Commercial banks often will support the development and expansion of a mortgage market – but depending on certain country contexts, the financial instruments used to grow the market can be ineffective. In the case of Vietnam, the International Finance Corporation (IFC) provided a local currency credit line of $50 million to a commercial bank, under the agreement that it would be used for a long-term cross-currency swap. However, when the swap market collapsed during the 2008 crisis, IFC was unable to disburse $20 million to the bank. Because a real market for long-term cross currency swaps doesn’t exist in an emerging market like Vietnam’s, which essentially operates on a short-term basis, this strategy was judged untenable.
There were additional challenges to growing the mortgage and affordable housing market through IFC and commercial bank involvement in Vietnam, such as a lack of precise scope and market niche for projects, a lack of technical assistance, and the limited size of investments due to the higher financial risk of emerging market countries. Putting these investments and implementation strategies into the context of each individual country is essential to ensuring the accessibility of housing finance.
Source: World Bank Group. (2016). World Bank Group Support for Housing Finance. © 2016 International Bank for Reconstruction and Development / The World Bank.
Link: https://ieg.worldbankgroup.org/evaluations/world-bank-group-support-housing-finance