Project Description
On June 27, 2022, the Multilateral Investment Guarantee Agency (MIGA), a member of the World Bank Group, issued guarantees of up to US$350.9 million to J.P. Morgan Chase & Co. of the United States for a period of 10 years covering the risk of Non-Honoring of Financial Obligations by a State-Owned Enterprise (NH-SOE) for an up to US$290 million debt financing to Fondo Mivivienda S.A. (FMV) of Peru, as part of Pillar 2A of MIGA’s COVID-19 Response Package.
Peru has been severely impacted by the COVID-19 pandemic. Structural weaknesses in the health care system required tight containment measures that negatively affected the country’s economic activity, including the construction sector, which came to a complete halt in March 2020 when the Government of Peru declared a state of health emergency to prevent and control the spread of COVID-19. While this led to the housing market to contract in 2020, the sector has since rebounded to its historical growth rate. However, mortgage credit in Peru as a proportion of GDP is still relatively low compared to other countries in the region and the mortgage market remains limited as a proportion of the overall financial activity despite strong demand for housing in the country, which outpaces supply.
The proceeds of the MIGA-guaranteed loan will be used by FMV, the largest provider of affordable housing financing in Peru, which plays a critical role in the Government’s public policies to reduce the country’s housing shortage, to provide mortgages to households for the purchase of houses through FMV’s green mortgage program. This market-leading program provides financing for the purchase of properties certified as sustainable green housing.
Environmental Categorization
The MIGA Project will support mortgages to middle and low-income households through FMV’s green mortgage program. The E&S risks associated with retail mortgage loans are considered minimal and this Project has thus been categorized as FI-3 MIGA’s Policy on Environmental and Social Sustainability (2013). There are no E&S requirements for the lending portfolio, but FMV is required to comply with the labor requirements set forth under Performance Standard 2: Labor and Working Conditions.
Development Impact
The MIGA-guaranteed loan supports increased access to finance for social housing in Peru. The mortgages, aimed primarily at vulnerable and middle-income households, will benefit from reduced interest rates, as well as grants/subsidies that will lower the price of certified green social housing to levels comparable with the price of conventional housing. The entire Project will be tagged as climate finance. The increase in green mortgages will support green housing construction, which in turn will boost job creation and promote economic recovery from the COVID-19 economic shock. Finally, the availability of mortgages will promote financial inclusion. As such, the Project is consistent with MIGA’s efforts to promote the recovery of economic activity under MIGA’s Fast Track COVID-19 Response Program. The Project is also aligned with MIGA’s FY21-23 strategic focus on supporting climate finance projects and with its strategic pillar to Create Markets by supporting the growth of FMV’s lending portfolio. The Project is consistent with the WBG Country Partnership Framework FY17-FY21 for Peru across its three pillars by: (i) supporting access to financial services (housing finance) as an incentive towards formality; (ii) supporting improved water and sanitation services in key urban areas, since the green housing also provides access to water and sanitation; and (iii) contributing to climate change mitigation through the certified green housing to which the MIGA-guaranteed loan will apply.
