In emerging markets, banks often don’t make loans for housing due to the perception of high risk. As a proof of concept of the market, non-bank financial institutions (NBFIs) may step in to develop the mortgage market – in some cases, the role of NBFIs can be transformative, as banks decide to enter the market once housing finance is seen as profitable and low-risk.
The Sofoles, as financial intermediaries, exemplify the pros and cons of the Mexican government’s aims to make affordable housing accessible through an NBFI. After the financial crisis, the Mexican government created and backed the credit of a state-owned development bank, Sociedad Hipotecaria Federal (SHF), which in turn funded the Sofoles. These financial intermediaries issued mortgage-backed securities at competitive rates and acquired a major share in the private lending market. But in the market crash of 2008-2009, the Sofoles were unable to access the capital markets for funding that their model was dependent upon. Though successful in times of economic growth and stability, making up 22% of the market share in 2008 (by loan amount), the Sofoles were vulnerable in the short and long term to capital market disruption.
Source:
World Bank Group. (2016) World Bank Group Support to Housing Finance. International Bank for Reconstruction and Development / The World Bank.
Link: https://ieg.worldbankgroup.org/evaluations/world-bank-group-support-housing-finance