Housing financing for the lower middle class
Housing financing for the lower middle class
Business Model Description
Invest in affordable financing options for low- and middle-income individuals, incorporating private investment, mixed financing (including private sector investments, patient capital, and potential subsidies or government financing), and tenant ownership schemes to facilitate home acquisition and renovations.
Expected Impact
Enhance housing financing options to elevate the quality of life.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
Disclaimer
UNDP, the Private Finance for the SDGs, and their affiliates (collectively “UNDP”) do not seek or solicit investment for programmes, projects, or opportunities described on this site (collectively “Programmes”) or any other Programmes, and nothing on this page should constitute a solicitation for investment. The actors listed on this site are not partners of UNDP, and their inclusion should not be construed as an endorsement or recommendation by UNDP for any relationship or investment.
The descriptions on this page are provided for informational purposes only. Only companies and enterprises that appear under the case study tab have been validated and vetted through UNDP programmes such as the Growth Stage Impact Ventures (GSIV), Business Call to Action (BCtA), or through other UN agencies. Even then, under no circumstances should their appearance on this website be construed as an endorsement for any relationship or investment. UNDP assumes no liability for investment losses directly or indirectly resulting from recommendations made, implied, or inferred by its research. Likewise, UNDP assumes no claim to investment gains directly or indirectly resulting from trading profits, investment management, or advisory fees obtained by following investment recommendations made, implied, or inferred by its research.
Investment involves risk, and all investments should be made with the supervision of a professional investment manager or advisor. The materials on the website are not an offer to sell or a solicitation of an offer to buy any investment, security, or commodity, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer would be unlawful under the securities laws of such jurisdiction.
Country & Regions
- Paraguay: Asunción
- Paraguay: Amambay
- Paraguay: Alto Paraná
Sector Classification
Financials
Development need
Paraguay has the highest financial vulnerability index in Latin America due primarily to a lack of income, which, in turn, stems from economic and social vulnerabilities. Furthermore, its extensive territory and low population density result in limited or non-existent financial penetration in remote areas (I).
Policy priority
The National Financial Inclusion Strategy represents a policy priority for Paraguay, as it lays out the country's strategic guidelines for enhancing financial inclusion. This document outlines key indicators, quick achievements, and specific actions across seven thematic areas (II).
Gender inequalities and marginalization issues
According to the 2020 World Economic Forum's Global Gender Gap Index, Paraguay holds the 100th position out of 153 countries, ranking third to last in Latin America and last in South America. The most substantial disparities exist in economic and political participation, with women earning 53.8% less than men for performing equivalent task (III).
Investment opportunities introduction
Paraguay's success with electronic money stems from factors such as low population density in underserved areas where mobile phone usage is widespread. This sector offers an attractive investment opportunity, as it has demonstrated strong growth and shows potential for further expansion (I).
Key bottlenecks introduction
Despite progress in physical access through electronic money, Paraguay, like the rest of Latin America and the Caribbean (ALC), still faces challenges in providing economic access to formal financial products. Notably, Paraguay has the highest costs and fees for savings, credit, and payment services (I).
Corporate and Retail Banking
Development need
The total housing portfolio is around USD 535 million, out of a total system size of almost USD 15 billion, representing only 3.6% of total loans for housing (IV).
Policy priority
Paraguay's government demonstrates its commitment to addressing affordable housing by actively implementing the National Housing and Habitat Policy. This policy serves as a guiding principle for ensuring that all citizens, particularly those with low to moderate incomes, can access decent housing and improved living conditions (V).
Gender inequalities and marginalization issues
When assessing men and women with access to housing credit, it becomes evident that women encounter more hurdles in obtaining such credit compared to men. This points to the need for women to have higher income levels and educational qualifications than men to secure equal access to financial services (VI).
Investment opportunities introduction
The quantitative housing deficit in Paraguay is driven by a combination of factors, including a high annual population growth rate, ongoing urbanization, and a predominantly young population structure. These elements result in a continuous demand for new housing (VII).
Key bottlenecks introduction
The Paraguayan financial system maintains relative liquidity but encounters challenges, including a scarcity of long-term deposits, limited leverage in this regard, and a minimal presence in money, debt, and capital markets (VII).
Mortgage Finance
Pipeline Opportunity
Housing financing for the lower middle class
Invest in affordable financing options for low- and middle-income individuals, incorporating private investment, mixed financing (including private sector investments, patient capital, and potential subsidies or government financing), and tenant ownership schemes to facilitate home acquisition and renovations.
Business Case
Market Size and Environment
USD 50 million - USD 100 million
By 2015, a “lower-middle-income” population, representing middle-class families who receive the minimum wage, need about 75,000 homes (2).
In 2015, a group called “very low income” represents about 11.32% of the total population, and they need 86,830 homes (2).
AFD's "First Home" program emerged in 2015. As of December 2018, 1,644 operations had been delivered for a total of almost USD 50 million (1. 2)
Indicative Return
5% - 10%
The results of a financial evaluation project of a housing financing proposal for low-income segments in Paraguay, being the amount of each loan (6,400 dollars), the total number of families (75,000) and the years of the period of construction (10 years), they estimate an IRR of 7.25% (2).
Investment Timeframe
Long Term (10+ years)
The loan repayment schedule covers a 20-year term and the project's life cycle is 29 years (2).
Market Risks & Scale Obstacles
Capital - Limited Investor Interest
Impact Case
Sustainable Development Need
By 2015, a “lower-middle income” population, representing middle-class families that receive the minimum wage, they need about 75,000 homes (2).
The lack of long-term affordable financing from the banking system due to the high costs of mortgage lines of credit presents a barrier for the low- and middle-income population to access a home (2).
Gender & Marginalisation
In Paraguay, the housing deficit affects an important segment of the population (from the most vulnerable groups to the middle class) (3).
Expected Development Outcome
Increase the proportion of the population living in households with access to basic services.
Increase the proportion of the population that own a home.
Increase access to affordable mortgages and develop the real estate sector.
Gender & Marginalisation
Reduce inequalities in access to quality and affordable housing for lower income population, rural areas and women.
Primary SDGs addressed
1.4.1 Proportion of population living in households with access to basic services
10.5.1 Financial Soundness Indicators
11.1.1 Proportion of urban population living in informal, informal settlements or inadequate housing
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Indirectly impacted stakeholders
Public sector
Corporates
Outcome Risks
> Providing higher lines of housing credit carries increased risks associated with the abuse of the system and non-repayment. These risks include amplified financial losses for lenders, heightened borrower vulnerability, the potential intensification of a debt cycle, elevated portfolio risk, and sustainability concerns for housing credit programs (6).
Middle class may become over-indebted if they borrow beyond their repayment capacity, leading to financial distress and a cycle of debt (6).
Increased demand could lead to an increase in property prices.
Impact Risks
Foreclosure risks: Lack of a comprehensive and easily accessible information system (private or public) on the real estate market in general and on the mortgage market in particular (7).
Stakeholder risks: Mortgage loans are very short-term ( 2 to 3 years), which is not accessible to the lower middle class.
Stakeholder risk: high credit risk due to lack of trust towards informal and low-income workers (7).
Impact Classification
What
The likely result is positive, as access to finance has the potential to offer affordable housing to lower-middle-income individuals and integrate them into the financial system.
Who
Lower-middle-income individuals and residents living in neglected or rented homes, often in precarious conditions
Risk
The financing model is relatively new and requires testing on a significant scale. Moreover, external factors like the low level of financial literacy can constrain its potential impact.
Impact Thesis
Enhance housing financing options to elevate the quality of life.
Enabling Environment
Policy Environment
The National Development Plan 2030 - has as one of the transversal lines of axis I (Poverty reduction and social development) to develop an adequate and sustainable housing (3).
National Policy of Housing and Habitat of Paraguay - Its specific strategic objective, among others, promote the development of long-term financing capacity for housing and habitat projects and promote prior savings mechanisms that facilitate access to adequate housing (8).
Affordable Housing Program - The objective is to reduce the housing deficit of middle-income families by providing easy access to their own home through interest rates below market rates, at comfortable deadlines and fixed and accessible fees (9).
Financial Environment
The IDB offers loans that promote and finance sustainable and market-based business models that facilitate the participation of private sector companies, local governments and communities in the development and delivery of of quality products and services (12).
Development Financial Agency (AFD) - Its function is to grant credits to complement the funding structure of first-tier financial intermediation entities, in order to enable the execution of short, medium and long programs (13).
Law 60-90 (investment law) protects investments of national and/or foreign origin (8) and establishes the total exoneration of fiscal and municipal taxes levied on the constitution, registration, and company and company registries (14).
Regulatory Environment
Law No. 861 of banks, finance companies and other credit entities that establish the requirements, rights, obligations, guarantees and other operating conditions (10).
Law No. 325/71 that creates the savings bank and loan for housing and the NATIONAL SAVINGS AND LOAN SYSTEM (11).
Law No. 1378, to promote, project, finance and execute, through public and private companies or entities, low-cost housing of social interest (11).
Marketplace Participants
Private Sector
Banco BASA (Paraguay), Banco Itaú (Paraguay), Banco Atlas (Paraguay), Interfisa Banco (Paraguay), Banco Continental (Paraguay), Banco GNB (Paraguay) (offer the AFD product).
Government
National Development Bank, Development Finance Agency, Ministry of Urbanism, Housing and Habitat, Central Bank of Paraguay.
Multilaterals
IDB, European Union (EU), World Bank (WB).
Non-Profit
A Roof for my Country, Habitat for Humanity.
Target Locations
Paraguay: Asunción
Paraguay: Amambay
Paraguay: Alto Paraná
References
- (I) CAF - Banco de desarrollo de Latinoamérica. 2021. Capacidades, inclusión y vulnerabilidad financieras en Paraguay. https://scioteca.caf.com/bitstream/handle/123456789/1871/Capacidades_inclusi%C3%B3n%20y%20vulnerabilidad%20financieras%20en%20Paraguay.pdf?sequence=4&isAllowed=y (II) Gobierno del Paraguay. 2014. Estrategia Nacional de Inclusión Financiera. https://enif.paraguay.gov.py/storage/app/uploads/public/59e/10f/126/59e10f12678f7631648286.pdf (III) Datos Macro. 2020. La brecha de género se estrecha en Paraguay. https://datosmacro.expansion.com/demografia/indice-brecha-genero-global/paraguay?anio=2020 (IV) Market Data. 2021. Viviendas: Avances y desafíos, en busca de reducir el déficit habitacional. https://marketdata.com.py/laboratorio/analisis/economia/viviendas-avances-y-desafios-en-busca-de-reducir-el-deficit-habitacional-61644/ (V) Secretaría Nacional de la Vivienda y el Hábitat. 2018. Política Nacional de la Vivienda y el Hábitat del Paraguay. https://www.muvh.gov.py/sitio/wp-content/uploads/2022/04/PNVH-Digital.pdf (VI) IDB. 2023. How gender inequality affects access to housing credit? https://blogs.iadb.org/ciudades-sostenibles/en/how-gender-inequality-affects-access-to-housing-credit/ (VII) IDB. 2019. Desarrollo del mercado hipotecario en Paraguay. https://publications.iadb.org/es/desarrollo-del-mercado-hipotecario-en-paraguay-el-caso-de-la-agencia-financiera-de-desarrollo
- (1) Dirección General de Estadística, Encuestas y Censos. 2019. Hogares por año, según departamento y situación legal de la vivienda. https://www.ine.gov.py/publicacion/10/vivienda-y-hogar
- (2) Vicente Fruet Cardozo & Guzmán A. Muñoz Fernández. 2015. Paraguay: una propuesta de financiamiento de viviendas para los segmentos de ingresos medios-bajos. https://repositorio.cepal.org/server/api/core/bitstreams/42caf0cc-aa22-4efb-b036-3bf7e2a4bac2/content
- (3) Gobierno del Paraguay. 2014. Plan Nacional de Desarrollo Paraguay 2030. https://www.stp.gov.py/pnd/wp-content/uploads/2014/12/pnd2030.pdf
- (4) La nación. 2020. Día del Hábitat: en Paraguay más de 1.100.000 familias no tienen acceso a vivienda digna. https://www.lanacion.com.py/pais/2020/10/05/dia-del-habitat-en-paraguay-mas-de-1100000-familias-no-tienen-acceso-a-vivienda-digna/
- (5) IDB. 2019. Desarrollo del mercado hipotecario en Paraguay. https://publications.iadb.org/es/desarrollo-del-mercado-hipotecario-en-paraguay-el-caso-de-la-agencia-financiera-de-desarrollo
- (6) Jessica Schicks and Richard Rosenberg. 2011. Too Much Microcredit? A Survey of the Evidence on Over-Indebtedness. https://documents1.worldbank.org/curated/zh/553421468148522571/pdf/649800NWP00PUBLIC00Box361550B0OP19.pdf
- (7) Ricardo Bebczuk & Edgardo Demaestri. 2014. Comparing Downpayment and Interest Rate Mortgage Subsidies: An Analytical Approach. https://www.cedlas.econo.unlp.edu.ar/wp/wp-content/uploads/doc_cedlas162.pdf
- (8) Secretaría Nacional de la Vivienda y el Hábitat. 2018. Política Nacional de la Vivienda y el Hábitat del Paraguay. https://www.muvh.gov.py/sitio/wp-content/uploads/2022/04/PNVH-Digital.pdf
- (9) Ministerio de Urbanismo, Vivienda y Hábitat. 2023. Viviendas Económicas. https://www.muvh.gov.py/viviendaseconomicas
- (10) Congreso de la nación paraguaya. 1996. Ley No. 861. https://www.bacn.gov.py/archivos/4135/20151013094259.pdf
- (11) Congreso de la nación paraguaya. 2015. Ley No. 1378. https://www.bacn.gov.py/leyes-paraguayas/3503/amplia-y-modifica-la-ley-n-32571-que-crea-el-banco-nacional-de-ahorro-y-prestamo-para-la-vivienda-y-el-sistema-nacional-de-ahorro-y-prestamo
- (12) International Finance Corporation. 2011. International Finance Institutions and development through private sector. https://www.deginvest.de/DEG-Englische-Dokumente/PDFs-Download-Center/IFI_and_Development_Trough_the_Private_Sector.pdf
- (13) Agencia Financiera de Desarrollo. S.F. Acerca de la AFD. https://www.afd.gov.py/que-es-la-afd
- (14) Congreso de la Nación Paraguaya. 1991. LEY Nº: 60/90. https://www.mic.gov.py/mic/w/industria/ddi/pdf/Ley60-90.pdf