CASE STUDY Customizing the IDA 18 Scale-Up Facility Loan Supporting Affordable Housing Finance in West Africa OVERVIEW The West African Economic and Monetary Union (WEAMU) region, comprising Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo, has experienced solid growth since 2012. However, housing remains a significant challenge for the majority of the population, who live on less than US$3.1 a day. A US$155 million IDA loan-grant combination is helping the regional mortgage refinancing company CRRH- Family in Senegal Village Photo credit: Martin Lindsay / Alamy stock photo. UEMOA and the West African Development Bank extend long-term affordable loans to banks and Financing Objective microfinance companies to serve these The IDA financing under the project has several underserved households. objectives: • Facilitate approximately 50,000 new mortgage loans over five years. Background • Target households with low or irregular incomes As of 2017, approximately 40 percent of the 110 that are excluded from the mainstream financial million WAEMU region residents lived below the system by supporting caps on loans equal to extreme poverty line. The population of the region US$26,000 for banks and US$17,000 for is expected to double over the next 20 years, and nonbanks. 800,000 new housing units will be needed annually. • Crowd in private sector financing by Yet WAEMU banks issue only 15,000 new incentivizing lenders to develop underwriting mortgages each year, a tiny fraction of the systems for this segment of the population; estimated needs. The prognosis is especially bad under a base case scenario, US$1 of IDA for households with limited or nonexistent access to funding is expected to leverage US$5 of private the banking/mortgage system. The WAEMU finance. Affordable Housing Finance project was designed • Significantly lengthen loan maturities to make to address this challenge. housing finance more affordable. Financial Solution o An exception was granted to the borrower allowing a cap to be set on the rate at which A US$130 million IDA loan, in line with the IDA18 each tranche of the loan would be fixed at Jobs and Economic Transformation theme, was disbursement. This is not a feature typically combined with a US$25 million IDA grant. The loan offered in the automatic rate fixing option. borrower, the West African Development Bank, will o An exception was granted allowing the channel the loan to CRRH-UEMOA (Caisse capitalized front-end fees to be fixed as part Régionale de Refinancement Hypothécaire de of the first disbursement of the loan. The l'UEMOA), which will in turn extend long-term loans exception was required because the fees to local banks and microfinance institutions. The (equal to US$325,000) were below the grant will finance technical assistance to build the World Bank’s minimum threshold (US$3 long-term capacity of banks to develop underwriting million) for interest rate fixing. The borrower processes. later decided not to capitalize the front-end fees. The IDA loan was provided from the IDA18 Scale- o A systematic process was established to Up Facility (SUF) Window, which provides loans at synchronize the disbursement of the loan nonconcessional terms. A working group and conversion of the floating interest rate comprising multiple World Bank teams accelerated to fixed rate; this step ensured that the the implementation of the IDA18 SUF Window so borrower was not exposed to interest rate that the project could secure the loan in time. risk between disbursement and conversion The West African Development Bank is a regional (typically 10 days). entity supported by multiple sovereigns. The entity needed to be approved as an eligible borrower by Outcome the World Bank legal team and Board of Executive On October 13, 2017, World Bank extended a Directors. US$130 million equivalent scale-up credit to the West African Development Bank (BOAD) along With the exception of Senegal and Côte d’Ivoire, all with a regional grant in the amount of US$25 million WAEMU members are low-income countries that equivalent to the West African Economic and receive IDA grants and/or regular credits charging Monetary Union (WAEMU). The loan allows local no or low interest. The IDA18 SUF loan terms are banks and microfinance institutions to extend the at market rates (like IBRD loans) and comparatively term of their loans to households with moderate more complex compared to IDA grants, offering and irregular incomes. This was the first IDA18 borrowers many choices in loan terms. The World SUF loan approved by the World Bank. Bank Treasury Financial Products team helped the borrower understand the structure of the SUF loan This project has numerous secondary development and fully customize it to meet project needs, as benefits. It creates jobs and supports the follows: construction of cheaper housing; moreover, by bringing the most vulnerable in the region into the • Repayment schedule. A disbursement-linked financial system for the first time in their lives, it repayment schedule was selected to allow CRRH- develops a financial marketplace for this UEMOA and the West African Development Bank population. to on-lend to local banks with the same repayment schedule over time. This was the first Customizing IDA loans is one of the many ways the time that IDA countries had used this option. World Bank helps member countries become more resilient to economic shocks. IBRD’s AAA credit • Risk management options. The borrower rating, market presence, and convening power selected options that made it possible to convert enable the World Bank Treasury’s Financial the loan from a floating to fixed interest rate (and Products team to develop innovative new products vice versa), as well as change the currency of the that help clients maximize financing and mitigate loan. These options allow the borrower to benefit risk. from all of the loan’s risk management features. In addition: For information: Miguel Navarro-Martin, Manager of Banking Products, mnavarromartin@worldbank.org, +1 (202) 458 4722