42808 - BHS Senior Loan

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Summary of Investment Information

Project Number

42808

Company Name

BANQUE DE L'HABITAT DU SENEGAL S A

Date SPI Disclosed

Feb 27, 2023

Country

Senegal

Region

Africa

Projected Board Date

Mar 31, 2023

Environmental Category

FI-2 - Limited

Status

Pending Signing

Last Updated Date

May 20, 2023

Department

Regional Industry - FIG Africa

Industry

Financial Markets

Previous Events

Approved : May 5, 2023

Sector

Primary Mortgage Institutions

Additional Project Attributes

Blended Finance

Project Description

The Project consists of a multi-phase investment package in the amount of US$38.5 million to Banque de l’Habitat du Senegal (“BHS” or “the Bank”), the leading housing finance bank in the country, to increase access to mortgages for low to middle income families and support developers to build more green and affordable houses. The first phase of the project consists in a debt instrument and subsequent investments might include debt, equity or quasi-equity instruments, to be decided upon and approved at a later date.

The use of proceeds is earmarked for affordable housing retail mortgages and/or lending to developers.

Associated Advisory Engagement

The Bank will benefit from the implementation of Institutional Strengthening Plan, which includes Corporate Governance advisory and Risk Management advisory. Technical support on EDGE Green Building certification for BHS’s client developers is expected to be provided.

Sponsor / Cost / Location

IFC as implementing entity of the IDA20 PSW BFF is expected to provide up to US$8 million in the form of a first loss guarantee that provides downside protection to facilitate IFC’s first phase debt at viable terms which are not currently available in the market. In addition, the proposed IFC first phase debt will be supported by the IDA20 PSW LCF through cross-currency swaps with IDA. Through this solution, IFC will be able to provide long-term local currency financing at terms which are not available in the market, due to the lack of affordable local currency financing, and which is needed to unlock financing for affordable homes in Senegal. Finally, IFC as implementing entity of the UK Government supported MAGC program expects to provide up to US$1.175 million in the form of a performance-based incentive (PBI) to support the development of green homes. The PBI will be passed through the bank’s client developers to cover the incremental “greening” and certification costs and will be paid ex-post, 50% at design certification and 50% at completion certification of the green units. The level of concessionality (i.e., “subsidy”) provided by the three blended concessional finance facilities is estimated to be approximately 43% of the first phase project cost of US$20 million. This estimate is based (A) for the IDA PSW BFF: on the difference between (i) a “reference price” (either a market price if available; the price calculated using IFC’s pricing model, which comprises three main elements: risk, cost and profit; or a negotiated price) and (ii) the “concessional price” being charged by the blended concessional finance co-investment; and (B) for the IDA PSW LCF: on the difference (i) a “reference swap rate” and (ii) the “concessional swap rate” received by the IDA PSW LCF. To continue supporting the financing of affordable green homes, IFC is open to engaging further with other local financial intermediaries in the country and consider blended finance structures similar to the ones proposed in this investment. As is the case with all of IFC’s blended concessional finance co-investments, this project has been assessed against the Enhanced Blended Concessional Finance Principles for DFI Private Sector Operations adopted by IFC and more than 20 other DFIs in 2017. Further information on these Enhanced Principles, IFC’s blended finance approach and governance, and historical information on estimated subsidy levels in IFC’s blended finance portfolio can also be found at: www.ifc.org/blendedfinance.

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	20.0
Equity

IFC's loan to the financial institution described in this SII is targeted for on-lending to the following sector(s):

Product Type	Use of Proceeds
Straight Senior Loan	Housing Loans to Individuals

IFC's Definitions of Targeted Sectors can be found here.

Development Impact

Assessment of Project Outcomes Stakeholder effects – Increased access to mortgage finance for homebuyers: Currently, the housing gap is estimated to be around 633,800 housing units. To ease the existing housing gap in the market by making housing finance more accessible, BHS intends to increase its mortgage portfolio for low to middle-income households. Stakeholder effects – Increased access to developer finance for green and affordable housing: Senegal’s housing deficit is projected to grow by around 12,000 housing units per year or about 181,000 additional units by 2030. The proposed IFC funding and advisory services will help BHS increase access to funding to developers operating in the affordable segment. The Project seeks to increase affordable housing units over at least five green-certified projects over the next seven years. Assessment of Project Outcomes Competitiveness: By building upon the current regulatory work by the Government of Senegal and the World Bank Group to ease the constraints to develop the housing sector in Senegal and by offering synchronized financing for both supply- and demand-side players to BHS, the Project provides a replicable housing finance model that could trigger a significant shift in the underdeveloped housing market in Senegal. This is expected to send a positive signal to the market regarding the commercial viability of the affordable housing segment. IFC expects other Banks to enter the housing finance market, particularly focusing on the untapped lower end of the commercial market spectrum.

Financial additionality: Financing structure (local currency, tenor): With the support from IDA PSW LCF, IFC will provide BHS with a 7-year LCY financing not readily available in the market to increase access to mortgages for low- to middle- income homebuyers and to provide long term financing for developers to support additional supply of affordable and green certified housing units. Non-Financial additionality: Knowledge, innovation, and capacity building: IFC’s integrated investment and advisory support to BHS will help enhance the Bank’s governance and risk management framework to improve their developer finance business. Standard setting: Through this Project, IFC will help BHS develop its environmental and social standards through the formulation and implementation of an ESMS as the Bank does not have an environmental and social management system in place. Furthermore, the Project will enable the introduction of developers to the EDGE Green Building Certification program for their affordable housing projects.

E&S Category Rationale / Risks and Mitigation

The Project consists of a senior loan to Banque de l’Habitat du Senegal to increase access to mortgages for low to middle income families and to support developers to build more green and affordable houses. The overall portfolio risk for this project is considered medium. The project has been categorized as FI-2 according to IFC’s Environmental and Social Sustainability Policy. The key E&S risks and impacts derive from the capacity of BHS to identify and manage the potential environmental and social risks associated with its lending activities in the housing sector: exposure to collapse, floods, fires; unresolved land tenure issues; impacts on nearby sensitive ecosystems, hygiene, health and safety of workers and communities; and waste management. BHS’ has in in place human resources policies and procedures are generally. BHS is required to enhance its Human resources policies and procedures in line with IFC Performance Standard 2 on Labor and Working Condition. It is required to include a grievance mechanism for its employees, a retrenchment policy, and procedures to prevent discrimination and sexual harassment. The bank shall formalize its life and fire safety practices and procedures, including ensuring that fire drills are carried out for all buildings.

The applicable requirements for this project are the IFC Exclusion List, applicable national environmental and social laws and regulations in Senegal, and the IFC performance standards. For this project, the bank will be required to develop and implement an ESMS to manage E&S risks related to the construction sector. The bank will be required to provide appropriate E&S risk management training to its staff to ensure effective implementation of the ESMS. BHS shall formalize its life and fire safety practices and procedures and enhance its Human resources policy.

The Project will not support coal-related activities, or higher risk business activities that may include: a) involuntary resettlement, b) risk of adverse impacts on indigenous peoples, c) significant risks to or impacts on the environment, community health and safety, biodiversity, cultural heritage, or d) significant occupational health and safety risks.

BHS does not have an Environmental and Social Management System (ESMS). However, the bank has designated an E&S officer. Staff involved in the credit procedure received training on management of E&S risk in the housing sector. As part of this project, the BHS will be required to develop an ESMS to ensure all eligible loans supported under this loan comply with the applicable environmental and social requirements, provide E&S risk management training to bank officers implicated in the ESMS implementation and improve the E&S capacity of the staff involved in the ESMS implementation.

Action Item	Timeline
Develop of an ESMS	Condition of Disbursement (May 30^th, 2023)
Develop E&S Training Plan	Condition of Commitment (Mar 27^th, 2023)
Staff Training	Three months from disbursement August 30, 2023
Enhance Human resources policy	Three months from disbursement August 30, 2023
Submission of ESMS Implementation report	Three months from disbursement November 30, 2023
Develop life and fire safety procedures	Three months from disbursement August 30, 2023

Contacts

For Inquiries About the Project, Contact

Banque de l’Habitat du Senegal
Mamadou Bocar Sy
CEO
+2213383933453
contact@bhs.sn
Boulevard Général De Gaulle BP.229 Dakar, Senegal
https://www.bhs.sn/

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