidelines award a higher collective implicit weight to core outcomes.
PROJECTINTENSITY
Access and affordability• Increased access tohousing finance• Lower payments due
to longer tenors• Lower pricing• Share of IFC financing
going to underserved
groupsBelow Average

AverageAbove Average

Significantly Above
Average- Growth and change per
million population (5-yr) <1
STD below IFC portfolio
median- Growth and change as % ofmortgage debt outstanding(5-yr) <1 STD below IFC
portfolio median- % proceeds to underserved
groups <35%
- # new units built % of total
housing units is TBD; # new
homes built <1,250 units- Growth and change per
million population (5-yr) is
within 1 STD IFC portfolio
median- Growth and change as % ofmortgage debt outstanding(5-yr) is within 1 STD IFC
portfolio median- % proceeds to underserved
groups 35%-50%- # new units built % of total
housing units is TBD; # new
homes built is 1,250+ units- Growth and change per
million population (5-yr) >1
STD above IFC portfolio
median- Growth and change as % ofmortgage debt outstanding(5-yr) >1 STD above IFC
portfolio median- % proceeds to underserved
groups 50%-75%- # new units built % of total
housing units is TBD; # new
homes is 3,000+ units- Growth and change per
million population (5-yr
above IFC portfolio 85th
percentile- Growth and change as % ofmortgage debt outstanding(5-yr) above IFC portfolio
85th percentile- % proceeds to underserved
groups >75%
- # new units built % of total
housing units is TBD; # new
homes built >5,000- Change in responsible
finance minor or differential
with market minor- Change in non-financial
services offered minor- Narrow array of training,
housing support services
provided- Mortgage borrowers must
rely on third party providers
for most non-financial
services- Change in responsible
finance economically
substantial or differential
with market is meaningful- Change in non-financial
services offered meaningful- Wide array of housing
support services including
link to builders, property
managements, certification- Training to increaseawareness on housing
finance products and terms

- TBD

- TBD
Quality• Promoting responsible
finance• Promoting building
quality and standards(green, etc.)• Improved underwritingin housing finance

The AIMM methodology considers the uncertainty around the realization of the potential development impact being claimed, making
a distinction between the potential outcomes that a project could deliver and what could be realistically achievable in the project’s
development context. The table below presents the key types of risk factors for water and wastewater services operations.
PROJECT
LIKELIHOOD

Assessment
Considerations

Operational Factors

Sector Factors• Experience and track record of the FI in the target market (e.g.
residential vs commercial)• Project’s projected growth relative to the recent history• Expansion into markets (e.g. expansion to new housing types),delivery using new channels (e.g. online origination), or other
innovations in product/service design.
• Risks from new line of business (e.g. generalist FI building a
housing finance business)• IFC providing AS that mitigate any of these operational• Target sector’s market risks (e.g. high degree of housing
informality)• Specific regulatory risks (e.g. land registry and governance,building codes)• Central bank supervision perimeter and capacity (e.g.
underwriting standards, consumer protection and financial
literacy requirements)• Supporting government policies and programs (e.g. affordable
housing)• Market competition for housing finance lending, or for thetarget (specialized) market segment.

Contribution to Market Creation – The market is defined as the housing finance market in emerging markets, with a primary focus onresidential mortgage lenders and a secondary focus on financial institutions supporting housing developers. The housing financemarket is supported by a variety of market participants including specialized NBFIs, commercial banks, microfinance institutions, aswell as important intermediaries such as MRCs. The global housing market is dynamic and growing, but many countries face3

headwinds from crippling market failures. IFC’s housing finance projects vary considerably in size and scope. However, even when
IFC’s projects are small relative to the size of the housing finance market in the country, they may provide targeted interventions toelicit positive reinforcing market reactions from other market players, and thus make meaningful contributions to market creation.
Housing market typologies provide the building blocks in the AIMM system to construct a narrative for how much an IFC intervention
is advancing a market objective. These typologies provide a description of the market gap based on various stages of development fora given sector from least developed to most advanced and enable the location of the market before and after IFC’s intervention. The
table below focuses on core market attributes that IFC investment projects typically affect. IFC’s detailed guidance note includes more
information on how IFC investment projects may contribute to changes in the other market attributes.
MARKET
TYPOLOGY

CompetitivenessResilience

HighlyDeveloped

Moderately
Developed− Private sector share > [70%]of effective demand inaffordable housing sector− Tenors approaching 30 years− Prices reflect risk
− Balance between consumer
and lender rights; literacy
part of underwriting process− Standard underwriting
following best practices− Checks on mortgage process− Predictive, auto dialers forlate payment− Diversity of mortgage
products for all segments− Product design incorporates
risks-based pricing− Mass-customization− Strong regulations in all key
phases of housing market− No special SOE regulations,public sector competes− Capital markets and otherfunding sources used tomatch borrowers/savers− Multiple capital market
instruments; tenors >7
years− Fully functional mortgage
refinance company withability to raise funding from
capital markets− Active swap market; CDS/
other derivatives available− Adequate risk measures inplace to reduce risk of FX or
inflation-indexed mortgage− Limited FX mortgages− Mortgage loans made inline with best practices− Critical measure of risk iswell defined and used tomonitor sector risk
− Strong regulations in all key
phases of housing market− Established government
ordinances including
permits, codes

Underdeveloped

Highly Underdeveloped− Some capital market activity;
few capital market products− Private sector market share>40% of effective demand− Single FI >30% of market− Top 5 FIs >80% of market− Standard underwriting
practices in place but somedeficiencies− Very few standard mortgage
products exist− Rates are almost entirely
variable, with low tenor− Replication of product types
from developed markets
without consideration for
local condition− Regulation in place andconsidered to be adequate
for general purposes; someelements are lacking that
decrease competition− Private sector <30% of
market− Short tenors (typically lessthan 5 years)− No or limited quantifiablerisk assessment− Very high/volatile interest
rates− Limited or no consumer
protection; low literacy− No standard underwriting
following best practices− Poor no credit evaluation− Credit policies not following
best practices− No standard products− Ad hoc analysis based onfamiliarity of client; notevidence based− No standard terms, indicesor loan documentation− Inadequate regulation on
housing finance− No or extremely limited
private sector participation− Housing finance throughshort-term, high interest
personal loans− Underwriting practices andpolicies are ad-hoc− No rule-based credit
evaluation process− No standard credit policies− Mortgage products generally
unavailable− Housing finance throughnon-mortgage products− No or little regulation of
housing finance− A few institutions haveaccess to long-term loans(>7 years)− Existence of mortgage
refinance company, butwith limited functionality− Limited swap market; morethan a single market
counterparty− Credit decisions made withkey parameters but stillcontain some weakness
largely due to theenvironment− Emerging credit markets
provide alternative funding
sources with tenors > 3
years− Regulation in place andconsidered to be adequate
for general purposes; someelements are lacking that
decreasing confidence− Some regulations exist, but
limited application of land
use regulations− Few institutions haveaccess to general bilateralor syndicated loans, but ofshorter tenor− Housing lenders not haveaccess capital markets orlimited to government
bonds− No mortgage refinancecompanies− No/very limited sources oflong term funding− No swap market;
mortgages in hard currency− FX mortgages without
consumer protections or
systemic safeguards− High credit risk/decisions
missing key parameters− Inadequate regulation on
FIs in the housing finance− No or inadequate rating
and provisioning ofmortgage assets− Land regulations exist,
unenforced− Very limited set of funding
sources for lender− No access to capital
markets− No FX market exists− No mortgage underwritingor collateral valuation
market− Little or no regulation in
the housing finance sector− Limited or no land
regulation

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MARKETTYPOLOGY

Integration

HighlyDeveloped

Moderately
Developed− Access to bond market not a
constraint for establishedmortgage providers anddevelopers; multiple capital
market instruments (bonds,
securitization, etc.) andregular issuances withestablished yield curves− Broad participation ofpension funds and insurancecompanies in long-termbond purchase− Full integration of supply
and demand side of housing
finance− No or limited information
asymmetry between banks
and developers− Well established and reliablesupply chain for housingdevelopers− Robust capital market
activity but bond issuance
primary short- and medium
term (maturity <7 years) anduse of some capital market
products (MBS, coveredbonds, etc.)− Limited participation frominstitutions with access tolong term funding (such aspension funds and insurancecompanies)− Broad range of mortgage
providers integrated withhousing construction sectors
or provide financing fordevelopers; robust housing
support services (e.g. link tobuilders and plans)− Construction sector wellintegrated with local value
chain

Underdeveloped

Highly Underdeveloped− Capital markets primarily
limited to government
bonds and limited issuanceby the private sector− Sovereign bonds issuances
crowd out private sector
issuances− Limited but unsystematic
integration of housing
construction sector with thelocal value chain− A few developers rely on
informal relationships toaccess suppliers and firms in
the housing value chain− Capital markets are nascentor do not exist− Housing construction sector
value chain not wellconnected

In general, most individual projects are not expected to make a significant and immediate systemic market change, unless the projectis a pioneer in a non-existent or nascent market. Instead, most projects are expected to have incremental effects on the market. In
other words, it takes more than one intervention to move a market to the next stage. This means that integrated and concerted
efforts are often needed to generate substantial market effects. For example, cumulative World Bank Group efforts over time will
have a stronger effect on markets than non-integrated and non-concerted interventions. Where a project is explicitly part of aprogrammatic approach, the expected movement induced by the program should be the basis for the assessment where timeboundmovements, market effects, and indicators are available. The most important market creating effects from IFC’s housing finance
operations are:
MARKET
MOVEMENT

Marginal

Meaningful

Significant

Highly Significant

Competitiveness

Competitiveness in the housing finance market creates incentives for financial intermediaries to provide more financing forresidential mortgage seekers, and for more FIs to prioritize serving the market’s un(der)served segment. The market structure of
the housing finance market can either provide the right environment for healthy competition among FIs, or undesirable incentives
for a few FIs to rent seek by capturing large market share. Competition in the housing finance market often revolves around themortgage terms. IFC clients could translate higher internal efficiency and lower client acquisition costs into more competitive
mortgage rates. Longer mortgage tenors ensure affordability by decreasing monthly payments and expand access for homebuyers
from lower income segments. Promotion of international best practices in credit policies is expected to translate into more costeffective and efficient housing finance, thereby contributing to greater market access and affordability. Market effects on mortgage
financing would be expected to be amplified by the response of other FIs in the market to meaningful changes on mortgage terms
introduced by IFC client FIs. Client FIs could also bring to the market new housing finance processes and diversified products.
Specialized product and processes adopted by IFC’s client FI that better meet housing finance needs and overcome
behavioral/institutional market failures, could induce market wide adoption of these practices and bring about measurable
competitive market movement in housing finance.

Resilience

Projects that play a key role in setting up the legal, regulatory and institutional infrastructure for the development of the housing
finance market, as well as streamlining property registration would apply under this channel.

Integration

Integration in the housing finance market can primarily take place in two forms. First, financial integration, through thedevelopment and expansion of capital market instruments. Local currency bond issuances and secondary mortgage financeproducts can mobilize longer term sources of funding and deepen the capital market. Second, an integration at the housing value
chain level among various participants, such as mortgage providers, developers, home insurance companies, building material
suppliers, etc. Specialized comprehensive housing finance packages adopted by IFC’s client FI that better meet housing financeneeds and overcome behavioral/institutional market failures, could induce market wide adoption of these practices and bring aboutmeasurable competitive market movement in housing finance.

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The market likelihood adjustment follows the principles for the likelihood adjustment for project outcome potential. In general, thelikelihood assessment includes sector-specific, as well as broad country risks that may prevent potential catalytic effects fromoccurring, plus political economy or policy/regulatory risks that may constrain market systemic change. Due to the diversity of market
creation attributes and channels, most of the likelihood factors are expected to be sector, or intervention specific.
MARKET
LIKELIHOOD

Assessment
Considerations

Sector Factors

Political / Regulatory / Policy Factors• Concentration in the banking sector, or the housing financemarket segment (e.g. barriers to entry)• Strength of channel for competitive pressures and incentives
to adopt innovations (e.g. high mortgage rates, shortmortgage lengths, transaction fees, fees transparency, etc.)• Regulatory scope and capacity (e.g. for new products, will new
regulatory frameworks need to be established?)• Government commitments and supporting policies/programs(e.g. housing, affordable housing or urban development)• Legal infrastructure that supports housing finance – property
rights must be well defined, which requires properly
functioning property and lien registries, collateral regimes,
credit systems, and legal protection of creditor rights• Government capacity to implement policies and programs• Environmental aspects, such as environmental protection
regulations/enforcement, ecological construction

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