Pension reforms, risk transfer and housing finance innovations

Weak housing creditor protection, accentuated by weak landed property rights and underdeveloped credit information systems constitute major constraints to housing finance development in many developing countries. Improving housing creditor protection require further institutional development and financial innovation. As a trigger of financial innovation, regulation has spawned pension reforms leading to the global shift from defined benefit to defined contribution pension schemes, which has created new opportunities to improve housing creditor protection and thus engender housing finance innovations. This paper considers how pension assets—accumulated benefits and associated personal, employment and contribution information—has provided a basis for collateralized lending and an additional avenue for credit information system development. The paper proposes a pension asset-backed creditor protection model that utilizes defined contribution pension assets to improve housing credit allocation, and thus, housing finance development. Pension assets represent alternative or complementary collateral assets for securing a housing credit (mortgage). And as depositories of information, the information content of pension assets and institutions could also be used alternatively and complementarily to assess the capacity, character and contribution (equity) of potential borrowers in the credit underwriting process. Future applied research may consider how the proposed model could be integrated in existing credit underwriting systems and the operational challenges that could emerge.