Lot Ownership - Credit Availment Quadrants

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What constraints are preventing lot owners from accessing credit? How can lot owners get over these constraints? My colleagues and I have been going over these questions as we work on an assignment to enhance access to credit through property rights.

Years ago somebody told me that the first thing to do in any development effort is to look for “Dollente” - the ones in pain. Who are the people experiencing problems, whom we want to help? So I started looking closer at our target population: lot owners.

Lot owners may be thought of as belonging to two groups: those with titles, and those without titles. Now you may ask, "How can a lot owner not have a title? Don't you have to have a title first before you can be considered a lot owner?"

Lot ownership is something like being a champion boxer and winning a belt. You first have to beat your opponent fair and square - that makes you the champion. Then they give you the belt (and the title) to recognize your championship. A lot owner may possess all the requirements of the law; still he has to apply for a title to his land. 

Why bother? Because banks require security for loans, and one of the best securities is land, represented by its title. Banks don’t accept untitled lands as collateral. This is why the Peruvian economist Hernando de Sotto in his book “The Mystery of Capital” argues for easier titling of lands - because it allows people to use their land not only as assets but also as capital.

According to reports from an earlier land administration project, there are about 24 million parcels of land in the Philippines that can be titled. Only about half of those lands are actually titled. Does this mean that 50% of lot owners are title holders, while the other 50% are not? No, for many reasons. One, some people own several parcels of land. Corporations and businesses - owned by many individuals - own land. And some of the parcels that can be titled may not be occupied at all.

Still, we can say that lot owners can be divided into two groups - those who have titles and those who don’t.

Another way to make a distinction between lot owners is on whether they are accessing credit or not. Some lot owners, for various reasons, are taking out loans. Others, also for various reasons, are not. 

The decision to access credit (or not) cuts across our first differentiation of lot owners. There are lot owners with titles who get loans, and there are lot owners with titles who do not get loans. 

At the same time, there are lot owners without titles who are able to get loans (some banks accept Tax Declarations, although loans supported by Tax Declarations may still be considered as non-secured), while there are also lot owners who don’t have titles who also are not interested in taking out loans.

Titles
Credit Availment

Have Titles
Don’t have Titles
Accessing Credit
 Quadrant I - Lot Owners who have Titles and are accessing Credit
 Quadrant II - Lot Owners who don’t have Titles but are accessing Credit
Not accessing Credit
 Quadrant III - Lot Owners who have Titles but are not accessing Credit
 Quadrant IV - Lot Owners who don’t have Titles and are not accessing Credit.

This differentiation of our target population allows us to appreciate the challenges and constraints facing each segment. For example, a lot owner without a title can’t use his land as collateral. While a lot owner with a title can offer it as collateral, he faces another set of obstacles - such as complying with all documentary requirements of the bank, or waiting for registration of the mortgage.

Differentiating between segments of the target population also allows us to design interventions that are most appropriate to each segment. Obviously lot owners who don’t have titles to their lands need help in getting their titles. A loan product specifically designed for the Residential Free Patent or the Agricultural Free Patent can make it easier for holders of these kinds of titles to get loans.

This is good old market segmentation. Understand how your market can be sub-divided into segments that share common characteristics and needs, then design a product or service for each segment. The telephone companies do this with their premium offerings and “unli” promotions. Airlines do this when they offer First Class, Business Class and regular seats. Works just as well with development reform.


What are the distinct segments of the population that you are seeking to help?

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