FOR OFFICIAL USE ONLY
Report No: PAD5138
INTERNATIONAL DEVELOPMENT ASSOCIATION
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED CREDIT
IN THE AMOUNT OF SDR 11.7 MILLION
(US$15 MILLION EQUIVALENT)
TO THE
REPUBLIC OF DJIBOUTI
FOR A
DJIBOUTI AFFORDABLE HOUSING FINANCE PROJECT
November 29, 2022
Finance, Competitiveness and Innovation Global Practice
Middle East and North Africa Region
This document has a restricted distribution and may be used by recipients only in the performance of
their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
CURRENCY EQUIVALENTS
Exchange Rate Effective October 31, 2022
Currency Unit =
DJF 177= US$1
DJF 1 = US$0.0056
US$ 1 = SDR 0.779
SDR 1 = US$ 1.28
FISCAL YEAR
January 1 - December 31
Regional Vice President: Ferid Belhaj
Country Director: Marina Wes
Regional Director: Nadir Mohammed
Practice Manager: Djibrilla Adamou Issa
Task Team Leader(s): Caroline Cerruti, Marie Christine Apedo Amah
ABBREVIATIONS AND ACRONYMS
AFD Agence Française de Développement (French Development Agency)
ARULOS Agence de Réhabilitation Urbaine et du Logement Social (Urban Rehabilitation and social Housing Agency)
BCD Banque Centrale de Djibouti (Central Bank of Djibouti)
CPEC Caisses Populaires d’Épargne et de Crédit (Credit Cooperatives)
CPF Country Partnership Framework
DATUH Direction de l’Aménagement du Territoire, de l’Urbanisme et de l’Habitat – Direction for Territorial
Development, Urbanism and Housing within the Ministry of City, Urban Planning and Housing
DFIL Disbursement and Financial Information Letter
DJF Franc Djiboutien (Djiboutian Franc)
ESMF Environmental and Social Management Framework
ESMS Environmental and Social Management System
ESRS Environmental and Social Review Summary
EU European Union
FGHM Fonds de Garantie Hypothécaire du Mali (Mortgage Guarantee Fund of Mali)
FGPCD Fonds de Garantie Partielle des Crédits de Djibouti (Djibouti Partial Credit Guarantee Fund)
FOGALOG Fonds De Garantie pour l'Accès au Logement du Sénégal (Guarantee Fund for Access to Housing of Senegal)
FOGARIM Fonds de Garantie pour les Revenus Irréguliers et/ou Modestes du Maroc (Guarantee Fund for People with
Irregular and Modest Incomes)
GDP Gross Domestic Product
GHG Greenhouse Gases
GRS Grievance Redress Service
IBRD International Bank for Reconstruction and Development
IDA International Development Association
IFC International Finance Corporation
IFR Interim Financial Report
IMF International Monetary Fund
IPF Investment Project Financing
IRR Internal Rate of Return
KWFT Kenya Women Microfinance Bank
LMP Labor Mobilization Plan
MAD Moroccan Dirham
MFI Microfinance institutions
MoU Memorandum of Understanding
MVUH Ministère de la Ville, de l’Urbanisme et de l’Habitat (Ministry of City, Urban Planning and Housing)
ND-GAIN Notre Dame Global Adaptation Initiative
PDO Project Development Objective
PFI Participating Financial Institution
PIM Project Implementation Manual
PIRB Programme Intégré de Résorption des Bidonvilles (Integrated Slum Rehabilitation Program)
PPD Public-Private Dialogue
PPP Public-Private Partnership
SCD Systematic Country Diagnostic
SEP Stakeholder Engagement Plan
SIAF Société Immobilière et d'Aménagement Foncier (Real Estate and Land Development Company)
SME Small and Medium Enterprise
SOTUGAR Société Tunisienne de Garantie (Tunisian Guarantee Company)
ToR Terms of Reference
WB/WBG World Bank/World Bank Group
TABLE OF CONTENTS
DATASHEET ........................................................................................................................... 2
I. STRATEGIC CONTEXT ...................................................................................................... 8
A. Country Context................................................................................................................................ 8
B. Sectoral and Institutional Context .................................................................................................... 9
C. Relevance to Higher Level Objectives............................................................................................. 15
II. PROJECT DESCRIPTION.................................................................................................. 16
A. Project Development Objective ..................................................................................................... 16
B. Project Components ....................................................................................................................... 16
C. Project Beneficiaries ....................................................................................................................... 19
D. Results Chain .................................................................................................................................. 19
E. Rationale for Bank Involvement and Role of Partners ................................................................... 20
F. Lessons Learned and Reflected in the Project Design .................................................................... 20
III. IMPLEMENTATION ARRANGEMENTS ............................................................................ 21
A. Institutional and Implementation Arrangements .......................................................................... 21
B. Results Monitoring and Evaluation Arrangements......................................................................... 22
C. Sustainability................................................................................................................................... 22
IV. PROJECT APPRAISAL SUMMARY ................................................................................... 22
A. Economic and Financial Analysis .................................................................................................... 22
B. Fiduciary.......................................................................................................................................... 23
C. Legal Operational Policies ............................................................................................................... 25
D. Environmental and Social ............................................................................................................... 25
V. GRIEVANCE REDRESS SERVICES ..................................................................................... 26
VI. KEY RISKS ..................................................................................................................... 26
VII. RESULTS FRAMEWORK AND MONITORING ................................................................... 28
ANNEX 1: Implementation Arrangements and Support Plan .......................................... 33
ANNEX 2: Country climate vulnerability context and project activities to address climate
change .......................................................................................................................... 44
ANNEX 3: Housing loan guarantee................................................................................. 48
ANNEX 4: Housing microfinance .................................................................................... 50
ANNEX 5: Gender gap ................................................................................................... 52
ANNEX 6: Financial Intermediary Analysis ..................................................................... 56
ANNEX 7: Economic Analysis ......................................................................................... 60
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Djibouti Affordable Housing Finance Project (P176772)
DATASHEET
BASIC INFORMATION
BASIC_INFO_TABLE
Country(ies) Project Name
Djibouti Djibouti Affordable Housing Finance Project
Project ID Financing Instrument Environmental and Social Risk Classification
Investment Project
P176772 Moderate
Financing
Financing & Implementation Modalities
[ ] Multiphase Programmatic Approach (MPA) [ ] Contingent Emergency Response Component (CERC)
[ ] Series of Projects (SOP) [ ] Fragile State(s)
[ ] Performance-Based Conditions (PBCs) [✓] Small State(s)
[✓] Financial Intermediaries (FI) [ ] Fragile within a non-fragile Country
[ ] Project-Based Guarantee [ ] Conflict
[ ] Deferred Drawdown [ ] Responding to Natural or Man-made Disaster
[ ] Alternate Procurement Arrangements (APA) [ ] Hands-on Enhanced Implementation Support (HEIS)
Expected Approval Date Expected Closing Date
20-Dec-2022 31-Dec-2027
Bank/IFC Collaboration Joint Level
Yes Complementary or Interdependent project requiring active coordination
Proposed Development Objective(s)
The Project's Development Objective is to expand access to affordable housing finance for underserved populations
in the Recipient’s territory.
Components
Component Name Cost (US$, millions)
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Mortgage guarantee mechanism 7.00
Innovative financing of affordable housing 5.50
Technical Assistance and Project Management 2.50
Organizations
Borrower: Republic of Djibouti - Ministry of Economy and Finance, in Charge of Industry
Implementing Agency: Agence de Réhabilitation Urbaine et du Logement Social (ARULOS).
Fonds de Garantie Partielle des Credits de Djibouti (FGPCD)
PROJECT FINANCING DATA (US$, Millions)
SUMMARY -NewFin1
Total Project Cost 85.00
Total Financing 85.00
of which IBRD/IDA 15.00
Financing Gap 0.00
DETAILS -NewFinEnh1
World Bank Group Financing
International Development Association (IDA) 15.00
IDA Credit 15.00
Non-World Bank Group Financing
Commercial Financing 70.00
Commercial Financing Guaranteed 70.00
IDA Resources (in US$, Millions)
Guarantee
Credit Amount Grant Amount SML Amount Total Amount
Amount
Djibouti 15.00 0.00 0.00 0.00 15.00
National
Performance-Based 15.00 0.00 0.00 0.00 15.00
Allocations (PBA)
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Djibouti Affordable Housing Finance Project (P176772)
Total 15.00 0.00 0.00 0.00 15.00
Expected Disbursements (in US$, Millions)
WB Fiscal Year 2023 2024 2025 2026 2027 2028
Annual 7.00 2.00 4.00 1.00 1.00 0.00
Cumulative 7.00 9.00 13.00 14.00 15.00 15.00
INSTITUTIONAL DATA
Practice Area (Lead) Contributing Practice Areas
Finance, Competitiveness and Innovation Urban, Resilience and Land
Climate Change and Disaster Screening
This operation has been screened for short and long-term climate change and disaster risks
SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT)
Risk Category Rating
1. Political and Governance ⚫ Substantial
2. Macroeconomic ⚫ Substantial
3. Sector Strategies and Policies ⚫ Moderate
4. Technical Design of Project or Program ⚫ Moderate
5. Institutional Capacity for Implementation and Sustainability ⚫ Moderate
6. Fiduciary ⚫ Moderate
7. Environment and Social ⚫ Moderate
8. Stakeholders ⚫ Moderate
9. Other
10. Overall ⚫ Moderate
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Djibouti Affordable Housing Finance Project (P176772)
COMPLIANCE
Policy
Does the project depart from the CPF in content or in other significant respects?
[ ] Yes [✓] No
Does the project require any waivers of Bank policies?
[ ] Yes [✓] No
Environmental and Social Standards Relevance Given its Context at the Time of Appraisal
E & S Standards Relevance
Assessment and Management of Environmental and Social Risks and Impacts Relevant
Stakeholder Engagement and Information Disclosure Relevant
Labor and Working Conditions Relevant
Resource Efficiency and Pollution Prevention and Management Relevant
Community Health and Safety Relevant
Land Acquisition, Restrictions on Land Use and Involuntary Resettlement Not Currently Relevant
Biodiversity Conservation and Sustainable Management of Living Natural Not Currently Relevant
Resources
Indigenous Peoples/Sub-Saharan African Historically Underserved Traditional Not Currently Relevant
Local Communities
Cultural Heritage Not Currently Relevant
Financial Intermediaries Relevant
NOTE: For further information regarding the World Bank’s due diligence assessment of the Project’s potential
environmental and social risks and impacts, please refer to the Project’s Appraisal Environmental and Social Review
Summary (ESRS).
Legal Covenants
Sections and Description
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Djibouti Affordable Housing Finance Project (P176772)
Section I.A.2. Schedule 2: The Recipient shall create no later than one (1) month after the Effective Date and
thereafter maintain, the Project Steering Committee.
Sections and Description
Section I.B.3. Schedule 2: The Recipient shall cause ARULoS to establish not later than one (1) month after the
Effective Date and thereafter maintain, the ARULoS Project Management Team.
Sections and Description
Section I. C.1. Schedule 2: The Recipient shall cause ARULoS to sign memoranda of understanding and thereafter
maintain said memoranda with: (i) FGPCD not later than three (3) months after the Effective Date; (ii) the Chamber
of Commerce not later than three (3) months after the effective date; and (iii) BCD not later than twelve (12)
months after the Effective Date.
Sections and Description
Section IV. Schedule 2: Not later than three (3) months after the Effective Date, the Recipient shall cause ARULoS
to: (i) upgrade its accounting system to record the Project transactions and prepare the financial reports; and (ii)
recruit an external auditor with experience, qualifications and terms of reference acceptable to the Association.
Sections and Description
Section IV. Schedule 2: Not later than three (3) months after the Effective Date, the Recipient shall cause FGPCD to
establish an automated accounting and core business system for guarantees.
Conditions
Type Financing source Description
Effectiveness IBRD/IDA The ARULoS PIM has been adopted in form and substance
satisfactory to the Association.
Type Financing source Description
Effectiveness IBRD/IDA The FGPCD PIM has been adopted in form and substance
satisfactory to the Association.
Type Financing source Description
Effectiveness IBRD/IDA The Subsidiary Agreement has been executed in form and
substance satisfactory to the Association
Type Financing source Description
Effectiveness IBRD/IDA The FGPCD Decree has been updated to introduce the housing
guarantee in a manner satisfactory to the Association.
Type Financing source Description
Disbursement IBRD/IDA for payments under Category (1), unless and until the Association
has received: (i) evidence that FGPCD has signed at least two SFI
Participating Agreements; (ii) the Mortgage Loans Pipeline; all in
form and substance satisfactory to the Association; and (iii) the
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Djibouti Affordable Housing Finance Project (P176772)
opening of a Dedicated Account in a satisfactory manner to the
Association and according to the FGPCD PIM
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Djibouti Affordable Housing Finance Project (P176772)
I. STRATEGIC CONTEXT
A. Country Context
1. With a total population of less than one million and one of the smallest overall surface areas on the African
continent, Djibouti is a small, low-income country, but with a strategic geographic position in the Horn of Africa.
Neighboring landlocked Ethiopia and other countries that do not have the same port infrastructure, its deep-water
port allows it to be a hub for trade in the region. In addition, Djibouti’s strategic location close to major maritime
transportation routes, conflict areas in the Middle East, and piracy activity zones, coupled with its relative political
stability, has made it an important location for foreign military bases. As a result, its economy has long relied on
port services, logistics, and rents from military bases. The main sectors driving Djibouti's economic growth are
transportation, logistics, telecommunications, and banking.
2. In the two decades prior to the COVID-19 pandemic, Djibouti's economy was growing at a steady and stable
rate of about 7 percent per year. The COVID-19 global crisis in 2020 and other shocks such as the War in Ethiopia
(impact on logistics activity) and extreme regional drought dampened growth to 0.5 percent in 2020, which
rebounded to 4.3 percent in 2021. Growth is set to soften in 2022 to 3.3 percent and expand in 2023 under new
infrastructure projects. Inflation and the budget deficit have remained at controlled levels (1.8 percent and 2
percent, respectively) but the country is considered at a high risk of debt distress as public debt rose to about 70
percent of Gross Domestic Product (GDP). Considering the scarce fiscal space, the government’s strategy is to
increase growth and employment through private sector investment rather than the historical public sector led
investment model.
3. However, growth has not been inclusive. Poverty affects one out of six people and inequality remains high.
Djibouti’s Gini coefficient was estimated at 0.416 in 2017, and the country ranked 71st out of 95 countries with
information available on the Gini coefficient in 2015. A high unemployment rate contributes to inequality (28.4
percent as of June 2022, and 80 percent for youth between 15 and 24 years old)1. Compared to Djibouti City, the
rest of the country faces higher levels of inequality due to marked differences in welfare levels among the main
cities and rural areas. With the COVID19 pandemic, Djibouti’s extreme poverty rate is estimated to have increased
to 23–30 percent in 2020 (versus 15 percent in 2019) as households felt the effects of the pandemic through job
loss and price shocks. The poverty levels affect the population’s ability to access food and housing. Poor quality
housing contributes to overcrowding, poor health and education outcomes.2
4. Djibouti is highly vulnerable to climate-induced natural disasters, including extreme heat, multi-annual drought,
and flash floods, and tropical cyclones. The capital Djibouti-city is particularly exposed to flash floods due to its
location, low elevation, and periods of heavy rainfall. The most recent episode in 2019 damaged numerous
infrastructures and resulted in an official estimate of 40,000 households affected and more than 250,000 people
displaced. Temperatures are also expected to rise by 1.9°C by 2050 and 5.4°C by the end of the century. This is
likely to result in longer lasting and more intense heat waves as well as increase in evaporation and further
contribution to the ‘drying’ of the region. Droughts affect mostly populations living in the rural areas, and the
agricultural sector; between 2007 and 2011 a prolonged drought impacted around 120,000 people in rural areas
(50 percent of the rural population), leading to an estimated economic impact of 7 percent of GDP. Tropical
1 https://donnees.banquemondiale.org/indicateur/SL.UEM.1524.ZS?locations=DJ
2 Refer to the economic analysis section for the literature on the socio-economic benefits of housing.
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Cyclones increase the risk of coastal flooding. In 2018, Cyclone Sagar affected around 25,000 people and led to an
estimated total loss of 1 percent of GDP. Sectors affected included transportation (43 percent), water and
sanitation (28 percent) and housing (15 percent). The low-income populations targeted by this project lack the
resources to prepare and adapt to extreme weather risks and are likely to suffer the highest economic losses from
floods, drought, and storms. Djibouti is among the lowest ranked in the Notre Dame Global Adaptation Initiative
(ND-GAIN Index, 122nd out of 182 countries)3 illustrating a high vulnerability and poor readiness to respond to
climate risks. Annex 2 provides more information on climate vulnerability.
B. Sectoral and Institutional Context
Housing supply and demand
5. As a host to a large number to refugees and migrants, Djibouti is one of the most urbanized countries in the
world. The Djiboutian population grew more than tenfold during 1960-2018, with an average annual growth rate
of 4.2 percent. The rapid population growth has been coupled with greater urbanization, averaging 5 percent
during the same period. Over 78 percent of the population resides in urban areas, particularly in the capital
Djibouti City where economic activity and administrative services are concentrated.4 A combination of geography,
climate, economic and geopolitical factors underline this trend. First, Djibouti’s small size, coupled with its harsh
climate and limited arable land (less than 386 square miles) has undermined rural productivity, thereby fueling
population inflow to the country’s few urban hubs. Migration from neighboring countries has put additional strain
on urban growth and the expansion of slums—particularly in Balbala, which hosts about 300,000 people (roughly
30 percent of the population). Lastly, the rapid urbanization is also attributed to the structure of the economy,
where port activities, transshipping and constructions remain the mainstays of the economy.
6. Djibouti suffers from a structural deficit in the supply of affordable housing for low and medium-income
households as well as households who work in the informal sector (Table 1). In a context of fast-paced
population growth and rising urbanization, housing production in Djibouti remains limited at around 3,000 units
per year, of which about two-thirds are attributed to self-construction by households, and one-third to developers
(both public and private). Private developers only produce high-end housing and are not involved in the affordable
housing segment which is not commercially attractive. Investment in new housing has been limited in recent years
which resulted in an important housing stock deficit estimated at about 30,000 units according to the
Government.5 On the demand side, Djibouti’s socio-economic household situation, compounded by a dependence
on imported goods for basic household items have kept affordable housing at bay from most Djiboutians,
especially in view of both current rental and house purchase costs.
3 The ND-GAIN Country Index summarizes a country's vulnerability to climate change with its readiness to improve resilience.
4 World Development Indicators.
5 Represented by the Ministry of Housing or Ministère de la Ville, de l’Urbanisme et de l’Habitat (MVUH).
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Table 1: Households categorized by income and support program (Affordable Housing = categories 1,2,3)
Category Monthly Monthly Government Housing program House Price House Price
household household income and project components US$ DJF
income US$ DJF
1 (deciles < US$450 <80,000 Zero Slums Program and <11,250 <2,000,000
1-5) building materials loans
Components 2a and 3
2 (deciles US$450 - 80,000-160,000 Social housing 28,125 2,000,000-
6-7) US$900 Components 1, 2b and 3 5,000,000
3 (deciles US$900 - 160,000-266,000 Economic housing 28,125-56,251 5,000,000-
8-9) US$1500 Components 1, 2b and 3 10,000,000
4 (decile > US$1500 >266,000 Unsubsidized housing >56,251 >10,000,000
10) not supported by the Project
Source: Djibouti Government’s Housing Policy; maximum house price added to reflect affordability under prevailing market conditions at
7 percent interest rate and 16-20 maturity.
7. Against this backdrop, significant and deliberate efforts have been made by the Government since 2013 to
provide affordable housing and increase private sector participation via its Agence de Réhabilitation Urbaine et
du Logement Social (ARULoS) and Société Immobilière et d'Aménagement Foncier (SIAF). The 2013 Law No.
13/AN/13/7th extended several benefits to developers of low-income housing, such as tax breaks on consumption
tax, value-added tax and imports of construction materials, as well as a reduction of taxes on profits from social
housing projects. In 2018, the government launched the Zero Slum Program aimed at containing the expansion of
precarious and informal housing and improving access to basic urban and social services for families. ARULoS and
SIAF produce social and economic housing as well as plots with legal titles. Djibouti Ville has about 30,000 legal
titles. The two Government agencies have ambitious plans to build 2,964 housing units in the coming years. Their
major constraint remains the lack of housing finance for low to middle income groups.
8. ARULoS has stimulated the production of serviced plots of land.6 It had an initial operation of 2,400 plots of land
over the 2010-2018 period that were rapidly acquired by households. Based on this experience, ARULoS is
committed to a larger program of social plots. Since 2018, SIAF has inherited the function of master developer to
plan the development of areas by defining the land use, deliver the off-site, and sometimes on-site infrastructure,
and carry out the sale to real estate developers.
9. The role of the private sector in the housing supply value chain is underdeveloped in Djibouti, despite the
sector's significant potential for employment and growth.7 Public sector production by ARULoS and SIAF has only
reached about 25 percent of the formal supply. Without active participation by the private sector, housing needs
will continue to exceed production. Informal production remains the main option available to most low-income
households, in the form of self-construction, including on undeveloped land, thus contributing to the expansion
or densification of slums.
10. Private developers currently only produce luxury housing and are not yet involved in affordable housing, in
particular because of the lack of effective incentives in this area. A small number of relatively inexperienced
6 ARULOS and SIAF have the mandate to develop land thus municipalities do not play this role.
7 Data on private sector role extracted from the diagnostic report commissioned by the Government of Djibouti: “Etude du marché du
logement et promotion d’un habitat abordable à Djibouti”, EGIS, GRET, 2022 and interviews with market players.
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private developers build low-rise villas using traditional methods. Project costs range from US$455 to US$700 per
square meter, primarily from mid to high-end (villas from US$80,000 to US$225,000), although private developers
are looking to move down-market (under US$50,000). Villa sales have been strong, although they are slowing
down at the high end. Apartment prices per square meter are similar to middle-income villas, between US$500
and US$700 per square meter, but this is not attracting buyers and sales are very low.
11. Private developers are unable to go down market in terms of housing supply, as they do not have access to
sustainable financing mechanisms. They are limited to projects where the buyer has obtained financing, which in
practice limits them to luxury housing. They rely on bank financing to the buyer to finance projects, through pre-
sales with a down payment of 20-30 percent paid at purchase and additional payments during construction. Thus,
banks will make these payments if a mortgage is obtained. Buyers of less expensive homes have difficulty
obtaining mortgages and are less likely to have the cash flow to buy outright. Therefore, for developers to move
down-market, they need bank financing that is difficult to obtain unless they are well capitalized, as a guarantee
of at least 50 percent is usually required.
12. Some examples of private sector provision of affordable housing in Djibouti offer encouraging leads. A single
foreign owned real estate developer was contracted to build social housing for the military. For the first phase of
500 units, this developer tested the use of aluminum forms, poured concrete, as well as precast, which allowed
for faster and, more importantly, cheaper construction with an exit price of around US$ 30,000 for a single-story
three-rooms unit (without external works and utilities services).
13. The cost of housing production is high (over US$500 per square meter for mid-range housing). The high costs of
construction materials sold locally added to restrictive licensing and import taxes on imported materials affect
construction costs and leave little room for technical maneuver to lower housing costs. Only cement, gravel, and
sand are produced locally, while the steel is imported in bulk and re-cut locally for the construction sector in
Djibouti. Intermediate-type habitats are made of wood and sheet metal that are not produced locally. A very large
part of the materials is traditionally imported from China, Middle East and India. The demand for cement and steel
is therefore extremely high, with the cost of cement potentially impacting 50 percent of construction costs on
systems combining masonry and reinforced concrete structures. However, imports of steel and cement are
extremely restricted in Djibouti.
14. Finance Law No. 142/AN/21/8th of 2022 introduced a 100 percent surcharge on imports of reinforcing steel and
cement in 2019 thus discouraging imports. Developers and companies complain of a monopoly situation on
import licensing that discourages the construction of affordable housing. In comparison with the costs of materials
in neighboring countries, prices are very high on the Djiboutian market: a ton of cement would be bought at
28,000 DJF in Djibouti, against 20,000 DJF in Ethiopia, 23,000 DJF in Yemen or 18,000 DJF in Kenya. A revision of
the import tax policy would allow companies and individuals to access these building materials at more
advantageous prices.
15. In addition to the high cost of inputs, companies face a lack of professional skills that affect their productivity
and the quality of the output. To remedy this, in its new policy emphasizing vocational training, the Djiboutian
Government provides for the gradual disappearance of technical high schools in favor of more specialized training
centers, including a new center for professional building trades. There are also two private training centers
associated with promoters who train young workers directly on their sites. However, manual trades are not much
sought after by young Djiboutians who aspire more to positions as technicians or site managers, and the market
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for building professionals faces strong competition from companies and from foreigners, some accepting lower
salaries than Djiboutians. If the training offer for workers and higher technicians is developing, training in project
management remains limited to Djibouti despite the high demand.
16. The number of formal small and medium enterprises (SMEs) in the construction sector has declined. In addition
to the high cost of inputs and the lack of professional skills that affect both productivity and quality of output,
local SMEs cannot compete with international firms on government affordable housing projects. The public
procurement code does not have sub-contracting quotas for local SMEs. In 2019, 974 firms were officially
registered in the construction/public works sector8, but in 2021 only 151 firms remained active (annual license
paid) with 3,747 registered workers. This represents 6.6 percent of total active companies and 5.5 percent of total
registered workers.9 These figures are striking as the international average contribution of construction/public
works to the active companies and employment is usually around 20-25 percent.
17. Housing construction is vulnerable to climate-induced floods and fires. Flood events in November 2019 and April
2020 resulted in significant damage to critical infrastructure in Djibouti-Ville; housing was the sector most affected
(representing 35 percent of the global reconstruction and recovery needs), with an estimated 1,000 houses in
Djibouti-Ville totally damaged, and a further 4,262 houses partially damaged. Housing damages were
concentrated in a small number of neighborhoods, especially in lower income and informal areas. In those areas,
Khamsin strong, hot and sandy winds cause accidental fires, and this phenomenon is accrued in period of drought.
Djibouti’s natural hazard vulnerability is aggravated by a limited capacity to prevent and respond effectively to
natural disasters. For low-income households, the loss of homes and damage to property caused by climate
change-induced floods and fires would be catastrophic. The project will invest in reducing the exposure to natural
disasters and climate change impacts through the integration of climate resilience-building measures in the
housing finance schemes.
Characteristics of the Housing Finance Market
18. Home loans are of strategic interest to most commercial banks. The size of their home loan portfolio is between
8 and 40 percent. Despite the virtual absence of an interbank market and the challenges of external refinancing,
banks are particularly liquid, and all have large and stable deposits, which in most cases allow them to offer loans
with long maturities (15 to 20 years) at interest rates of around 7 percent, compared with an average of 10 percent
in Eritrea and Somalia and 12.5 percent in Ethiopia. The people currently benefiting from mortgage loans are
generally civil servants or private sector executives, rather young, and favoring self-construction or purchase via
new real estate development programs.
19. Delinquency rates are extremely low (less than 1 percent on average). The legal, fiscal, and regulatory
environment is relatively favorable to affordable housing finance transactions and was strengthened with the of
the Foreclosure Act (Loi sur les saisies). The secondary market (for previously owned houses) is functioning quite
well given the high demand and lack of supply of housing.
8 Businesses and sectors overview, “Panorama des entreprises”, Chamber of Commerce, 2019
9 Statistical Study and Actuarial Department, National Social Security Fund, 2021
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20. Despite the recent increase in activity, the mortgage market remains small and serves mostly high-income
households.10 During 2018, banks granted nearly 1,000 new housing loans but access remains limited to
households with a regular monthly income above US$1,500, so not for economic or social housing. The products
offered for housing finance remain little diversified, with i) conventional mortgage loans (benefiting employees
with a formal work contract who receive their salary in the financial institution) and ii) Islamic products in the form
of Murabaha, which are less adapted to housing loans than other products such as Ijara or Musharaka loans. The
Ministry of Housing (MVUH) estimates that it would be necessary to triple the current production of loans to reach
at least 3,000 housing loans per year to finance the public supply of social and economic housing. Bank
competition seems to be greater than in the past (longer terms, lower margins, effective interest between 7
percent and 9 percent compared to 11 percent previously) but mortgage loans are concentrated in two banks.
Yet, most financial institutions wish to significantly expand their mortgages portfolio to meet the growing demand
and supply of affordable housing.
21. One of the consequences of the low penetration of the mortgage market was that ARULoS and SIAF had to set
up and financially manage long-term (20 years) rent-to-own contracts in order to sell their housing units.
ARULoS has about 2,000 ongoing and future rent-to-own contracts and SIAF 1600, with interest rates around 3
percent. Those were originally built and designed to be sold, but ARULoS and SIAF could not sell them due to the
low purchasing power of their clients. As a result, these agencies tie up their cash flow, to the detriment of their
future activities as land developers and social housing promoters. Moreover, they are not equipped to manage
such outstanding amounts because they are not financial credit managers. Residential leasing products with a
purchase option are still non-existent and cannot finance outstanding rent-to-own agreements.
22. ARULoS provides construction finance to low-income households. Since 2011, ARULoS has been running a
program for the reconstruction of the homes of low-income households that were destroyed by accidental fire.
Within this program, ARULoS buys the construction materials and labor on behalf of the household for up to DJF
1 million (US$5,689) and the household pay back at cost over five years. This program also includes the systematic
formalization of the land title and a subsidy of the cost of labor.
23. Most of the low-income households are financially served by the Caisses Populaires d’Épargne et de Crédit
(CPECs), but they do not offer mortgage products. The CPECs are a network of three sub-national financial
cooperatives created in 2011. Their mission is to make financial services accessible to micro-entrepreneurs and
those excluded from the traditional banking system such as low-income households, women, young people and
the unemployed. CPECs offer solidarity and individual loans, but no specific mortgage product. To promote better
financial inclusion, the CPECs have jointly agreed to digitize their services and update their core information
systems, with the support of the Women and Youth Entrepreneurship Project (P165558). Thereafter, CPECs could
eventually transform into an independent microfinance institution. In the meantime, several banks partner with
the CPECs to upgrade some of their customers to commercial banks.
A World Bank Group (WBG) Approach for Affordable Housing
10BCD Survey: Outstanding housing loans have increased between 2011 and 2018, reaching nearly DJF 32 billion at the end of 2018, or
US$170 million compared with just under DJF 10 billion at the end of 2011. These loans represent 25 percent of total outstanding bank
loans. This data is being updated by a survey launched in September 2022.
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24. Based on existing analytical works11 it is recognized that, to develop sustainable affordable housing in
Djibouti, actions must be taken in the following mutually supportive areas:
a. Land issues: Land tenure/acquisition and urban planning. Since 2018, the Bank has been supporting the
government with the Projet Integre de Resorption des Bidonvilles (PIRB -Integrated Slum Upgrading
Project P162901) with the goal of improving the living conditions of slum dwellers and gradually
eliminating slums. The project provides funding (US$4million) to address supply side challenges and land
registration and cadaster issues not only for slum and low-income population but also for the entire
country, as titles are often provisional which hinders mortgage finance.
b. Financial sector/access to finance constraints: Access to housing finance; risk management products to
help financial institutions serve low to middle income borrowers; diversity of products ranging from
housing microfinance to mortgage loans. This is currently not supported by any existing projects and will
be the focus of this proposed Project.
c. Policy and regulatory constraints: This refers to taxes and regulatory reforms to lower construction cost
and introduce more competition in the sector to enable affordable housing. The proposed Project will
support some of those reforms.
d. Affordable Housing Public Private Partnership: The Government has appointed IFC as Lead Transaction
Advisor for a Public Private Partnership scheme to identify private promoters to increase the private
sector participation in affordable housing. IFC will support the Government in structuring a bankable and
commercially viable transaction to attract and select a private real estate developer to design, finance,
build, and maintain the housing units. The high-level preliminary estimates that between 1,500 - 2,000
housing units (mix of affordable and medium-standing housing units) could be built.
e. Lack of skills in specific construction trades and low capacity of SMEs in the housing value chain. This
intervention is being explored in coordination with other World Bank (WB) projects (Djibouti Skills
Development for Employment Project P175483 and the Djibouti MSMEs Business Development Services
(P176690) under preparation).
25. The Project aims to support the Government of Djibouti in its efforts to implement priority and necessary
activities to create a minimum platform of conditions to develop access to affordable housing. Currently the
lack of affordable and commercial housing finance solutions remains a major issue. Affordable housing supply
is coming to the market through public developers, but buyers have no access to commercial financing due to
the banks’ risk aversion towards low-income groups. The project seeks to transition financial solutions
implemented by public developers to the commercial financial system, and will:
a. Expand access to affordable housing finance to underserved households through a mortgage partial
guarantee mechanism (categories 2&3 of Table 1).
b. Introduce innovative financing solutions for the self-construction of affordable housing targeting low-
income households to involve microfinance institutions (category 1 of Table 1); and convert existing rent-
to-own contracts to low-and-middle-income households into mortgage loans (categories 2&3 of Table 1).
c. Support policy reforms to lower construction cost.
112019 WBG Affordable Housing ASA. 2020-21 WB analytical study on the housing finance market and IFC private sector diagnostic
including a sectoral assessment on housing and construction. MVUH 2022 comprehensive study on affordable housing value chain study.
Independent Evaluation Group World Bank Group Support for Housing Finance, 2016.
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26. The analytical work informed the design. In particular housing subsidies and savings schemes to support
affordable housing finance were ruled out by the Government and the financial institutions during
preparation.
Figure 1: A WBG Comprehensive Approach for Affordable Housing
Provide rban cient property obili e private inance the de and of trengthen the
nfrastructure registra on and land invest ents in a ordable a ordable housing construc on value chain
refor s housing supply
ibou rban support echnical assistance on evelop ent of a stablish ent of
progra P P Public Private par al credit
guarantee fund for echnical s ills to
P P Partnership PPP
a ordable housing youth in construc on
fra e or for the trades through
igi a on of the provision of a ordable loans
trea line urban voca onal training
cadastre and land housing echnical support the
develop ent registra on
e er access to nancial sector to go
standards regula ons
upport the serviced land for do n ar et raining of s to
upport the delivery of i ple enta on of private developers nnova ve and enhance their
urban services broader land strategy co pe veness and
diversi ed nancing
and refor s on solu ons for i prove lin ages in
condi ons of access to a ordable housing the construc on value
Cri cal infrastructure state land chains
for servicing land for Policy efor s to
a ordable housing and lo er construc on
reducing property cost cost
URBAN INTERVENTIONS C PPP FCI Proposed Project Explored in other
WBG interven ons
C. Relevance to Higher Level Objectives
27. The project is strongly integrated in the priorities of the Country Partnership Framework (CPF)12, which is fully
aligned with the Vision 2035 and the 2020-2024 National Development Plan13 with a focus on private sector
solutions in key areas including affordable housing. The goal is to enhance the country’s competitiveness through
a new growth model based on private sector development, as underscored in both the Systematic Country
Diagnostic and the country’s Vision 2035, which emphasize the need to increase the country’s competitiveness,
prepare the workforce for new demands, and stimulate and support the local private sector to create jobs. The
project supports the CPF’s objective 1: Reduce the cost of doing business; objective 2: Strengthen vocational
training and tertiary education systems adapted to the evolving needs of the economy; objective 3: Stimulate
entrepreneurship and support SME development; objective 6: Strengthen the resilience of vulnerable groups. The
project is aligned with the MENA Strategy “Looking Forward” to support jobs through a more competitive private
sector and address high youth unemployment. It supports the Pillar 4 of the Global Crises Response Framework
(Strengthening Policies, Institutions and Investments for Rebuilding Better) as it seeks to increase the resilience
of self-construction against climate-included floods and fires.
12 World Bank Group Country Partnership Framework for the Republic of Djibouti for the Period FY22–FY26which was discussed by the
Board of Executive Directors on September 23, 2021
13 Djibouti ICI for Inclusion Connectivity and Institutions.
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28. The Project complements and builds on existing WB and IFC projects. It complements the PIRB by targeting
access to home ownership for all underserved households. Together, the two projects address a wider range of
low- and middle-income populations as well as demand and supply side issues. The WB’s Women and Youth
Entrepreneurship Project (P165558) is supporting (i) the CPEC to update their systems, so they may transform
into a financial institution under the new microfinance law and (ii) the capacity of the Partial Credit Guarantee
Fund, which will add a new mortgage guarantee window within the proposed Project. A recently closed project
supported the Central Bank of Djibouti on supervisory capacity and financial infrastructure (national payment
system, registry of securities, credit registry). Finally, the Project will benefit and support the ongoing IFC PPP
affordable housing project, which could inform regulatory reforms.
29. The Project fulfils corporate objectives on private capital mobilization, climate, and gender. The capitalization
of a guarantee fund for mortgage loans would mobilize private commercial financing of US$70 million. The
Project will finance the self-construction of homes for low-income households resilient to climate-induced floods
and fires; it seeks to lower the gender gap for mortgage finance and self-construction (See Section III.B).
II. PROJECT DESCRIPTION
A. Project Development Objective
PDO Statement
30. The Project's Development Objective is to expand access to affordable housing finance for underserved
populations in the Recipient’s territory.
PDO Level Indicators
31. The following key performance indicators will be used to measure achievement of the PDO:
• Number of low-to-middle income households benefitting from affordable mortgage loans partially
guaranteed by the FGPCD
• Number of poor households benefitting from self-construction finance
B. Project Components
Component 1: Mortgage guarantee mechanism (US$7 million from International Development Association -
IDA; US$70 million Private Capital Mobilization)
32. Component 1 will establish a mortgage guarantee mechanism aimed at supporting low-to-middle income
households, by capitalizing a partial credit guarantee fund for affordable housing loans. The fund will be hosted
within the Fonds de Garantie Partielle des Credits de Djibouti (FGPCD), which will offer a new window dedicated
to affordable housing loans. The eligibility criteria will be in the Project Implementation Manual and are expected
to include: (i) loans to purchase an economic or social housing unit whose maximum price is currently established
at DJF 10 million (US$56,251); (ii) minimum down payment between 5 and 20 percent as per good international
practices; (iii) sound risk management and (iv) climate risks considerations (Annex 1). The guarantee will support
households in the social and economic categories (categories 2 and 3 of Table 1), earning between US$450 and
US$1500 per month, and within the 6th to 9th deciles of the income distribution. Commercial banks will assess
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loan requests from potential beneficiaries, then submit applications to the FGPCD. The mortgage guarantee will
allow commercial financial institutions to better share risk in order to finance mortgages for low- and middle-
income earners and/or the self-employed. Banks will have to target a new category of borrowers since their
average mortgage loans currently range between DJF 15-30 million (US$84,000-168,000).
33. As a risk sharing mechanism, the partial credit guarantee fund for mortgage brings an important additionality.
It reduces the risks and potential losses of creditors/Banks, inducing lending to riskier types of borrowers who
will have mortgage loans. The guarantee generates fewer market distortions compared to other policy
interventions, such as directed lending programs or the existing Government interventions, because it entails
less interference in credit allocation and uses private banks as the main vehicles for loan origination.
34. The FGPCD, which was established in 2018 and has benefited from W ’s support, has the potential to host a
new mortgage window. As part of its SME financing activities, the FGPCD has granted more than 103 guarantees
for a total amount of financing mobilized of US$1.54 million. The capitalization of the fund is about US$4 million
(700 million DJF). The FGPCD obtained the approval of the Central Bank in 2021 to aim for a multiplier effect of
1 to 5 between the volume of capitalization and the amounts of guarantees granted to commercial banks. It has
signed bilateral agreements with seven conventional banks and is finalizing a framework agreement with Islamic
banks. The FGPCD has also just signed a partnership agreement with the Guarantee Fund of Morocco, a fund that
has been supported by the WB and has a well-known track record on affordable housing finance.
35. Component 1 activity will be the capitalization of a partial credit guarantee fund for affordable housing loans
within the FGPCD (US$7 million). The proposed amount assumes a leverage ratio of five, a partial credit
guarantee of 50 percent and an average house price of DJF 6.2 million/US$35,000. This would allow the Fund to
guarantee at least 2,000 affordable housing mortgage loans within five years. This Component will be disbursed
in a single tranche and will be managed by the FGPCD.
36. The Board of the FGPCD will be amended to include the MVUH, and a steering committee specific to the housing
window (a sub-committee of the Board) will be created and include representatives of the MVUH, the Ministry
of the Economy and Finance, the Association of Banks, Ministry of Budget, and Chamber of Commerce.
37. The eligibility criteria for mortgage loans will include climate risk considerations. As climate change
vulnerability increases, the credit risks of mortgage loans also increase given their maturity; the FGPCD has
adopted a new policy on environmental and social (E&S) risks, which will guide banks on avoiding loans on
properties that are exposed to climate risks such as climate-induced floods.
Component 2: Innovative financing of affordable housing (US$5.5 million from IDA)
38. Component 2 will mobilize the financial markets to provide innovative financial solutions for low-to-middle-
income households. It will help low-income households build their home through self-construction and gradually
transfer this activity from the Government to microfinance institutions (via Vouchers and Lines of Credit). It will
also help low-to-middle income households convert their rent-to-own contracts that they now have with
government entities, into mortgage loans with financial institutions, developing the mortgage market (via Small
Grants). It will be implemented by ARULoS, and consist of:
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a. Sub-component 2a: Financial solutions to low-income households for self-construction (US$4 million),
in two phases. Phase 1 (US$2.5 million) will provide financing through ARULoS to poor households to build
their home and regularize their property titles. It will be open mainly to any household registered in the
electronic social register supported by WB social safety net projects and who are in the category 1 of Table
1. ARULoS will buy the materials and labor, will provide vouchers to households to engage in self-
construction for an amount per house of up to DJF 1,500,000 (US$8,400), and will undertake the project
management of the construction on behalf of the household. Households will pay back at cost over 5
years.
Phase 1 will aim to achieve a demonstration effect of the attractiveness of this type of product on the
microfinance sector. Phase 2 (US$1.5 million) will provide a line of credit to microfinance institutions so
they can extend a self-construction loan to their clients who are in the social register. The eligibility criteria
and financial conditions of Phase 2 will be determined by a study undertaken at inception of the project
to assess the suitability of financial products for this category of population but will follow the same
principles as in phase 1, notably on the climate resilience certification.
The entire sub-component (phases 1 and 2) addresses climate vulnerabilities by ensuring that microloans
finance the construction or renovation of homes that are more sustainable and incorporate climate
adaptation features. All self-constructed homes will benefit from ARULoS’s support to comply with
national quality standards and resilience to climate-induced floods and fires. The project will scale up
ARULoS and Direction of Urbanism -DATUH’s capacity to supervise the works and support the poor
households to obtain the certification of technical conformity and resilience to climate induced floods and
fires from the DATUH, and to increase the use of low-carbon materials (technical assistance in component
3). The eligibility criteria for the certification of sustainable and climate-safe homes will include, but are
not limited to, (i) building developments in the areas not prone to flash-flooding, (ii) incorporating storm
drains that are designed to accommodate heavy rains and flow of water, and (iii) climate adaptation
design standards such as thermal insultation and natural ventilation that will improve the adaptation to
heat waves (Annex 2). This sub-component is aligned with the Pillar 4 of the Global Crises Response
Framework of the World Bank Group (Strengthening Policies, Institutions and Investments for Rebuilding
Better) as it seeks to increase the resilience of self-construction.
b. Sub-component 2b: Transformation of the rent-to-own contracts of low-to-middle income households
into mortgage loans (US$1.5 million). This sub-component will seek to expand the mortgage market and
support the pipeline for the guarantee fund by converting the rent-to-own contracts that households have
with the two Government entities, ARULoS and SIAF, into mortgage loans with financial institutions.
ARULoS’ portfolio of about 2,000 contracts has no default and eligibility criteria are in line with banks’
mortgages. A study will detail the financial health of ARULoS and SIAF’s portfolios and the appetite of
households to convert their contracts. To transfer those contracts to the banking system, the project will
finance (i) the interest rate differential between ARULoS and the banks so that the household’s monthly
payments remain the same, and (ii) the land and mortgage registration cost. Conversion will be voluntary
for beneficiary households. The cost estimate is based on a discount of 5 to 10 percent of the remaining
amount owed to ARULoS by eligible tenants.
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Component 3: Technical Assistance and Project Management (US$2.5 million from IDA)
39. This component will provide technical assistance to support the other components and help low-and
middle-income households access affordable housing finance. Technical assistance will focus on:
• Policy reforms to lower construction cost, keep housing units affordable and support low-carbon construction.
Activities will include the preparation of the policy reforms led by the MVUH and its departments, the public
consultations, and the capacity building of the stakeholders to implement those reforms.
• Technical support to the FGPCD, Ministry of Economy and Finance, the financial institutions and the Banque
Centrale de Djibouti (BCD) to implement the partial credit guarantee for mortgage loans. Activities will scale
up the FGPCD’s operational capabilities, systems and resources; will provide capacity building to banks to go
down market, reach women and meet the climate risk requirements of the guarantee; and strengthen the
supervisory capacity of the BCD.
• Capacity building to support the structural soundness and resilience of self-construction. To ensure the
structural soundness of self-construction and attract the microfinance sector, the Project will facilitate
capacity building of key professionals such as site managers, quantity surveyors, land surveyors, and
professional organizations in the sector; as well as the DATUH and other certification staff to ensure that all
self-construction projects can be certified for their resilience against climate-induced floods and fires.
• Conversion of rent-to-own contracts into mortgage loans. Activities will include the consultancy to define the
modalities of the conversion and the institutional strengthening of ARULoS and SIAF to manage the reflows
and reinvest them into social housing development.
• Effective and efficient project management.
C. Project Beneficiaries
40. The beneficiaries will be the households with low, medium, and irregular incomes as defined by the
Govern ent’s policy. The project will target the categories 1, 2, and 3 of the Table 1 in section I.B which are
currently not served by the financial sector. The electronic social register (Registre Social) which was supported
by WB social safety net projects (P158696, P149621) will help ensure appropriate targeting for the poorest
households in category 1. Registration in the Social Register is a prerequisite for obtaining diverse types of aid
(food, health, etc.). Its use for housing assistance would be in line with what is currently being implemented in
terms of social assistance. For the low to middle income households (categories 2 and 3), financial institutions
will check the income eligibility criteria.
D. Results Chain
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CHALLENGES ACTIVITIES OUTPUTS ST MT OUTCOMES LT OUTCOMES
Limited access to housing nance Capitaliza on of a par al credit A ordable housing loan guarantee Financial Ins tu ons go down Expanded access to a ordable
for low and medium income guarantee fund for a ordable fund capitalized and opera onal market housing nance
households housing loans and TA
Lack of adapted and diversi ed Micro nance product
a ordable housing nancing Financing solu ons to low income Adapted product for the lowest Diversi ed and innova ve nancial
commercialized for self
products households for self construc on income por on products
construc on
Government social housing
Transforma on of the RTOs into RTOs converted into guaranteed Unlocked scal resources for the
nanced on scal resources (20
guaranteed mortgage loans mortgage loans government
years rent to own contracts )
Increased supply of resilient
a ordable housing
High construc on costand low Policy reforms to lower Reduced construc on costsand
Policy reforms and ins tu onal construc on cost andTA for be er resilience of a ordable
resilience and uality of a ordable
strengthening resilient a ordable housing housing
housing
e pand access to a ordable housing nance for underserved popula ons
E. Rationale for Bank Involvement and Role of Partners
41. The rationale is laid out in the CPF: "the WBG will seek to support government efforts to promote private sector
development in the housing sector. [-] While IFC plans to support a pilot PPP operation to help attract prospective
housing developers to invest in Djibouti, [-] the WB, in collaboration with IFC’s Financial Institutions Group, will
intervene upstream through a planned Affordable Housing Project in FY22 to support supply-side interventions
(Urban Global Practice) and demand-side actions (Finance Global Practice). On the supply side, WB engagement
will build on the ongoing IDA-funded slums upgrading project in social housing to develop the entire housing
value chain. On the demand side, the WB will support local financial institutions to provide longer-maturity
mortgage instruments. Other bilateral partners intervening in social housing are China, Saudi Arabia, Kuwait, and
the Arab Funds. The WBG will focus on the affordable housing segment, which is currently not covered by any
other partner."
F. Lessons Learned and Reflected in the Project Design
42. The design learns from previous housing finance projects. First, affordable housing requires strong
complementarity between demand-side and supply-side interventions. As several houses were built by public
agencies but not sold, the Government determined that supply-side issues would be addressed through existing
urban projects and IFC PPP engagement. Second, the commercial private sector should be mobilized to improve
the sustainability of the interventions. Components 1 and 2 mobilize the commercial financial institutions in the
financing of mortgage and self-construction loans. Component 3 will address policy measures that weigh on
construction costs and will strengthen skills, which will ultimately help the private sector to move down market.
Third, Component 1 builds on the experience of other guarantee funds for housing, which showed the need for
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scale and strong prudential regulation and risk management, as well as the time it takes to operationalize credit
guarantee funds from scratch (Annex 3). This underpins the rationale for hosting the housing guarantee fund
within the existing credit guarantee institution in Djibouti. Finally, the design learns from the Independent
Evaluation Group report14 which underscores that if there is no mortgage financing, the low-income segment
should not come first, but rather be introduced gradually; the Project supports both the self-construction for the
low-income segment and gradual incentives for banks to go down market with the conversion of rent-to-own
contract into mortgages and the guarantee fund.
III. IMPLEMENTATION ARRANGEMENTS
A. Institutional and Implementation Arrangements
43. The project is integrated within the institutional framework of the national housing policy, placed under the
responsibility of the MVUH. It seeks to mobilize the private sector in the financing of housing demand to ensure
the sustainability of the intervention.
44. Project oversight. A high-level Steering Committee for the project will be established no later than one month
after effectiveness. It will be chaired by the Minister of Economy and Finance with the Minister of Urban and
Housing Development (MVUH), and will include the Minister of Budget, the Governor of the Central Bank and
the President of the Chamber of Commerce. It will oversee the project, approve work programs and annual
budgets, review annual reports, and will meet at least twice a year to review project implementation progress.
45. Project coordination in ARULoS. Project execution will be conferred operationally to ARULoS. ARULoS will be
responsible for coordinating overall project implementation, ensuring the timely availability of funds transfers,
maintaining project accounts, and producing financial reports, monitoring and evaluation (M&E) and reporting
results to various stakeholders, as well as managing relations with the World Bank. For Component 1, the FGPCD
will be the implementing entity and will use its existing staff. ARULoS will sign a memorandum of understanding
(MoU) with the FGPCD.
46. As needed, ARULoS will delegate the execution of certain activities to other institutions via technical assistance
agreements, though fiduciary responsibility will be retained by ARULOS. The Project Implementation Manual
(PIM) defines in detail the responsibilities, obligations, and responsibilities of each party. ARULOS will also ensure
operational coordination with other key stakeholders (with the BCD on the implementation of the microfinance
credit line, and with the Chamber of Commerce on engagement of private sector).
47. A Project Management Team will be established within ARULoS. It will be a team of specialists entirely
dedicated to the project, composed of a social and environmental safeguards specialist, a procurement specialist,
a M&E specialist, a financial management specialist, with terms of reference acceptable to the IDA and described
in the PIM. The specialists will be appointed no later than one month after effectiveness. Project coordination
responsibility will remain with the ARULoS Director. In line with the Government’s decision to reinforce public
institutions, members will be selected among existing ARULoS staff, or through external hiring.
14 Independent Evaluation Group World Bank Group Support for Housing Finance, 2016.
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B. Results Monitoring and Evaluation Arrangements
48. The M&E system for the project will be established within ARULoS. It will be managed by the M&E specialist of
ARULoS, working closely with the M&E team at the MVUH who will be responsible to report to the steering
committee.
49. Gender gap. A survey undertaken with commercial banks during preparation shows that loans extended to
women or joint titles are on average 30 percent of housing loans. However, this figure is reportedly lower for
Islamic banks. For ARULoS’s existing self-construction program, 25 percent of beneficiaries have been women so
far. Thus, in the commercial banks, the gender gap appears to be between 20 percentage points, while for self-
construction it is 25 percentage points. To enhance women’s access to housing finance, ARULoS will recruit an
additional gender staff in its gender help team to promote the financial literacy of women and raise awareness
on the self-construction program. The end targets are to i) lower the gender gap for mortgage loans by 10
percentage points (proportion of the mortgage loans extended to women or in joint ownership guaranteed by
the guarantee fund is 40 percent by the end of the project) and ii) reduce the gap by five percentage points for
self-construction (30 percent of beneficiaries of self-construction are women, owning the title or in new joint
ownership). Annex 5 details the gender gap analysis.
50. Citizen Engagement. ARULoS will perform annual surveys of existing and potential beneficiaries. The first survey
in Year 1 will identify potential beneficiaries of the self-construction to be financed by microfinance institutions
and will inform the design of the line of credit under Component 2a.
51. Climate indicators. The climate indicators are reflected by the number of self-construction homes that will be
certified by ARULoS as resilient to climate-induced floods and fires, and by the number of people trained on
resilient and energy efficient construction. Annex 2 details the climate vulnerability analysis.
52. Private capital mobilization. The US$7 million capitalization of the guarantee fund would mobilize at least US$70
million of mortgage loans from commercial banks, which is due to the coverage and leverage ratio.15 The
conversion of rent-to-own contracts into mortgage loans will also mobilize liquidity from commercial banks.
C. Sustainability
53. The project is designed to ensure sustainability after it ends. The guarantee fund is an existing institution which
will grow in scale with the new housing business and will mobilize private capital from financial institutions.
Component 2 will involve microfinance institutions after an initial pilot phase scaling up ARULoS’s self-
construction program.
IV. PROJECT APPRAISAL SUMMARY
A. Economic and Financial Analysis
54. The economic analysis of the project focuses on the value added of project activities to the Djiboutian economy
and the rationale behind the World Bank's intervention. The computation of the benefits takes a simple
15With the leverage ratio allowed by the prudential regulation, the guarantee fund will effectively be issuing more guarantees than it has
capital for. It is protected against heavy losses by i) the prudential regulation on underwriting standards; ii) the mortgage liens; iii) the
premium which can be adapted to the performance of banks.
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approach of comparing the components costs to the benefits for the primary beneficiaries. The quantitative
analysis focuses on measurable outcomes directly linked to the project activities while qualitative narratives
focus on medium to long term outcomes to which the project contributes (Annex 7).
55. The financial model prepared for the project returned a positive Internal Rate of Return (IRR) of 27.2 percent.
The project is fully funded by the World Bank with no government contribution. Since the current formal housing
production is estimated at 300 units/year, the project is expected to provide the financing necessary to
incentivize developers to increase affordable housing supply by 10 percent more units each year. The analysis
also follows the commonly accepted figure in the literature of six jobs created by unit built. Cash flows generated
include tax receipts from development, lending and employment activities. The discount rate is obtained on the
basis of the interest of 7 percent applied on long term loans. Informality is a key parameter affecting assumptions
on tax gains and job creation and the model assumes that an average of 40 percent of workers are informal.
56. There is an important literature on the socio-economic benefits of home ownership. The improved living
conditions lead to improved health due to better sanitation, safety, and social inclusion. A home provides
collateral, which may be leveraged to fund other economic activities, which in turn lead to a rise in household
income. Amortizing a mortgage loan is also a form of savings which contributes to wealth building and provides
retirement income. “Many social issues stem from a history of unstable, unaffordable, and poor-quality housing.
Research shows that housing is the first rung on the ladder to economic opportunity for individuals and that a
person’s access to opportunity is intrinsically linked with that of the community at large.”16
B. Fiduciary
(i) Financial Management (FM)
57. The FM assessment of the ARULoS and FGPCD was conducted in compliance with the World Bank policy and
directives on investment financing. The objective of the assessment was to determine whether these entities
have an acceptable FM arrangement, which will ensure (a) that funds are used for the intended purposes
efficiently and economically; (b) the preparation of accurate, reliable, and timely periodic financial reports; and
(c) safeguarding of the entity’s assets.
58. The existing FM arrangements provide reasonable assurance that the financing proceeds will be used for the
intended purpose in a transparent, effective, and efficient manner. ARULoS is experienced in World Bank-
financed projects (PIRB- P162901) management, is staffed with one FM specialist, and has developed acceptable
FM procedures. An additional FM staff may be needed and agreed upon with the World Bank to absorb the
workload generated by the project. The FGPCD was established in 2018 and its internal control system is still
developing.
59. The potential FM risks identified are the following: ARULoS, (i) need to update FM procedures to reflect the
Project, (ii) inadequate accounting software, (iii) delayed audited reports and (iv) FM staff workload. FGPCD, (i)
absence of procedures to guarantee mortgage loans, (ii) absence of an investment management policy and
procedures, (iii) the automated system for core business management, accounting, and reporting is yet to be
16V. Gaitan, How Housing Can Determine Educational, Health, and Economic Outcomes. Urban Institute Initiative, September 2018. Also
refer to How Does Housing Affect Health? Braveman P, Dekker M, Egerter S, Sadegh-Nobari T, and Pollack C, Robert Wood Johnson
Foundation, May 2011, N. Maqbool, J. Viveiros, and M. Ault, The Impacts of Affordable Housing on Health: A Research Summary. Center
for Housing Policy, April 2015.
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operational (it is being procured under the P165558), (iv) need to update the governance arrangements for
guarantees which currently include a technical committee while the decision making should be undertaken by
the credit committee and the Director.
60. The overall FM residual risk of the project is Substantial because of the need to strengthen the governance and
internal control system of the FGPCD to the new scale of the Project. The risk will be reviewed and revised during
the project implementation. The proposed mitigation measures are for ARULoS (i) update the existing FM manual
(part of the PIM), (ii) upgrade the accounting system to record the project transactions and prepare the financial
reports, (iii) include the project in the Internal Audit work program and (iv) recruit an external auditor with
experience and qualification acceptable to the World Bank, and according to the Terms of Reference (ToRs)
agreed upon. And for FGPCD, (i) develop procedures to guarantee mortgage loans, approved by the Board, (ii)
set up an Investment policy and procedures approved by the Board, (iii) review the governance arrangement in
guarantee provision to allow households loans, and improving the checks and balances during the decision-
making process, (iv) operationalize an automated system for accounting and core business, (v) share with the
World Bank the audited financial statement and Management letter of the Fund.
61. The project will have retroactive financing of up to US$500,000. Retroactive financing may be provided for
payments made up to 12 months before the signing date as long as project implementation arrangements agreed
with IDA, including fiduciary and E&S risk management procedures as applicable, have been used and the
activities financed by retroactive financing are related to the development objectives included in the Project
description.
(ii) Procurement
62. Applicable procurement procedures: Procurement for goods, works, and non-consulting and consulting services
for the project will be done in accordance with the procedures specified in the WB Procurement Regulations for
IPF Borrowers’, dated November 2020); the WB’s Anti-Corruption Guidelines: ‘Guidelines on Preventing and
Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants’, dated October
15, 2006 and last revised in July 1, 2016, and the provisions stipulated in the Financing Agreements. The project
will use the Systematic tracking of Exchanges in Procurement (STEP) to plan, record, track procurement
transactions and contract management.
63. Procurement implementation arrangements and capacity: Procurement activities for the project will be carried
out by ARULoS, which has already reasonable experience based on its performance in managing the on-going
WB financed project on slum upgrading in Djibouti. The agency is already staffed with a procurement officer
assisted by two newly appointed persons. They all benefited from training on World Bank procurement
procedures.
64. Scope of procurement, project procurement strategy for development and procurement plan: The project
design involves capitalization of a guarantee fund for US$7 million, microfinance loans for self-construction
estimated at US$2 million and the cost of converting rent-to-own contracts into mortgage loans estimated at
US$1.5 million. These expenses (70 percent of the total project envelope) are in nature deemed not procurable
activities. Remaining financing (US$4.5 million) will involve operational cost and procurement contracts mainly
consultants’ services for technical assistance and procurement of small construction materials for beneficiaries’
self-construction, and operating costs.
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65. ARULoS has prepared an initial project procurement strategy for development and initial procurement plan
for these procurable activities. No high value or complex procurement contract is foreseen but selection of major
consultant’s services will approach international market while procurement of goods (small construction
materials) will be conducted locally with the packaging to be agreed on beneficiaries’ demand.
66. Procurement risk assessment. Based on the current design of the project, procurement contracts remain within
the size and complexity of those already handled by ARULoS under the on-going project on slum upgrading and
its additional financing. Remaining risk would include work overload with ARULoS managing at the same time
many contracts in the existing project and delays in procurement process and contract execution. Proposed
mitigation measures will consist of recruiting an additional procurement staff and proper monitoring of contract
execution, taking advantage of usage of the new contract management module. The Bank will provide
implementation support on a regular basis with formal supervision every six months and an annual post
procurement review including capacity building on main findings and recommendations.
.C. Legal Operational Policies
.
Triggered?
Projects on International Waterways OP 7.50 No
Projects in Disputed Areas OP 7.60 No
.
D. Environmental and Social
67. The project’s combined environmental and social risk is assessed as moderate. Location for houses potentially
financed by component 1 and 2 will be in discrete sites, geographically spread out within cities, and consist of
individual land plots to small clusters of houses. Hence, there will be no cumulative social impacts within the area
of influence.
68. Potential impacts will take place in already developed areas where houses financed by components 1 and 2
are/or will be built. The likely environmental and social impacts that would occur during self-construction,
include disturbance to the communities in the area such as noise, dusts, materials stocking, construction waste
and access to the sites.
69. The project also entails risks associated with poor or non-transparent beneficiary selection, occupational
health and safety risks associated with the structural integrity and locations of financed existing housing units or
units to be built under project financing, properties, risks associated with civil works, such as poor labor
conditions child and forced labor, as well as risks associated with sexual abuse and exploitation and sexual
harassment. Moreover, the project may lead to the propagation and exposure to COVID-19 or other
communicable diseases as a result of project activities. Therefore, most of impacts and risks are expected to be
temporary, predictable and reversible, small-scale and site-specific. The project will not support housing
development or improvement that will involve large-scale involuntary land acquisition and resettlement.
Activities are not expected to be carried out in the sensitive areas. The risks and impacts are expected to be
medium in magnitude and in spatial extent. There is medium-to-low probability of serious adverse effects to
human health and /or the environment. Mitigation measures may be designed more readily and more reliable.
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70. FGPCD and ARULoS have respectively developed an Environmental and Social Management System (ESMS)
and Environmental and Social Management Framework (ESMF). FGPCD will have an environmental and social
(E&S) focal point that will be responsible to supervise the ESMS implementation. The ESMS of FGPCD meets the
requirements of environmental and social standard 9 (ESS9) and includes clear and transparent eligibility criteria
for loans to be guaranteed, screening procedures to appraise the mortgaged properties and ensure they comply
with national building codes/ regulations and includes a list of excluded activities. ARULoS has prepared an ESMF
on the project which includes eligibility criteria and selection process of the beneficiaries, as well as a negative
list. Technical assistance under component 3 will be carried out in accordance with terms of reference that are
consistent with the ESSs requirements. The ESMF will incorporate a grievance mechanism that will accept and
address complaints and concerns regarding relevant operations in a manner accessible and understandable for
affected parties. FGPCD and ARULoS will also ensure that their staff are properly trained on the ESMS/ESMF.
71. Additionally, labor management procedures will be developed to ensure that direct workers (staff from FGPCD
and ARULoS), contracted workers (employees of service providers or firms that will be contracted by ARULoS)
and the human resource policies and practices of the commercial banks meet the ESS requirements. ARULoS has
prepared a Stakeholder Engagement Plan (SEP) that highlights how information about the project will be
disseminated and grievances managed.
72. E&S instruments have all been approved and disclosed.
V. GRIEVANCE REDRESS SERVICES
73. Grievance Redress. Communities and individuals who believe that they are adversely affected by a project
supported by the World Bank may submit complaints to existing project-level grievance mechanisms or the
Bank’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in
order to address project-related concerns. Project affected communities and individuals may submit their
complaint to the Bank’s independent Accountability Mechanism (AM). The AM houses the Inspection
Panel, which determines whether harm occurred, or could occur, as a result of Bank non-compliance with its
policies and procedures, and the Dispute Resolution Service, which provides communities and borrowers with
the opportunity to address complaints through dispute resolution. Complaints may be submitted to the AM at
any time after concerns have been brought directly to the attention of Bank Management and after
Management has been given an opportunity to respond. For information on how to submit complaints to the
Bank’s Grievance Redress Service (GRS), please visit http://www.worldbank.org/GRS. For information on how
to submit complaints to the Bank’s Accountability Mechanism, please visit
https://accountability.worldbank.org.
VI. KEY RISKS
74. The overall project risk is rated moderate. The project is anchored in the strategic priorities of Djibouti, builds
on ongoing WB programs, and uses existing implementing agencies. There is a strong demand from banks to
mitigate the risk of offering mortgage loans down market, SIAF and ARULoS have a pipeline of 2,000 rent-to-own
properties, some of which could be converted into mortgage loans and guaranteed, and a track record of
providing affordable housing supply with clean titles. The main project risk is a non-transparent beneficiary
selection; this is mitigated by the role of financial institutions in components 1 and 2a, the voluntary nature of
2b, and a strong grievance system within ARULoS.
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75. Macroeconomic risk is rated substantial due to the high inflation international context. Currently inflation has
been kept under control in Djibouti but the country imports most of its energy (an important part comes from
Ethiopia). An accelerating inflation would make it difficult for banks to continue offering mortgage loans over 20
years at the current single digit fixed rate.
76. Political and governance risk is rated substantial. The governance of the FGPCD will have to evolve to include
the Ministry of Housing and specific steering committees for the housing and SME business. ARULoS will have to
play a role of enabler in this project, mobilizing the private sector to provide financing for affordable housing,
which is a different role than they play today as a provider of affordable housing supply. The success of the project
will rest on a strong coordination between ARULoS, FGPCD, Chamber of Commerce, and financial institutions,
each contributing their expertise to a common goal.
77. Procurement risk is considered moderate and FM risk substantial. Procurement risk includes work overload
with ARULoS managing at the same time many contracts in the existing project and delays in procurement
process and contract execution. Proposed mitigation measures consist of hands-on support of the additional
appointed procurement staff; timely handling of procurement plan implementation and procurement
complaints; and proper monitoring of contract execution, taking advantage of usage of the new contract
management module. The FM is substantial because of the need to adapt the governance and internal control
system of the FGPCD to the new scale of activities open by the project, and this will be mitigated by specific
procedures for housing guarantee and the automated accounting system.
.
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VII. RESULTS FRAMEWORK AND MONITORING
Results Framework
COUNTRY: Djibouti
Djibouti Affordable Housing Finance Project
Project Development Objectives(s)
The Project's Development Objective is to expand access to affordable housing finance for underserved populations in the Recipient’s territory.
Project Development Objective Indicators
RESULT_FRAME_TBL_ PD O
Indicator Name PBC Baseline End Target
Mortgage guarantee mechanism
Number of low-to-middle income households benefitting from
affordable mortgage loans partially guaranteed by the FGPCD 0.00 2,000.00
(Number)
Number of women benefitting from affordable mortgage
0.00 800.00
loans guaranteed (sole or in a new joint ownership) (Number)
Innovative financing for affordable housing
Number of poor households benefitting from self-construction
0.00 450.00
finance (Number)
Number of women benefitting from self-construction, owning
0.00 150.00
the title or in a new joint ownership (Number)
PDO Table SPACE
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Intermediate Results Indicators by Components
RESULT_FRAME_TBL_ IO
Indicator Name PBC Baseline End Target
Housing Guarantee Mechanism
Number of financial institutions that use the housing guarantee
fund (Number) 0.00 6.00
Private capital mobilized from banks via the housing guarantee
0.00 70,000,000.00
(Amount(USD))
Innovative financing for affordable housing
Number of low-to-middle income households converting rent-to-
0.00 250.00
own contracts into mortgage loans (Number)
Number of financial institutions which use the microfinance
0.00 2.00
credit line (Number)
Number of housing units resilient to climate-induced floods and
0.00 450.00
fires (Number)
Annual surveys of potential and existing beneficiaries whose
results inform the design of the microfinance line of credit and
No Yes
mortgage guarantee throughout the project’s implementation
(Yes/No)
Technical Assistance and Project Management
Number of regulatory reforms adopted to promote affordable
housing and lower construction costs (Number) 0.00 5.00
Number of people trained on climate resilient and energy
0.00 300.00
efficient construction techniques (Number) (Number)
IO Table SPACE
UL Table SPACE
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Monitoring & Evaluation Plan: PDO Indicators
Methodology for Data Responsibility for Data
Indicator Name Definition/Description Frequency Datasource
Collection Collection
Number of low-to-middle income this assumes a leverage of
households benefitting from affordable 5x , coverage of 50% and an Semi-Annual FGPCD FGPCD FGPCD
mortgage loans partially guaranteed by average mortgage loan
the FGPCD guaranteed of US$35,000
Number of women benefitting from
affordable mortgage loans
guaranteed (sole or in a new joint
ownership)
Those are households
considered poor in decile 1-
5 benefitting from the self-
Number of poor households benefitting construction projects Semi-Annual ARULoS ARULoS ARULoS
from self-construction finance funded by both ARULoS and
the microfinance
institutions under the line of
credit in Phase 2
Number of women benefitting from
self-construction, owning the title or
in a new joint ownership
ME PDO Table SPACE
Monitoring & Evaluation Plan: Intermediate Results Indicators
Methodology for Data Responsibility for Data
Indicator Name Definition/Description Frequency Datasource
Collection Collection
Semi-
Number of financial institutions that use FGPCD FGPCD FGPCD
Annual
the housing guarantee fund
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this reflects the private
capital mobilized from
financial institutions
through the guarantee as
Semi-
Private capital mobilized from banks via they will use their liquidities FGPCD FGPCD FGPCD
Annual
the housing guarantee to issue loans - assumption
US$7 million capital,
leverage of 5x, 50%
coverage - can guarantee
US$70 million of loans
this reflect the number of This will be
rent-to-own contract a one-off
converted into mortgage over a year
Number of low-to-middle income based on about 10 percent after the
ARULoS ARULoS ARULoS
households converting rent-to-own of the current and future conversion
contracts into mortgage loans stock (ie. contracts that study is
were supposed to be rent to completed
own become mortgage in Year 1
loans)
This reflects that 2
microfinance institutions are Semi-
Number of financial institutions which use ARULoS ARULoS ARULoS
interested in using the Annual
the microfinance credit line
credit line for self-
construction
This reflects the self-
Semi-
Number of housing units resilient to construction projects ARULoS ARULoS ARULoS
Annual
climate-induced floods and fires certified by ARULoS as
resilient to fires and floods
Annual surveys of potential and existing ARULoS will perform annual One off -
beneficiaries whose results inform the surveys of existing and expected in ARULoS ARULoS ARULoS
design of the microfinance line of credit potential beneficiaries. The 2023
and mortgage guarantee throughout the first survey in Year 1 will
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project’s implementation identify potential
beneficiaries of the self-
construction to be financed
by microfinance institutions,
and will inform the design of
the line of credit under
Component 2a.The
feedback received through
the annual surveys will be
used to adjust the design of
the microfinance line of
credit and mortgage
guarantee during the
project’s implementation.
Number of regulatory reforms adopted to Semi-
The reflects policy or tax ARULoS ARULoS ARULoS
promote affordable housing and lower Annual
reforms adopted
construction costs
Number of people trained
Number of people trained on climate on energy efficient
Annual ARULoS ARULoS ARULoS
resilient and energy efficient construction construction and low-
techniques (Number) carbon material (60 per
year)
ME IO Table SPACE
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ANNEX 1: Implementation Arrangements and Support Plan
COUNTRY: Djibouti
Djibouti Affordable Housing Finance Project
1. The project is designed in a context of production of affordable housing supply by public agencies but a lack of
affordable financing solutions, and a limited involvement of the private sector in affordable housing. MVUH
has the objective to build at least 2,000 affordable houses in the coming two years. In parallel, IFC is working on
a PPP project to increase private sector participation in the supply of affordable housing. Thus, the project focuses
on expanding financing solutions in the social and economic categories together with supportive technical
assistance.
Component 1: Mortgage guarantee mechanism (US$7 million from IDA, US$70 million Private Capital
Mobilization)
2. The partial credit guarantee fund for housing loans will be hosted within the FGPCD, which will offer a new
window dedicated to affordable mortgages. The mortgage guarantee will address the risk aversion of financial
institutions vis-à-vis low- and middle-income earners and/or the self-employed (and/or undocumented and/or
irregular income earners).
3. Eligibility criteria. The eligibility criteria will be included in the operational procedure for the housing guarantee
of the FGPCD, approved by its Board.
a. Income group. Eligible households will be those earning between US$450 and US$1,500 per
month, able to purchase a house between DJF 2 and 10 million (US$11,000-57,000), and currently
not owning a house
b. Participating institutions will be those regulated and supervised by the Central Bank in Djibouti,
which have signed a convention with the FGPCD.
c. Terms and conditions of the loans.
i. Down payment of between 5-20 percent by the borrower since there is a direct
relationship between the down payment and the risk.
ii. Fixed interest rate during the life of the loan.
iii. Interest rates determined by each financial institution.
iv. Monthly repayment up to 33 percent of household gross monthly income.
d. Maximum price of housing unit currently estimated at DJF 10 million considering the income
levels and prevailing financing conditions.
e. Coverage of the guarantee 50 percent. The coverage is expected to be higher for households with
irregular incomes.
f. Premium cost of between 0.25 and 0.5 percent.
g. Compliance with the FGPCD’s policy on environmental and social risks which will provide guidance
on avoiding mortgage loans on properties that are exposed to climate risks, mainly climate-
induced floods.
4. Governance. The FGPCD is regulated by the Central Bank of Djibouti, and currently guarantees SME loans. Its
institutional arrangement is aligned with international best practices. Its Board of Directors includes
representatives from the Presidency, the Prime Minister's Office, the Chamber of Commerce, the Association of
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Banks, the Young Entrepreneurs Club, the Ministry of Economy and Finance, and the Ministry of Social Affairs.
The composition of the FGPCD board will change to include the Ministry in charge of Housing. Two steering
committees will be created for respectively the SME and housing windows, which are expected to be sub-
committees of the Board to take strategic sectoral decisions, and the Board will be made more strategic and
nimbler.
5. Prudential standards. The Central Bank will define prudential credit standards for eligible borrowers to ensure a
sound and sustainable mechanism.
6. Operating procedures. The housing steering committee will be responsible for setting the eligibility criteria,
operating rules for the guarantee, content of the agreements signed with the banks, as well as monitoring the
impact and any future adjustments. But the individual processing and approval of guarantee applications will
remain entrusted to the FGPCD, approved and supervised by the BCD. Day-to-day technical functions, such as
financial administration, processing and monitoring of appeals, and signing of agreements will be carried out by
the professional teams already in place.
7. Eligible expenditure will be the capital into the housing guarantee fund (US$7 million). This will be disbursed in
a single tranche once the housing guarantee is operational (conventions have been signed with at least two banks
and a pipeline of mortgage loans has been provided to the Bank). The capital will be invested in secured assets,
so that investment revenues may be used to pay operating cost, thus reducing the dependence of the fund on
budgetary allocations. The FGPCD will manage this sub-component by registering guarantees against such
capital.
Component 2: innovative financing of affordable housing (US$5.5 million from IDA)
8. Sub-component 2a will provide financing solutions to low-income households for self-construction (US$4
million). Phase 1 will build on the self-construction program of ARULoS (currently to rebuild homes destroyed by
fires) and will be open to any low-income households meeting the eligibility criteria set out in the Project
Implementation Manual (PIM). Households will have to be registered in the electronic social register which was
supported by the World Bank. Other eligibility criteria will include among others i) clear land title; ii) owner-
occupier; and iii) property mapped on an urban development plan. The objective of this phase would be to
achieve a demonstration effect of the attractiveness of this type of product on the microfinance sector. ARULoS
will buy the materials and labor to allow households to engage in self-construction for an amount per house of
up to DJF 1,500,000 (US$8,400), which is paid back over 5 years at cost. Phase 2 will be a line of credit to
microfinance institutions so they can extend a self-construction loan to their clients who are in the social register.
Financial institutions supervised by the Central Bank will apply to ARULoS for the funding available on the basis
of a pipeline of loans, and the financial conditions will be determined by a study undertaken at inception of the
project to ensure commercial viability and access. The Central Bank will determine the risk management criteria
for the credit line to microfinance institutions and will sign a MoU with ARULoS to assist them on this component.
ARULoS currently provides significant support to the beneficiaries on the selection of the building materials and
trades, on the quality of the construction and on the certificate of conformity with environmental and resilience
standards; this support will continue in Phase 2 to mitigate the credit risk for financial institutions and keep
construction cost low. The total cost of this sub-component is estimated at US$4 million (US$2.5 million for the
ARULoS pilot, US$1.5 million for the microfinance line of credit, which will both benefit at least 450 households).
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9. Phase 1 will be subject to procurement regulations while Phase 2 is a financial intermediary operation. The
eligible expenditures for Phase 1 will be the construction material and labor purchased by ARULoS on behalf of
the beneficiaries. For Phase 2, eligible expenditures will be the loans of microfinance institutions to borrowers
for self-construction, meeting eligibility criteria of the PIM.
10. Sub-component 2b will support the transformation of the rent-to-own contracts of low to middle income
households into mortgage loans (US$1.5 million). ARULoS and SIAF had difficulties selling their units due to the
lack of adequate financial products on the market that can sustain the demand for affordable housing from
households. They have been, therefore, forced to offer rent-to-own contracts for long periods (20 years) at very
advantageous rates of around 3 percent, activity which still represents nearly 2,000 homes for ARULoS (with
residual leases of 13 to 20 years) and nearly 1,600 homes for SIAF. ARULoS’ portfolio has no default and eligibility
criteria are in line with banks’ mortgages (down-payment, rental expenses no more than one third of gross
income). To transfer those contracts to the banking system, the project will finance (i) the interest rate
differential between ARULoS and the banks so that households maintain the same monthly payment and (ii) the
land and mortgage registration cost. Those will be the eligible expenditures, which will not be subject to
procurement and will be paid to ARULoS and SIAF upon conversion as upfront subsidy. The project will work with
the commercial banks and the beneficiaries to develop the modalities of conversion. The cost estimate is based
on a 5 to 10 percent discount on the remaining amount owed to ARULoS by eligible tenants.
Component 3: Technical Assistance and Project Management (US$2.5 million from IDA)
11. This component will provide technical assistance to support the other components and help low- and middle-
income households access affordable housing finance. Technical assistance will focus on:
• Sub-component 3a: Policy reforms led by the MVUH and its departments to lower construction cost, keep
housing units affordable and support low-carbon construction (US$800,000). Analyses undertaken during
preparation identify several policy reforms to open the construction sector and lower construction cost,
which is key to keeping housing affordable. Those include (i) application decrees of the real estate and
construction law, to codify all the construction regulatory re uirements into a code (“code de la
construction”) and improve competition in the sector; (ii) simplification of all the construction permits
and certificates to lower the cost and optimize the number of procedures; (iii) tax and import licensing
reforms to lower the cost of construction materials (e.g. cement, reinforcing steel) and support the use of
low-carbon materials. Activities will include the preparation of the policy reforms, consultations with
stakeholders, and the capacity building of the small firms in the construction sector to implement those
reforms in partnership with the Chamber of Commerce.
• Sub-component 3b: Technical support to the FGPCD, the Ministry of Economy and Finance, the financial
institutions, and the BCD to implement the partial credit guarantee for mortgage loans (US$500,000). This
activity will support the integration of the mortgage guarantee window within the FGPCD with additional
operational capabilities, systems and resources, and knowledge exchange with other funds with similar
experience. This will include capacity building to the banking sector to support the down-market strategy,
target women, and build the pipeline of affordable mortgage loans. Banks will be supported on climate
related training to be able to comply with the FGPDC’s environmental and social policy and identify
properties potentially exposed to climate induced risks, mainly floods. If needed, the sub-Component will
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also support the BCD to enhance the supervision of the mortgage sector. The Ministry of Economy and
Finance will be supported in the Geo-Enabling Initiative for Monitoring and Supervision, monitoring and
evaluation and external audits by the Inspection Générale des Finances to integrate this new project.
• Sub-component 3c: Capacity building to support the structural soundness and resilience of self-
construction (US$700,000). To ensure the structural soundness of self-construction and attract the
microfinance sector, the Project will facilitate the capacity building of key professionals such as site
managers, quantity surveyors, land surveyors as well as professional organizations in the construction
sector as need be. To improve the use of insulated and low-carbon materials, the Project will develop
training programs on energy efficient construction. Capacity building activities will be developed in
partnership with the Chamber of Commerce. The Project will also facilitate the capacity building of the
DATUH and of certification staff to ensure that all self-construction projects can be certified for their
resilience against climate-induced floods and fires.
• Sub-component 3d: Conversion of rent-to-own contracts into mortgage loans (US$100,000). Activities will
include the consultancy to define the modalities of the conversion and the institutional strengthening of
ARULoS and SIAF to manage the reflows and reinvest them into social housing development.
• Sub-component 3e: Effective and efficient project management (US$400,000). This will include additional
staff recruited by ARULoS to support project implementation (financial analyst, procurement analysist,
gender staff….), the Project’s audits and operating costs.
12. About 20 percent of the entire component will be used to support policy reforms, and train stakeholders on
resilient and low-carbon construction and climate risk in mortgage loans. The component will be implemented
by ARULoS and will include consultancy services, non-consultancy services, training, capacity building and
operating cost.
Financial Management Assessment
13. ARULoS will be responsible for coordinating the project implementation, ensuring the timely availability of funds,
maintaining the project’s accounts, and producing financial reports, monitoring and evaluation (M&E), and
reporting results to various stakeholders. FGPCD, a Financial Intermediary, will implement Component 1.
14. The FM assessment of the ARULoS and FGPCD was conducted in compliance with the World Bank policy and
directives on investment financing. The objective of the assessment was to determine whether these entities
have an acceptable FM arrangement, which will ensure (a) that funds are used for the intended purposes
efficiently and economically; (b) the preparation of accurate, reliable, and timely periodic financial reports; and
(c) safeguarding of the entity’s assets.
15. The existing FM arrangements provide reasonable assurance that the financing proceeds will be used for the
intended purpose in a transparent, effective, and efficient manner. ARULOS is experienced in World Bank-
financed projects (Slum Upgrading Project) management, is staffed with one FM specialist, and has developed
acceptable FM procedures. An additional FM staff may be needed and agreed upon with the World Bank to
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absorb the workload generated by the project. The FGPCD is a relatively new entity and its internal control system
is still developing.
16. The potential FM risks identified are the following: ARULoS, (i) need to update FM procedures to reflect the
Project, (ii) inadequate accounting software, (iii) delayed audited reports and (iv) FM staff workload. FGPCD, (i)
absence of procedures to guarantee mortgage loans, (ii) absence of an investment management policy and
procedures, (iii) the automated system for core business management, accounting, and reporting is yet to be
operational (it is being procured under the P165558), (iv) need to update the governance arrangements for
guarantees which currently include a technical committee while the decision making should be undertaken by
the credit committee and the Director.
17. The overall FM residual risk of the project is Substantial, and the proposed mitigation measures are for ARULoS
(i) update the existing FM manual (part of the PIM), (ii) upgrade the accounting system to record the project
transactions and prepare the financial reports, (iii) include the project in the Internal Audit work program and
(iv) recruit an external auditor with experience and qualification acceptable to the World Bank, and according to
the ToRs agreed upon. Reflows from component 2 will be reported in the financial reports and monitored by the
Bank. For the FGPCD, (i) develop procedures to guarantee mortgage loans, approved by the Board, (ii) set up an
Investment policy and procedures approved by the Board, (iii) review the governance arrangement in guarantee
provision to allow households loans, and improving the checks and balances during the decision-making process
(iv) operationalize the automated system for accounting and core business, (v) share with the World Bank the
audited financial statement and Management letter of the Fund.
18. The risk is maintained at Substantial because of the lack of experience of FGPCD in managing guarantees at such
a scale in the past, and governance and internal control systems still under development. The risk will be
reviewed and revised during the project implementation. The detailed risk table is provided in Table 1.
19. FM Conditions and FM Covenants. The proposed FM conditions or dated covenants are as follow:
ARULoS
(i) update the existing FM manual (part of the PIM), effectiveness condition
(ii) upgrade the accounting system to record the project transactions and prepare the financial reports,
3 months after the effectiveness
(iii) recruit an external auditor with experience and qualifications acceptable to the World Bank, and
according to the ToRs agreed upon, 3 months after the project effectiveness
FGPCD
(iv) develop procedures to guarantee mortgage loans with appropriate governance arrangements,
approved by the Board, and set up an investment policy and procedures approved by the Board,
effectiveness conditions
(v) establish an automated accounting and core business system for guarantees. 3 months after the
effectiveness.
(vi) Share the audited financial statement and management letter no later than 9 months after the end
of the year.
Table 1.1: Financial Management Risk Assessment and Mitigation
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Risk Risk Risk Mitigating Measures Incorporated into Residual Condition of
Rating Before Project Design Risk Effectiveness
mitigation Rating (Y/N?)
Inherent Risk
Country Level Rely on stand-alone procedures and system
Country’s PFM system is S
characterized by weak fiscal H
discipline, high indebtedness, and
low fiscal transparency
Entity Level S Rely on ARULoS and FGPCD capacity to M
The MASS is experienced in manage the project
implementing WB-financed
projects.
Project Level S Establish a coordination mechanism and S
The institutional arrangement procedures, and clarify the role of ARULoS
involves two entities and FGPCD in the PIM
Control Risk
Budgeting S M
Unrealistic budget and The PIM will include clear procedures for
inadequate budget reporting and budget preparation and monitoring
monitoring
Accounting S Upgrade the accounting system to record and M
report the project transactions
Delayed and unreliable IFR Submit the IFR via client connection
Internal Control H Design and implement the PIM, Design the S PIM of ARULoS and
Inadequate procedures at FGPCD risk management, guarantee, and investment PIM of FGPCD are
procedures effectiveness
FM capacity at ARULoS is Set up the accounting system and conditions
overstretched and could not automatized system for guarantees
manage timely the project management
Appoint a dedicated FMS
The PIM shall define eligibility criteria and
Committee assessing the criteria
Design a grievance and appeal mechanism in
the PIM
Funds Flow S Open the DA in an acceptable financial M
Inaccurate Designated account institution
reconciliation
Bank statements are not available
timely to monitor the project cash
flow
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Risk Risk Risk Mitigating Measures Incorporated into Residual Condition of
Rating Before Project Design Risk Effectiveness
mitigation Rating (Y/N?)
Financial Reporting S Agree on the IFR template M
The quality of the IFRs may be Prepare the IFR every semester
jeopardized by the inadequate Submit the IFR via client connection
capacity
Auditing; S M
Recruit a qualified external auditor based on
Inadequate audit opinion and ToR agreed with the World Bank
delayed audit report Launch the external auditor recruitment
Lack of a monitoring mechanism immediately after the project’s effectiveness
in implementing the external Submit the audit report to the Bank no later
auditor’s recommendations than June 30 each year
Develop the audit recommendations and
action
Share the FGPCD audit report and
management letter
Overall Risk Rating H S
H – High S – Substantial M – Modest L – Low
20. Staffing. ARULoS is staffed with one FM specialist managing the World Bank-financed project, the Slum
Upgrading Project. The FM staff will be provided induction training on World Bank Investment Project Financing
disbursement guidelines and other FM requirements. An additional FM staff may be needed and agreed with the
World Bank. The ToR of any FM additional staff will be subjected to the World Bank’s no objection.
21. Planning and budgeting. The project will comply with the planning and budgeting processes in the PIM. ARULoS
will prepare the project’s annual working plan and budget, with the disbursement forecast in line with the
expenditure needs of the project, and the budget shall be consistent with the Procurement Plan. The planning
and budgeting documents, comprising activities managed under all project components alongside the
disbursement forecast, shall be communicated to the World Bank for review. The project’s expenditures
classification according to project components and disbursement categories shall be done in the budget
execution report to be sent to the World Bank to meet the need to monitor the project through these line items.
In addition, a comprehensive analysis of budget performance indicators with detailed corrective actions shall be
included in the budget performance report.
22. Accounting. The project will comply with the accounting policies (International Public Sector Accounting
Standards, cash basis), which are considered acceptable. In addition, the project will use the automated
accounting system to record transactions and produce Semester’s Unaudited Interim Financial Report and the
annual financial statements.
23. Financial reporting. ARULoS will prepare the project’s quarterly Unaudited Interim Financial Reports (IFR) which
shall include
a. A statement of Sources and Uses of Funds;
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b. A statement of Uses of Funds by Project Activity/Component and the budget execution report;
c. Budget execution report including variance analysis, reasons for the variance, and corrective actions
taken;
d. Designated Account activity statement; with bank reconciliation statement, and bank statement
The project’s quarterly IFRs will be submitted to the World Bank not later than 45 days after the end of the
quarter via client connection and email.
24. Internal control and internal audit. The FM procedures (part of the PIM) provide clear segregation of duties
between the Coordinator, Interna auditor, and the FMS and will describe well the procedures applied to the
budgeting, accounting, and reporting chain. In addition, the World Bank’s disbursement guidelines will
complement the existing procedures.
25. The ARULoS internal audit is staffed. The audit will be risk-based and compliant with best practices. The internal
audit function will focus cover the financial audit and performance and value-for-money audit. This move will
require enhanced capacity building. An induction training of key risk areas of World Bank-financed projects shall
be organized for the attention of the internal audit function at the project launch.
26. External audit. The external audit of the project’s annual financial statement will be performed by a private audit
firm acceptable to the World Bank, according to ToR agreed upon with the World Bank. The audits are undertaken
following International Standards on Auditing. The annual audited financial statements of the project shall be
prepared and submitted to the World Bank within six months after the end of the fiscal year via client connection
and email. The preparation of the annual financial statement is the responsibility of the implementing entity
(ARULoS). The audit report should include a Management Letter on internal control setting out any internal
control strengths, deficiencies, or noncompliance with laws, regulations, financial agreements, or performance
or value-for-money standards.
27. The FGPCD will share annually with the World Bank the audited financial statement and the management letter
of the Fund no later than nine months after the end of the year. With a dedicated opinion, the audit will cover
the fund disbursed by the World Bank and their utilization. The audit will be performed by a reputable audit firm
acceptable to the World Bank.
28. In line with the Access to Information Policy, dated July 2010, the project’s audited financial statement will be
made public by the World Bank, and the Borrower is re uested to publish the project’s audited financial report
using primarily and easily accessible communication channels such as a website.
29. Disbursements. The flow of funds arrangement chart is shown in Error! Reference source not found. Funds will f
low, in USD, from the World Bank into one DA held at the selected Commercial Bank. The ceiling will be set in
the DFIL. The funds request shall be made through Client Connection and signed by the signatories appointed by
the Government. The signatories shall be appointed before the Financing Agreement is signed, and the
signatories’ signed letter will be submitted to the World Bank along with the Financing Agreement. The four
disbursement methods are advance, reimbursement, direct payment, and special commitment.
30. Disbursement of the partial credit guarantee fund for housing loans (US$7 million). IDA will capitalize a new
window dedicated to affordable mortgages. The funds will be disbursed in a single tranche once the housing
guarantee is operational (conventions have been signed with at least two banks, a pipeline has been shared with
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the Bank, and procedures are in place). The capital will be invested in secured assets so that investment revenues
may be used to pay the operating cost, thus reducing the fund's dependence on budgetary allocations. The
investment policy and procedures will be developed and agreed upon by the World Bank. The World Bank will
transfer the fund directly to the FGPCD into a dedicated account to be opened at the Central Bank based on the
justification clarified in the DFIL.
31. Household payments under sub-component 2.a. Procedures and system to identify, record and monitor the
beneficiaries’ household debt and payments (reflows) will be developed in the PIM and build on, and strengthen
the existing ARULoS procedures and systems. For traceability purposes, the reflows will be transferred into a
dedicated account opened in a commercial bank acceptable to the World Bank.
32. Ad hoc SOE for expenditures under sub-component 2.b. To support the expenditures incurred under sub-
component 2.b., the SOE of the Withdrawal Application will detail (i) the interest rate differential between
ARULoS and the banks, and (ii) the land and mortgage registration cost. The SOE model is below.
Household name Interest Land and mortgage Total(i)+(ii) Period
differential(i) cost(ii)
SOE model
Figure 1.1. Djibouti Housing Finance Project Flow of Funds (TBC)
33. Financial Management Action Plan. In addition to semester-enhanced FM implementation support missions, the
following actions are agreed upon to enhance the financial management arrangements for the Project:
Action Deadline Responsible
agency
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Accounting Upgrade the accounting system 3months after the ARULoS
effectiveness
Funds Flow Open the Designated Account at a commercial bank acceptable One month after ARULoS
to the World Bank signing the FA
Internal Update the existing FM manual (part of the PIM) Effectiveness ARULoS
Control/Internal (i) develop procedures to guarantee mortgage loans with condition
Audit appropriate governance arrangements, approved by the Board,
(ii) set up an investment policy and procedures approved by the
Board
(iii) establish an automated accounting and core business 3 months after the FGPCD
system for guarantees. effectiveness
External audit Recruit an external auditor 3 months after ARULoS
effectiveness
FGPCD audited financial report 9 months after the FGPCD
calendar year
Procurement Arrangements and Capacity Assessment
34. Procurement Documents. For selection of Consultants, WB’s Standard Re uest for Proposals (RFP) will be used.
There is no procurement of works in the project while the few procurements of goods envisioned will approach
national market. For procurement of Goods, no international procurement is foreseen under the project. Most
procurement of goods will approach national market. Given open national competitive procurement
arrangements don’t fully comply to paragraph 5.4 of the Procurement Regulations, particularly the requirement
for having an effective complaints mechanism, WB’s Standard Procurement Document will be used with
appropriate adjustment. When other national procurement arrangements (other than national open competitive
procurement) are applied by the Borrower (such as request for quotations/shopping or direct contracting), such
arrangements will be consistent with the WB’s Core Procurement Principles and ensure that the WB’s Anti-
Corruption Guidelines and Sanctions Framework, as well as contractual remedies set out in the project’s
Financing Agreement apply. Procurement procedures will give due attention to quality aspects.
35. Scope of Procurement activities. The project design involves the capitalization of a guarantee fund for US$7
million, microfinance loans for self-construction estimated at US$2 million and the cost of converting rent-to-
own contracts into mortgage loans estimated at US$1.5 million. These expenses (70 percent of the total project
envelope) are in nature deemed not procurable activities. Remaining financing (US$4.5 million) will include
operational cost, as well as procurement contracts mainly consultants’ services for technical assistance (6
individual consultants and 3 firms totaling US$1.5 million) and procurement of small construction materials
(totaling US$2 million in different contracts throughout project implementation and based on needs/readiness
of beneficiaries) for beneficiaries’ self-construction, and operating costs. The only relatively critical and high value
contract consists of selection of firm for technical assistance for construction value chain estimated at US$0.5
million.
36. Project Procurement Strategy for Development (PPSD) and Procurement Plan. ARULoS prepared an initial
project procurement strategy for development and initial procurement plan for the above-mentioned procurable
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activities, which were updated at appraisal. No high value or complex procurement contract is foreseen but
selection of consultant’s services will mainly approach international market while procurement of goods (small
construction materials) will be conducted locally with packaging to be agreed on beneficiaries’ demand. The
procurement plan will be updated during project implementation to reflect any change or new activity and should
be reviewed and approved by the Bank.
37. Procurement risk assessment. The project will be carried out by the MVUH through its agency ARULoS as the
implementing agency. The agency is implementing a WB financed project and additional financing with much
more scope of procurement compared to those envisioned in this project. From procurement reviews and
supervisions conducted for these on-going operations, it was noted a significant improvement in capacity for
management of procurement activities. The agency has gradually improved procurement planning, usage of
appropriate standard documents, drafting bids/proposals evaluation reports for approval by the national
procurement commission, close monitoring of approval and contract signature and documents filing. There is
still an effort to be made on documenting contract management through STEP and timely handling of
procurement complaints.
38. The residual procurement risk is considered as moderate. The main risks would include work overload with
ARULoS managing at the same time many contracts in the existing project, delays in procurement process,
contract execution and handling of procurement complaints. Proposed mitigation measures will consist of full
involvement and hands-on support of the additional appointed procurement staff, timely implementation of
procurement plan including handling of procurement complaints, and proper monitoring of contract execution,
taking advantage of usage of the new contract management module.
39. Procurement aspects of the PIM. A project procurement module dedicated to this project will be prepared by
ARULoS, building on the existing well detailed PIM of the on-going project on Slum upgrading. The manual will
provide guidance on the implementation of the project and will summarize the project’s main procurement
aspects. It would be updated from time to time to incorporate the lessons learned during implementation.
40. Contract management capability and monitoring. Overall and based on the limited number and size of contracts
envisioned, ARULoS is expected to be able to manage procurement under the project. Monitoring should also
leverage on the new contract management module incorporated into STEP.
41. Review by the World Bank of procurement decisions. Given the small size of contracts and the existing inner
capacity of ARULoS, mandatory prior review thresholds, as per WB’s Procedures will be followed based on the
Moderate risk rating.
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ANNEX 2: Country climate vulnerability context and project activities to address climate change
This annex presents the climate vulnerability context of Djibouti and how the Djibouti Affordable Housing project
components will address climate risks.
Djibouti Climate Vulnerability Context
1. Djibouti is located in the Horn of Africa, one of the most vulnerable regions to climate change. Similarly, to its
neighboring countries (Ethiopia, Somalia), Djibouti is among the lowest ranked in the ND-GAIN Index (122nd out
of 182 countries)17 illustrating a high vulnerability and poor readiness to respond to climate risks. The global
INFORM Risk Index also rates the country at a high risk (score of 5.2 out of 10, and rank of 38 th) characterized by
a high level of hazard, exposure, and vulnerability to climate risks as well as a low level of coping capacity.18 These
rankings are due to extreme temperatures, severe drought, natural disasters, and flooding risks faced by the
country. Over the last four decades, natural disasters have affected over a half million people in Djibouti.
Figure 2.1: ND-GAIN Index (left) and INFORM Greater Horn of Africa model (right)
2. Djibouti is threatened by severe floods, droughts, and tropical cyclones which could result in disastrous
consequences for the population. The capital, Djibouti-city is particularly exposed to flash floods due to its
location, low elevation, and high population growth rate. The most recent episode, in 2019, has damaged
numerous infrastructures, and resulted to an official estimate of 40,000 households affected, more than 250,000
people displaced, and even deaths. Droughts affect mostly populations living in the rural areas, and the
agricultural sector; between 2007 and 2011 a prolonged drought impacted around 120,000 people in rural areas
(50 percent of the rural population), leading to an estimated economic impact of 7 percent of GDP. Tropical
Cyclones increase the risk of coastal flooding. In 2018, Cyclone Sagar affected around 25,000 people and led to an
estimated total loss of 1 percent of GDP. Sector affected included transportation (43 percent), water and
sanitation (28 percent) and housing (15 percent). Temperatures are also expected to rise by 1.9°C by 2050 and
5.4°C by the end of the century.
17 The ND-GAIN Country Index summarizes a country's vulnerability to climate change with its readiness to improve resilience.
18 The INFORM Risk Index looks at three dimensions: hazard & exposure, vulnerability and lack of coping capacity.
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Figure 2.2 Areas affected by flood in Djibouti - United Nations flashfloods humanitarian rapid assessment needs (2019)
3. The climate risks have
strong negative impacts on
the housing sector. Flood
events in November 2019
and April 2020 resulted in
significant damage to critical
infrastructure in Djibouti-
Ville in particular, including
homes, roads, schools, and
shops. According to a rapid
assessment by the World
Bank, housing is the sector
most affected by the
November floods (Figure 2,
representing 35 percent of
the global reconstruction and
recovery needs), with an estimated 1,000 houses in Djibouti-Ville totally damaged, and a further 4,262 houses
partially damaged. Figure 3 shows neighborhood vulnerability to floods prior to the 2019 flood event. Housing
damages are concentrated in a small number of neighborhoods, especially in lower income and informal areas. In
those areas, Khamsin strong and hot winds coupled with faulty electrical installations cause accidental fires, and
this phenomenon is accrued in period of drought. Moreover, drought shocks affecting rural areas push
populations into forced migration to Djibouti city, increasing the demographic stress in the housing sector.
Figure 2.3: Percentage of households having precarious housing by district from the United Nations flashfloods humanitarian
rapid assessment needs (2019)
4. Without adequate
adaptation measures, climate
change and weather-related
risks could have significant
socioeconomic, financial, and
macroeconomic impacts in
Djibouti. The growing
population, living predominantly
in Djibouti City, is expected to be
at greater risk of food insecurity,
disease, energy shortages and
poverty due to water scarcity,
extreme heat, pollution, or
flooding. These risks are larger
for inhabitants of slums
(especially Balbala which hosts around 30 percent of the population). Climate change is also expected to cause
more frequent internal and cross-border migration, social unrest and even conflict in extreme cases.
5. In line with the World Bank Green, Resilient and Inclusive Development strategy (GRID) and the Paris
Agreement, the Project will identify and finance climate adaptation and mitigation activities and promote
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climate-friendly practices in the housing sector. The project intends to provide affordable housing financing
solutions that support sustainable construction which mitigates the climate risks and will help protect the
marginalized populations. The project will focus on climate adaptation by ensuring that all houses built by low-
income households in climate-vulnerable areas are resilient to climate-induced floods and fires. This will improve
the quality of the housing stock. The project will undertake climate-adaption activities to strengthen the training
in construction trades, including in low-carbon and climate-resilient housing. Climate risks mitigation activities will
consist in training SMEs and youth in construction trades on the use of insulating materials and the building of
energy-efficient homes. The paragraphs below detail how the climate risks are addressed under each component.
Climate mitigation activities supported by the project
6. Because of construction materials, the housing sector contributes to both the global 5.2 percent GHG emission
of the industry sector and the 73.2 percent of the energy sector. Through increased construction and demand
for construction materials, the project may add to the GHG emissions. However, the project aims to cut down
GHG emissions with specific climate-mitigation activities described below and support Djibouti's NDC goal of
reduction of GHG emission by 40 percent by 2030. The figure below presents Djibouti's emissions and goals
according to the submitted Intended National Determined Contribution.
Figure 3: Djibouti GHG emission projections through 2030
7. There are constraints with reducing emissions in the construction sector for affordable housing. The costs of
construction materials are high, due in part to the lack of specific trades informing building costs (land surveyors,
quantity surveyors). Solar energy remains expensive and unaffordable for the project target beneficiaries leaving
the connection to the grid as the only source of energy. Therefore, to support reduced energy use, the project will
train young people and SMEs on energy efficient construction techniques and the use insulating materials to
ensure new homes are more energy efficient.
8. The project component 3 will support the reduction of GHG emissions by building the capacity of the
government, developers, and self-constructers in the use of insulating/energy saving materials, energy-efficient
construction techniques as well as harnessing renewable energy in the construction industry. Twenty percent
of the US$1 million attributed to the training will support mitigation activities. In addition, US$500,000 of this
component will support regulatory reforms to lower the cost of construction, and technical assistance will be
provided to the government in establishing regulations and policies fostering the use of insulating materials. Other
activities envisaged will include:
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a. Training and certification in the use of materials, and building orientation, roofing techniques to
capture the heat during colder months and cool the space during warmer months in order reduce air
conditioner uses.
b. Training on construction techniques and practices that improve resilience to extreme weather
events. For example, awareness/training on structural designs to help reduce heat inside buildings and
improve resilience to drought.
c. Training content on climate mitigation activities such as: energy saving measures, employing
solar systems, using low-carbon cement, etc.
d. Training on pre-construction analytics to estimate energy consumption savings for a given
construction design and materials. This will facilitate development of products with reduced housing
operating costs (achieved via energy savings) that will promote climate friendly and low-carbon homes.
Climate risks adaptation: direct linkages
9. Component 1: Expanding access to affordable housing finance to underserved households through a mortgage
guarantee mechanism. The eligibility criteria for mortgage loans will include climate risk considerations. The
FGPCD has adopted a new policy on environmental and social risks, which will guide banks on avoiding loans on
properties that are exposed to climate risks such as climate-induced floods and all guaranteed loans will have to
comply with the policy. Trainings will be provided in the technical assistance component 3 to financial institutions
to identify exposure to climate risks in their mortgage loan portfolios.
10. Component 2: innovative financing of affordable housing. Under this component which focuses on self-
construction financing for eligible households, the project will support the financing of resilient homes to climate
disasters. US$4 million of sub-component 2a will fund the self-construction of homes resilient to climate-induced
floods and fires. ARULoS has developed a self-construction and certification approach whereby unsound and
damaged homes are rebuilt and converted into fully certified climate-resilient homes. Initially this approach was
developed to rebuild homes affected by fires, but the certification will extend to resilience to floods which is the
highest risk in Djibouti-City. ARULoS will provide support as project manager to low-income households to obtain
the certification of the resilience of homes to floods and fires. Flood risk consideration will be included into
housing site selection criteria and incorporated into the certification. ARULoS will also strive to use insulating
materials when available within the budget.
11. Component 3: Technical Assistance and Project Management. This will include both policy reforms to support
the use of low-carbon materials in affordable housing, and training to stakeholders on the use of such materials.
The technical assistance under the component will support the process of certification of self-constructed homes
to resilience to climate induced floods and fires under component 2a.
Table 1: Activity-level financing breakdown for climate-related actions:
Components Total Component Mitigation activities cost Adaptation activities cost
cost (million USD) (percent of total component (percent of total component
cost) cost)
C1: Mortgage guarantee mechanism 7 NA 30
C2: Innovative financing of affordable housing 5.5 NA 72.7
C3: Technical Assistance and Project 20
2.5
Management
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ANNEX 3: Housing loan guarantee
COUNTRY: Djibouti
Djibouti Affordable Housing Finance Project
1. When the risk of lending with long maturities to a specific category of the population is considered too high for
financial institutions, partial housing loan guarantees intervene as a way to share that risk between the financial
institution and the guarantor (usually a government institution) and therefore to encourage lending to the target
population.
2. Financial institutions examine housing loan applications from borrowers. Those applications that meet the
eligibility criteria of the bank and the guarantee institution are sent to the latter for final approval. If approved,
the loan is disbursed to the client. The guarantee only intervenes when the client defaults to pay back the financial
institution (up to the amount guaranteed). The payment by the guarantor does not stop the foreclosure process.
Even if often lengthy, it remains indispensable to prevent a surge in default rates and to ensure the financial
sustainability of the guarantee fund. In the absence of subsidies, housing loan guarantees do not improve the
affordability of housing loans, but they expand access.
3. Housing loan guarantees are most efficient when:
- They are partial. When financial institutions still have enough to lose if the client defaults, they better
screen eligible clients.
- They intervene in an ecosystem where mortgage loans are relatively developed but do not meet the needs
of the majority of the population.
- They are silent. The guarantee must encourage financial institutions to lend to a target population; but
the target population should not know about the guarantee. When financial education is low, guarantees
can be misinterpreted as subsidies, leading to a high rate of default on loan repayments, which
discourages banks from lending, even with a guarantee.
Examples of housing loan guarantees in Africa
4. Morocco: FOGARIM
The Moroccan Government offers several loan guarantees through TAMWILCOM (formerly Caisse Centrale de
Garantie) to entrepreneurs, students, and home buyers. They include the FOGARIM which was launched in
December 2003. The FOGARIM targets low/and or irregular income borrowers who are first time homeowners in
a context where mortgage loans were previously only accessible to salaried workers. It guarantees between 70
and 80 percent of the loan (depending on the target population) for up to 100 percent financing of a property
worth up to MAD 250,000 (about US$25,000, the maximum price of a social housing unit between 2010 and 2022).
The guarantee intervenes only when the client defaults. In this case, a default means that the client missed nine
consecutive monthly payments.
The FOGARIM is one of several Government interventions, both on the supply side and the demand side, to
improve access to housing. It does not improve the affordability of housing or housing finance, it is aimed at
populations that could technically afford a home (if paid over several years) but did not have access to mortgage
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finance because deemed too risky by lending institutions.
As of April 2022, about 200,000 households had benefitted from FOGARIM guaranteed loans. Loans guaranteed
by FOGARIM represents about 20 percent of all housing loans in Morocco.
5. Senegal: FOGALOG
Senegal launched FOGALOG in 2016 with the goal of expanding access to housing. FOGALOG is a housing loan
guarantee for low and/or irregular income Senegalese who acquire a home for the first time (through purchase
or construction). It also supports access to finance for residential real estate developers as well as investors in real
estate development.
FOGALOG is now being revamped to increase its capacity to support the access to affordable housing finance. It
is composed of several windows, targeting different categories of the population (household working in the
informal sector, the diaspora and low- and middle-income earners with a stable income). It guarantees between
30 and 70 percent of housing loans that finance homes worth up to FCFA 40 million (economic housing, about
US$ 62,840) or up to FCFA 20 million (social housing, about US$ 31,420).
FOGALOG has started slowly and had only benefited 500 borrowers by the end of 2019. With the ongoing
restructuration of the Guarantee fund and the start of the 100,000 homes program, FOGALOG is expected to
significantly increase its activities.
6. Tunisia: guarantee fund for irregular income populations (managed by SOTUGAR)
In June 2019, the Government of Tunisia launched a guarantee fund for irregular income first time homeowners
that purchase or build titled homes (up to TND 150,000 in value for purchase and TND 100,000 for construction).
The guarantee covers 70% of the value of the loan with no requirement of a down payment (up to 100% financing).
Even though the fund benefits from dedicated resources and well-defined intervention mechanisms, no
guaranteed loans had been disbursed by the five participating banks as of 2020.
7. Mali: Fonds de Garantie Hypothécaire du Mali (FGHM)
FGHM was created in 2000 with the support of the Canadian Government. FGHM limits the risk borne by financial
institutions by guaranteeing 50 to 80 percent of the value of the loans disbursed. The home to be financed with
an FGHM guarantee must not exceed FCFA 100 million (home, or land and construction, about US$ 157,110). The
loan must not exceed 90 percent of the value of the home.
By 2020, only 1500 guaranteed loans had been disbursed due to limited funding and weakness of land titles in
Mali. The viability of the fund is seriously at risk with over 65 percent of loss of the committed funds in 2019 which
impacted the engagement of participating institutions.
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ANNEX 4: Housing microfinance
COUNTRY: Djibouti
Djibouti Affordable Housing Finance Project
1. Acquiring a home is hardly possible without access to formal financing. In sub-Saharan Africa, over 95% of people
do not have access to a long-term mortgage. As a result, they continue to rent or they build incrementally, their
revenue financing the construction of their home over time, rather than paying back over several years a
construction realized over a short period of time. Housing microfinance loans have short repayment periods and
small amounts and cannot finance home construction entirely, but they can support the financing of some stages
of construction, reconstruction, or improvement (adding a room, improving insulation, fixing a roof, etc.).
2. With a housing stock that remains largely informal in Africa, housing microfinance loans are well adapted as
they mostly require little or no collateral, and no formal title. Microfinance was initially developed to finance
income generating activities for clients at the base of the income pyramid, and was later developed to meet more
of the needs of low-income populations.
3. Microfinance loans are for small amounts, over a short period of time, and are generally more expensive than
mortgage-backed loans. They are however more accessible to low and/or irregular income populations as they
require no formality of title (land title in the case of housing products) and no formality of income of the borrower.
In the absence of subsidies, housing microfinance improves access to finance, it does not improve affordability.
Examples of housing microfinance experiences
4. Peru: Mibanco
Mibanco is the Peru’s largest microfinance institution and one of the pioneers of housing microfinance in Latin
America. Micasa, its loan product dedicated to housing, had reached over 201,000 clients and 18 percent of the
institution’s entire loan book as of May 2017. Mibanco requires all adult household residents to sign the loan
agreement. In a very competitive microfinance market, the fact that Mibanco offered a product dedicated to
housing, with direct impact on families, helped it retain its clients.
5. Letshego Kenya
In 2012, as Letshego’s clients re uested housing loans, it launched a housing microfinance product of up to
KS500,000 (US$5,000) for 12- to 24-month terms. When it realized that the market for urban rental housing was
booming, Letshego decided to direct its housing loans to this sector. It increased the value of its loans to up to
KS2.5 million (US$25,000) for terms up to 72 months at 14 percent flat interest. With little competition and a
growing market, Letshego’s housing loans were profitable.
6. Kenya Women Microfinance Bank (KWFT)
Dedicated to supporting women in rural areas, KWFT serves over 800,000 clients across the country through a
decentralized network of over 245 offices as well as a mobile banking facility. With high demand for housing
microfinance products among its clients, KWFT launched a dedicated product in 2015. The Nyumba Smart Loan
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product (“Beautiful Home” in Swahili) was designed to help women microentrepreneurs living in rural and peri-
urban locations access decent housing. KWFT’s housing loans average US$ 700 but can reach US$ 10,000. As of
June 2017, KWFT’s Nyumba Smart product reached 38,705 loans disbursed, totaling KSH2,765 million (US$26.8
million).
7. Loans for specific housing-related solutions. Often prompted by targeted financing from investors and donors,
many microfinance institutions have developed loan products that promote sales of housing-related solutions to
increase clean water supply, improve sanitation, generate solar products, or reduce firewood consumption. These
are frequently managed as a subset of housing microfinance loans. Examples of such products include:
- In Peru, Mibanco’s Crediagua finances access to clean water solutions (such as elevated tanks and water
utility connections). It is generally bundled into larger home improvements.
- KWFT offers its clients loans to purchase solar panels, rainwater catchment systems, water filters and
energy-efficient cook stoves. Such loans do not face any risk of fund diversion, as no cash is disbursed.
This direct connection with a specific product requires a tight alliance between the bank and the vendor
to ensure timely delivery, and high-quality products and support services.
8. Select Africa (Kenya, Malawi, Lesotho and Swaziland): housing loans for a specific market niche
Select Africa operates in four sub-Saharan countries (Kenya, Malawi, Lesotho, and Swaziland) since 1999.
Discovering that many of its clients were using personal loans to finance housing, Select Africa decided to target
a housing microfinance market niche: low-income public-sector employees who are excluded from mortgage
housing finance. These target clients represent a stable and less risky market. Loan repayments are secured
through direct payroll deductions.
Select Africa housing loans finance incremental construction over an average of five years, a much longer maturity
than most microfinance loans. Over 60 percent of Select Africa’s loans are dedicated to housing.
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ANNEX 5: Gender gap
This annex presents the gender gaps in access to finance, especially housing finance, in Djibouti and how the
Djibouti Affordable Housing project components will address these gaps. The annex also details actions that will
be undertaken to support women working in the housing sector.
Gender: access to finance and housing in Djibouti
9. The limited data available on access to finance in Djibouti reveals that overall financial inclusion has improved
in the country in the recent years. Even though the number of credit institutions has remained stagnant at twelve,
access to financial products has been improved by an increased proximity of financial institutions to customers
with the opening of new branches and ATMs. In an effort to better serve the private sector, a credit guarantee
fund for SMEs was established in 2018. Loans to households and private sector have sharply increased since 2016.
Figure 1 from the IMF Financial Assessment Survey presents key financial inclusion indicators.
Figure 1: Financial inclusion indicators
Source: IMF Financial Assessment Survey.
10. The microfinance sector in the country is embryonic but is expected to grow once the new regulations currently
under preparation by the Central Bank of Djibouti become effective in the coming years . Between 2019 and
2020, the number of deposits accounts with commercial banks dropped by 13 percent, illustrating the drop of the
number of depositors with commercial banks per 1,000 adults from 62.83 to 69.65. Meanwhile, the number of
deposits accounts with MFIs increased by 42 percent. MFIs are still used primarily for savings: while outstanding
loans from commercial banks represent 24.8 percent of the GPD in 2020 (increase of 3 percentage points from
2019), outstanding loans from MFIs represent only 0.3 percent of the GDP and have decreased by 0.3 percentage
point from 2019. The new regulations will strengthen the microfinance sector, encourage the creation of new
MFIs, and is expected to increase microfinance lending as well as maintaining the increase in savings. This will help
financial inclusion of lower income individuals and reduce gender inequality in access to finance as international
experience shows that microfinance primarily serve women.
11. Even though overall access to finance has improved in Djibouti, there still exists a large gender gap. Recent
disaggregated data on gender access to finance is scarce in the country. Using Global Findex data, figure 2 obtained
from the World Bank Gender toolkit provides the most recent available disaggregated data on some of the key
indicators of access to finance (no more recent data than 2011). Account ownership by women, savings, and loans
from financial institutions are often times almost 50 percent less than men's figures. Moreover, women tend to
rely more on family or friends to help address their financial needs.
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Figure 2: Gender disaggregated data showing inequality in access to finance
Source : WB Gender toolkit
12. Scoping conducted with the Djiboutian banking sector during project preparation has suggested that the gender
gap in access to housing finance is estimated to be on average 20 percentage points depending on the financial
institution. Given that no official data existed on the gender gap in housing finance, a survey was undertaken with
the banking sector during preparation. The results show that loans extended to women or joint titles are on
average 30 percent of housing loans for commercial banks, but this ratio is expected to be lower for Islamic banks.
Additional data collection efforts are under way to specify what prevents some women from accessing long term
loans, but early findings imply that it is related to property ownership and informality. This gender gap is also an
illustration of the overall gender inequality characterizing the country. There is a strong willingness from the
Government to foster equal access to home ownership under the affordable housing project, to improve the
overall security for Djiboutian women.
13. There exist also significant gender gaps in employment in Djibouti. Female labor participation rate remains very
low at 17 percent compared to more than 44 percent for men. Unfortunately, there is no available gender
disaggregated data on employment in the housing sector. Knowing that the housing sector remains male-
dominated, figures of employment in the industry give a good estimate of what could be expected: as shown in
figure 3 below there is a gap of more than 50 percent between male and female employment in the sector. The
project will provide an opportunity to support women working in the housing sector through capacity building,
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networking and financial support.
Figure 3: Gender and labor force participation
Source: WB Gender toolkit
14. Djiboutian regulators have demonstrated a willingness to improve women's financial inclusion and economic
independence. According to Women, Business, and the Law, existing regulations prohibit discrimination in access
to credit based on gender in Djibouti. A more relevant legal indicator for the housing sector is the equal ownership
right to immovable property and spouses' equal administrative authority over assets during marriage. This implies
that women can own or co-own houses and use them as collateral for loans. There remains room, however, for
improvement on other aspects: surviving female spouses do not share equal rights to inherit assets and same goes
for daughters compared to sons. The project will address these inequalities by proposing financing solutions which
incentive formal co-ownership of houses for joint mortgage loans.
Project actions addressing the gender gaps
15. The project includes actions to address the identified gender gaps around t o pillars of the World an Group’s
Gender Strategy (FY16-23): (i) removing barriers to women's ownership and control of assets; and (ii) removing
constraints to more and better jobs. Under the first pillar, project components 1 and 2 will support women's legal
ownership of housing. Under the second pillar, the project component 3 will support women working in the
housing sector. The project will also support the Guarantee Fund, banks, microfinance, and ARULoS to continue
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implementing best practices in monitoring and evaluation through disaggregated data collection.
16. To ensure gender related actions are successfully implemented and monitored, ARULOS will have dedicated
gender specialists to support the activities. ARULoS already has a trained gender specialist which will be
supported by an additional staff hired through the project. The gender specialists will constitute a help team who
will support the women beneficiaries of the project as described below. They will also be responsible of
disaggregating the data collected from stakeholders.
17. Component 1: Mortgage guarantee mechanism. Under this component the project will focus on improving
women’s financial literacy and their ownership of houses. Hence, the help team will receive relevant training on
existing regulations surrounding property rights and financial incentives/instruments destinated to women-only,
even outside of the guarantee fund. They will then prepare resources to foster the financial literacy of women
applicants and provide application support. The project sets a target of 40 percent of mortgage loans guaranteed
to be for female owned or co-owned homes.
18. Component 2 Innovative financing of affordable housing. Under this component which focuses on self-
construction financing for eligible households, the help team will raise women's awareness of the self-
construction program and ensure the eligible beneficiaries are trained in using disaster-resilient and
environmentally sustainable methods/materials in line with the project goals related to climate vulnerability
reduction. The project aims to raise the current figure of 25 percent female beneficiaries of ARULoS' self-
construction program by 5 percentage points to 30 percent.
19. Component 3: Technical Assistance and Project Management. Under this component the project will focus on
fostering the participation and growth of female workers in the housing sector. The activities include:
a. Training of women on climate resilient and energy efficient construction techniques.
b. Mapping female workers in the housing sector with their specialty and create a readily available
database for the government and private sectors building companies.
c. Conduct awareness raising campaigns fighting the stigma of women working in male-dominated
sector and build the government capacity in regulatory framework fostering women's
participation in the housing sector.
Closing the gender gaps: project indicators
Components Project Indicator
C1: Mortgage guarantee Number of affordable mortgage loans guaranteed extended to women or in new joint
mechanism ownership (Target: 800 loans, 40 percent of total project target)
C2: Innovative financing of Number of women benefitting from self-construction, owning the title or in new joint
affordable housing ownership (Target: 30 percent of female borrowers)
C3: Technical Assistance and ARULoS will hire an additional gender staff to support women’s access to housing finance,
Project Management and the participation of women in trainings on energy-efficient construction
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ANNEX 6: Financial Intermediary Analysis
Details on Project Design
1. Components 1 and 2 support the greater availability of housing finance for low and middle income households
through i) the creation of a dedicated mortgage guarantee window within the existing, World Bank funded, credit
guarantee fund ii) a pilot project aiming at incentivizing financial institutions, and particularly microfinance
institutions, to lend housing microfinance loans to very low income households at preferential conditions, within
the context of an existing government subsidized self-construction program.
2. The provision of this financing is facilitated by i) the credit guarantee fund of Djibouti (FGPCD) and ii) the Urban
Rehabilitation and Social Housing Agency (ARULoS) which acts as an intermediary channeling resource to
Participating Financial Institutions (PFIs), including commercial banks and microfinance organizations (MFIs).
These components will be implemented through the following flow of funds shown in the figure below.
1. Partial credit guarantees
ARULoS FGPCD Lending
World Bank
institutions
Notes: the reflow between the FGPCD and financial institutions correspond to the payment of the guarantee fees as well as any
reimbursement owed to the guarantee fund following a completed foreclosure process.
2. ARULoS innovative financing pilot sub-component 2.a Phase 2
ARULoS microfinance
World Bank
lenders
Notes: the reflow between the ARULoS and financial institutions correspond to the reimbursement of the concessional loans and will go to
an escrow account to support households who lost their house in accidental fires, a current governement programme.
3. The FGPCD is a financial institution, established in 2018 and regulated by the Central Bank. It has benefited from
World Bank support. As part of its SME financing activities, the FGPCD has granted more than 51 guarantees for a
total amount of financing mobilized of nearly US$1.3 million. Its capitalization is about US$4 million (DJF 700
million). The FGPCD obtained the approval of the Central Bank in 2021 to aim for a multiplier effect of 1 to 5
between the volume of capitalization and the amounts of guarantees granted to commercial banks. In terms of
its governance, the Fund already has a credit committee made up of five people, including external
representatives. It has signed bilateral agreements with seven conventional banks, to which it grants guarantees.
The FGPCD has also just signed a partnership agreement with the Guarantee Fund of Morocco, a fund that has
been supported by the World Bank and that serves as a model of its kind in the framework of affordable housing
finance projects
4. ARULoS is a state agency under the MVUH. ARULoS has been identified as the implementation agency for
Component 2 of the Project. ARULoS’ main mission is to i) develop land, ii) create social housing at affordable
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costs iii) promote the mechanism of self-construction, iv) put in place procedures that can facilitate access to land
tenure security. Since 2011, ARULoS has been running a program for the reconstruction of the homes of low-
income households that were destroyed by fire. Within this program, ARULoS buys the construction materials and
the labor for self-construction for up to DFJ 1 million (US$5,689) and the beneficiaries pay back over five years at
cost. This program also includes the systematic formalization of the land title.
Eligibility Criteria for Participating Financial Institutions (PFIs)
5. The guarantee program as well as the pilot program to support the development of housing microfinance
require individual financial institutions to be licensed and regulated by the Central Bank. The FGPCD pre-screens
groups of financial institutions depending on their type of banking license. Currently, all regulated and licensed
commercial banks can participate in the guarantee program. The FGPCD is currently working on opening its
guarantee offering to regulated microfinance institutions. In addition to its own assessment capacity, the FGPCD
also relies on the regulatory and supervisory capacity of Central Bank to alert them of any individual bank-level
risks. To date, none have been received given the stability of Djibouti financial sector and the prudential indicators.
ARULoS will follow a similar approach for the selection of financial institution eligible to receive the concessionary
financing for the line of credit for self-construction under Component 2.
6. All FGPCD and ARULoS’ partners are regulated and licensed financial institutions, that are in good standing with
BCD. The Project will support the strengthening of the institutional capacity of both institutions with a focus on:
strengthening their M&E framework, improving risk management, introduction of market-based incentives for
PFIs as well as increased capacity to evaluate the creditworthiness of PFIs, to ensure they can perform their
intermediation role.
Financial soundness of the banking sector
7. Commercial banks’ financial health and the quality of their credit portfolio have improved in recent years.
Deposits and loans have increased, and banks have been largely profitable. The quality of the loan portfolio has
improved year-on-year. The deterioration rate of the portfolio stood at 13.2 percent in 2020 compared to 16.3
percent the previous year.
8. In 2020, activity in the banking sector increased by 19.9 percent compared to 2019. The total balance sheet
amounted to 549,691 million DJF, against 458,397 million DJF the previous year. This growth mainly benefits
interbank transactions (+20 percent) and customer loans (+18 percent). With an annual increase of 20 percent,
the main items of employment in credit institutions have seen an upward trend.
9. Despite the slowdown in the national economy, credit institutions continued to strengthen their equity levels
(+6.681 million DJF between December 2019 and December 2020) due to the non-distribution of dividends
imposed by the Central Bank to cope with the COVID-19 crisis. Treasury deposits and those of foreign
correspondent banks fell by 4 basis points and 25 percent respectively at the end of 2020. The "Miscellaneous"
item, consisting mainly of miscellaneous commitments, showed a decline of nearly 2 percent at the end of 2020.
The equity/Total Deposits ratio remained relatively stable at 11.3 percent between December 2019 and December
2020.
10. After increasing by 11.2 percent in 2019, the outstanding balance of loans to the economy increased by 18.4
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percent, thus going from 126,100 million DJF to 149,340 million DJF in 2020. This increase related only to long-
term credits which increased in volume by 19,000 million DJF between December 2019 and December 2020.
However, the share of credit to the economy relative to GDP remained relatively stable at 26 percent from one
year to another. This ratio of credit to GDP remains relatively low and is explained by the persistence of structural
factors that hamper the development potential of the financial sector, such as the low access to financial services
of the adult population and the relatively high operating and lending costs of banks.
11. The average interest rate on outstanding loans granted to individuals increased by 0.4 percent over the observed
period. The rate increase concerned both overdrafts (11 percent in 2020 against 10.56 percent in 2019) and
personal loans (10.2 percent in 2020 against 8.8 percent in 2019). Individuals benefited from a 0.62 percent
reduction in rates on mortgages, which fell from 8.16 to 7.54 percent between December 2019 and December
2020.
Market Efficiency Issues
12. The size of the commercial banks home loan portfolio is between 8 and 40 percent. Despite the virtual absence
of an interbank market and the challenges of external refinancing, banks are particularly liquid, and all have large
and stable deposits, which in most cases allow them to offer loans with long maturities (15 to 20 years) at interest
rates of around 7 percent, compared with an average of 10 percent in Eritrea and Somalia and 12.5 percent in
Ethiopia. However, Islamic banks have difficulties in offering housing loans with maturities exceeding 8 years
mainly due to two reasons: (i) the challenge related to the compliance with the Islamic Law concerning profits,
which makes it difficult to offer long maturities under the risk of too much profit, and (ii) the difficulty that Islamic
banks have to guarantee a fixed rate over a long period without taking financial risks. Reported delinquency rates
on the housing sector are low (less than 1 percent on average).
13. Despite the recent increase in activity, the mortgage market remains small and services mostly high-income
households. Outstanding housing loans have increased between 2011 and 2018, reaching nearly DJF 32 billion at
the end of 2018 (US$170 million)19 compared with just under DJF 10 billion at the end of 2011. These loans
represent 25 percent of total outstanding bank loans, or just under 10 percent of bank deposits. During 2018,
banks granted nearly 1,000 new housing loans20 but access remains limited to households with a regular monthly
income above US$1,500, so not for economic or social housing. Bank competition seems to be greater than in the
past (longer terms, lower margins, effective interest between 7 and 9 percent compared to 11 percent previously)
but access conditions remain restrictive for many households.
Terms and Conditions
14. The table below summarizes the main characteristic of the partial guarantee. It will be open to mortgage loans up
to DJF 10 million that meet regulatory standards.
Summary
Partial Credit Guarantee for mortgage loans
Eligible areas No geographical limits
Up to DJF 10 000 000
Eligible mortgages
(US$56 000)
19 BCD.
20 BCD survey.
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Eligible sectors Housing
Loan purpose Purchase of formal housing (completed constructions)
Currency Loans in DJF only
Guarantee 50 percent of the loan amount
Main features Portfolio PFI default limit: 10 percent
Guarantee fee between 0.25 to 0.5 percent of the loan amount
On-lending rates to
Determined by PFIs
borrowers
Evaluation of eligibility criteria upon application + post-review of usage
M&E
of funds by sample of loans
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ANNEX 7: Economic Analysis
1. The economic analysis of the project focuses on the value added of project activities to the Djiboutian economy
and the rationale behind the World Bank's intervention. The computation of the benefits takes a simple approach
of comparing the components costs to the benefits for the primary beneficiaries. The analysis is both quantitative
and qualitative. The quantitative aspect focuses on measurable outcomes directly linked to the project activities
such as houses built with the new funding supported by the guarantee fund. The qualitative narrative focuses on
medium to long term outcomes to which the project contributes such as household wealth, health, and food
security.
2. The project has a direct impact on the following primary beneficiaries: eligible households, construction sector
workers, private financial institutions, and the government of Djibouti. The project component 1 establishing
the housing guarantee fund directly targets underserved households by improving their access to finance.
Component 2 - inclusive finance -will provide housing for self-constructing households and create direct jobs for
construction sector workers. It will also improve the skills of youth and SMEs in the construction value chain to
support self-construction, improving the employability of youth and reducing unemployment. Component 3 will
support policy reforms to lower the construction cost, making it possible for developers to supply affordable
housing. Project activities will have a positive impact on government budget from the additional taxes perceived
on loans and building activities.
Assumptions
3. There are two key cashflows in the economic analysis, tax revenues for government and financial inflows for
private lenders and developers. The taxes can be divided by category of taxpayers: lenders and developers for
corporate taxes on profits, property taxes for owners, and income taxes for workers. In Djibouti, there is a tax of
15 percent paid on land transactions, which is included in the model.
4. The financial analysis reflects the direct profits made by lenders and developers. The profit margin of developers
is estimated at 10 percent based on the average cost of privately developed housing units sharing similar
characteristics with the affordable housing units supported by the project. On lenders' side, profits average 0.50
percent on mortgage loans.
5. Informality is a key parameter affecting assumptions on tax gains and job creation. Even though workers in the
construction have higher wages than the average, they are mostly informal and lack job security. Given that
ARULoS will contract registered companies, we assume a percentage of subcontracted informal workers of 40
percent. The project could provide an opportunity to foster formalization through the support to skills. This will
result in higher expected returns.
Results
6. The project added value is confirmed by the analysis which returned a positive IRR of 27.2 percent. The project
is fully funded by the World Bank with no government contribution. The key assumptions are the following. Since
the current formal housing production is estimated at 300 units/year, the project is expected to provide the
financing necessary to incentivize developers to increase affordable housing supply by 10 percent more units each
year. The analysis also follows the commonly accepted figure in the literature of 6 jobs created by unit built. The
table below presents a summary of the cashflows which make positive contributions towards the overall IRR
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results. The analysis covers the expected results from project completion, in 6 years when an estimate of over
2,000 units will be completed, to 22 years where the affordable housing supply would have reached more than
19,000 units. The discount rate is obtained on the basis of the interest of 7 percent applied on long term loans.
Table 1 – Net Present Value of cashflows generated by the project (USD millions)
6 Years 10 Years 15 Years 20 Years 22 Years
Developer Profit 5.9 14.0 25.3 40.9 48.7
Lender Profit 0.8 2.8 6.4 11.6 14.3
Income Tax 10.7 25.3 45.5 73.6 87.7
Developer Tax 2.0 4.7 8.4 13.6 16.2
Property Tax 8.3 32.3 76.5 147.2 184.9
Lender Tax 0.3 0.9 2.1 3.9 4.8
Total Project Cashflows (NPV) 27.9 80.1 164.3 290.9 356.6
7. The project component 1 will also have positive non-financial impacts on the 4,000 households who will be
benefit from mortgage loans and self-construction loans. There is a consensus in the literature on the impact of
housing projects on overall well-being of beneficiary populations.21 The improved living conditions would lead to
improved health due to better sanitation, safety, and social inclusion. It could also provide collateral which could
be leveraged to fund other economic activities which in turn will lead to a rise in household income. Amortizing a
mortgage loan is also a form of savings which contributes to wealth building and provides retirement income.
8. The project component 2 will also positively impact job creation. The literature assumes that an average of six
jobs is created per unit under construction. The direct impact of this project is the creation of around 2,100 jobs
in the housing value chain if 350 units are financed with self-construction financial solutions. This is an additional
financial security provided to 2,100 households with various impact on health, education, food security, safety,
and social inclusion. These figures are an underestimate since the project will also contribute to employment in
the housing sector as well as skills development. The various trainings and certification systems established under
the project will lead to improved competitiveness and innovation especially in resilient and sustainable
construction techniques.
Stress testing, sensitivity analysis and further areas of work
9. The robustness of the IRR calculation was assessed using two scenarios with respectively lower and higher
parameters than the base case scenario. The project benefits from different lines of positive cashflows which
often compensate each other resulting in a robust positive IRR. To stress the model, all key parameters have been
either decreased or increased simultaneously but did not lead to a negative IRR. The table below presents the
stress test scenarios.
21How Does Housing Affect Health? Braveman P, Dekker M, Egerter S, Sadegh-Nobari T, and Pollack C, Robert Wood Johnson Foundation,
2011; N. Maqbool, J. Viveiros, and M. Ault “The Impacts of Affordable Housing on Health: A Research Summary. Center for Housing
Policy” 2015; V. Gaitan “How Housing Can Determine Educational, Health, and Economic Outcomes” Urban Institute Initiative, 2018.
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Scenario Low Base High
Developer Profit Margin 5% 10% 15%
Income Informality 30% 40% 50%
Property tax payment rate 20% 25% 30%
Mortgage down payment Requirement 3% 5% 8%
Lender Profit Margin 0.25% 0.50% 0.75%
Ratio of Indirect to Direct jobs 0.85 1.00 1.15
Proportion of Labor costs per unit 20% 25% 30%
IRR 19.1% 27.2% 38.1%
10. The limited data availability in Djibouti made the analysis reliant on many assumptions. The model can be
improved by including a detailed breakdown of all the construction inputs, including all taxes paid in the life of the
housing unit and the mortgage loan, and a deep dive into other impacts in terms of jobs in related sectors.
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