Presentation by Romi Bhatia from Microfinance International Corp. regarding linking remittances to microfinance, Feb. 2008.

1. 1
Linking Remittances to Housing
Microfinance
Washington DC
Romi Bhatia
February 2008

2. 2
Linking Remittances to Asset Building:
1. MFIC Business Model
2. Phase 1: Program Launch: USA – El Salvador
3. Phase 2: Operational Challenges & Program Redesign
4. Client Profile
5. Phase 3: Growth & Expansion
6. Externalities
MFIC’s experience in providing transnational mortgage loans
to Salvadorian immigrants in USA

3. 3
Serving Transnational Families

4. 4
Our Remittance Distribution Network
In USA:
9 Alante Financial retail
branches in the Washington DC
region and Delaware
In Latin America:
Network of 23 Financial
Institutions in over 10 countries
Global Expansion:
Partnership with UAE Exchange to
expand remittance network to 90
worldwide in 2008

5. 5
Programa de Operaciones Internacionales
Phase 1: Program Launch in El Salvador

6. 6
Program Objective:
Provide an option for immigrants in USA to channel their
remittances to build assets by providing transnational
mortgage loans.
Pilot Program:
Launched in September 2006 in El Salvador
Two Microfinance Institution (MFI) Partners:
1. Apoyo Integral de S.V.
2. Sociedad Cooperativa de Ahorro y Crédito
(AMC)

7. 7
Benefits of MFIC-MFI relationship
1. Increase in remittance volume through formal channels
and provide an option for the use of remittances beyond
consumption.
2. Facilitate purchase of property/investment in a business
from the U.S.
3. Cross-selling of other products and services to both the
immigrant customer in the U.S. and family members in
the home country
4. Rapid growth and added mix of a secured loan portfolio
for MFIs
5. Access to a large immigrant customer base in the U.S.

8. Pilot Program Structure:
Risk Sharing: MFIC and MFI partner share 50% of all risk and
revenues for each transnational mortgage loan
Market Clientele: Un/Underbanked Salvadorian immigrants in the
Washington DC region (primarily Alante Financial clients)
Loan Underwriting: Pre-approval process by MFIC but ultimate loan
decision made by financial institution. Policies and procedures to be
determined through experience
IT Infrastructure: Utilize existing ARIAS remittance platform and
develop a system to manage information flow.
Role and Responsibilities:
MFIC – Alante Financial
(in the U.S.)
1. Loan interview & credit
analysis
2. Verifications and processing
3. Loan administration and
collections
Financial Institution
(in El Salvador)
1. Property Appraisal/ Business
evaluation
2. Evaluation of co-borrower
(if applicable)
3. Loan documentation and
disbursement
8

9. 9
Transnational Loan Product
Purpose of Loans:
Home/Land Purchase (construction, home improvement)
Investment in an existing business
Educational expenses
Main Characteristics:
Loan Size: $8,000 - $40,000 USD
Loan Term: 10 – 15 years
Collateral: Property /Business Assets in El Salvador
Interest Rate: 12 – 16% (determined by MFIs)

10. 10
Programa de Operaciones Internacionales
Phase 2: Operational Challenges & Program Redesign

11. 11
Pilot Program Outcome: (9-month period)
7 Transnational Loan brokered with outstanding
loan portfolio of $132,300.
118 applications taken, 29 loan applications
denied; 82 clients ineligible
What has worked?
 In-depth credit analysis
 MFI rural presence in El Salvador
 Client Demand for T-loan product

12. 12
…..what has not worked?
#1. Unbalanced Risk Management Structure
#2. Underwriting Policy challenges
#3. Lack of I.T. Infrastructure
#4. Insufficient support structure to promote
new loan product
#5. Mismatch in Client and Lender Expectations

13. 13
50 – 50: 50% risk and revenue sharing scheme difficult to
implement
Legal enforcement: No legal action permitted in the
U.S. in case of client default
#1 Unbalanced Risk Management Structure
#2 Underwriting Policy Challenges
Potential Conflicts of Interest: Differing assessments on
level of credit risk of loan clients
Assessment of Legal Risk: Should undocumented
immigrants be eligible for this loan?

14. 14
#3 Lack of I.T. Infrastructure
No loan brokering software
Modifications to ARIAS remittance platform required
Loan administration very time consuming
#4 Insufficient Support Structure
New product requires significant upfront costs
MFIs need dedicated loan officer to manage cross-
border mortgage loans
Need for an incentive system
MFIs need capacity building training

15. 15
#5 Mismatch in Client – Lender Expectations
 Broker-Lender Model: Revised business model to
reflect proper roles and responsibilities
 Fee for service: Revenue allocation based on fee for
services; lender retains all loan revenues but also accepts
all loan risk
 Program enhancement: implementation of a web-
based brokering software system; capacity building
trainings, etc.
Program Redesign
Discrepencies in appraisals
Unbanked clients do not possess credit history
Clients may lack key information on value of
property/viability of a business investment

16. 16
Programa de Operaciones Internacionales
Client Profile

17. 17
Client Profile: Maria Echeverria
Client Profile: 40-year-old Salvadorian came to the US
in the midst of the Civil War in 1985. An Alante loan and
remittance customer for one and a half years.
Financial Standing: monthly income = $2,015,
expenses = $1,420; disposable income (after T-loan)
=20% (~$415)
Average Monthly Remittance: $150.00 (to assist
relative)
Loan Request: $30,000
Purpose of Loan: Purchase of land to build house and
farm in the future

18. 18
Client Profile: Maria Echeverria
Property Appraisal: $13,164.50
Renegotiated Sales price: $20,000
Approved loan Amount: $13,000 USD
Circumstances: Integral was willing to lend $13K so
Alante Financial restructured Maria’s existing loan to
provide her with $5K. With her savings, Maria
contributed $2k in order to complete financing.
Loan processed and disbursed in 10 days due to urgency
of seller.

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Programa de Operaciones Internacionales
Phase 3: Growth and Expansion

20. 20
Streamline loan processing time
Add additional lenders to offer loan clients more financing
options
Implement USAID partial credit guarantee
Aggressively market loan product
Develop brokering software customized for cross-border
mortgage loans
…..do MORE Transnational Loans!
Growth and Expansion

21. 21
Externalities
(+) (~) (-)
Outcome of immigration debate
MFIC’s growth and expansion
to other states in the U.S.
MFI partners building capacity; dealing with
increased market competition
Political and economic shocks
in the country of origin of loan
clients
Potential recession and high
unemployment in the U.S.,
especially in the construction
industryAvailability of capital for
Tier 2 and 3 MFIs
Increased financial inclusion
of immigrants both in the U.S.
and their family members in
the home country.

22. 22
The MFIC Team

23. 23
Programa de Operaciones Internacionales
www.mfi-corp.com
www.ariasfs.com
www.alantefinancial.com
Thank You!
Romi Bhatia
Vice President, International Operations
rbhatia@mfi-corp.com