Long Term Housing Loans to Low and Medium Income Households in Bosnia and Herzegovina: The Experience of Developing an Appropriate Credit Technology
This presentation is based on the experience of developing a credit technology for long-term housing loans to low and medium income households in the frame of the Housing and Construction Loan Programme (HCLP) of the European Union in Bosnia and Herzegovina (BiH).
The paper highlights some of the problems faced by the HCLP program:
- Absence of good collateral due to an underdeveloped real estate market;
- Informality and instability of income due to the downsizing of public sector and low employment in private sector;
- Lack of information on borrowers as people have little trust on banks and the financial institutions are not ready to disclose the track records of their clients.
The author suggests that these problems can be overcome through:
- Assessing long-term payment capacity of the clients;
- Introducing repayment incentive schemes.
The paper concludes that the transaction cost intense housing loan technology will not endanger the profitability of a long-term loan portfolio, particularly because of the positive effects of longer maturities on the interest income generated.