Global development institution International Finance Corporation (IFC) has shown interest in extending its support to DBH Finance to help curve out a loan segment exclusively meant for middle-income people.
Not only has it come up with a proposal to invest up to $30 million, equivalent to Tk 3.30 billion at the exchange rate of Tk 110, in DBH's affordable housing project, it said it would also help the non-bank financial institution (NBFI) effectively target people of the group.
The interest rate against loans under the scheme will be lower than the rates currently offered by the housing finance solution provider, said an official of DBH Finance, requesting not to be named.
He also said discussions were on between IFC and DBH Finance, and that if they could strike a deal, IFC would purchase bonds to be issued by DBH Finance.
A World Bank Group member, IFC may also support the company in mobilising up to $25 million more through bond subscriptions by other investors, according to a disclosure by IFC on Tuesday.
The notion of affordable housing gets a push when most financial institutions provide house loans to high-income people, resulting in a surplus of premium housing.
On the other hand, low- and middle-income segments have hardly had any access to housing finance, which led to a shortage of housing units for them.
IFC estimated that about 80 per cent of people in Bangladesh's cities live in rented properties throughout their lives, mostly due to a lack of mortgage finance. Home mortgages only account for 3 per cent of the loan market in Bangladesh, below the average of 4.9 per cent in South Asia and 8.9 per cent in emerging markets.
In order to expand lending for affordable housing, the global financial institution, which facilitates private sector development in less developed countries, already subscribed to five-year senior bonds worth $50 million issued by Brac Bank last year.
DBH Finance has been a major player in the housing finance sector in Bangladesh since 1997. Thousands of people, often considered undeserving by commercial banks of loans, are expected to be able to take out affordable loans from the fund to be raised by DBH Finance through bond issuance to IFC.
The rest of the targeted Tk 5.50 billion may be raised by privately issuing bonds to other investors.
The debt securities would be non-convertible, redeemable and fixed coupon senior bonds. The tenure will be up to five years from the issue date.
A senior bond is borrowed money that has to be repaid first when a company goes out of business, making it a more secure investment than other bonds. However, lower risk comes with lower interest rates.
DBH Finance, with more than Tk 41 billion housing loan portfolio as of FY22, has planned to grant loans to people, who have monthly income below Tk 0.10 million, under the new scheme.
IFC will also provide advisory support so that DBH Finance can develop and strengthen the affordable housing loan product, according to the disclosure.
It has anticipated that the project will contribute to long-term development of the bond market in Bangladesh while it has been working with the Bangladesh Securities and Exchange Commission to strengthen the market.
Stock market analysts welcome the move, saying the IFC-DBH project would inspire local investors to inject money in the bond market.
The board of directors of DBH Finance decided to issue up to Tk 5.50 billion affordable housing bonds. The issuance of debt securities is subject to approval of relevant regulatory authorities.
Source: The Financial Express
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