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Cagamas, ADB to Develop Green, Affordable Housing Finance for Malaysia

Date Published
October 14, 2022

Green bonds can help countries raise funds for affordable housing with more energy- and resource-efficient designs. Photo credit: iStock/simpson83.

Cagamas, the National Mortgage Corporation of Malaysia, is looking to scale up financing for green housing in the country, particularly for low-income households headed by women. It has partnered with the Asian Development Bank’s (ADB) Women Financial Exchange (WFX) and entered into a technical assistance agreement last month to explore and support sustainable and green housing finance opportunities.

Cagamas is the second largest issuer of debt instruments after the Government of Malaysia and the largest issuer of AAA corporate bonds and sukuk in the market.

WFX is a new initiative of ADB to support financial institutions and their women borrowers through innovative solutions.

Expanding the green mortgage market

“We want to ensure that affordable green housing is accessible to lower-income home buyers, whilst reducing the overall environmental footprint of the housing sector,” said Cagamas President and Chief Executive Officer Datuk Chung Chee Leong. “We aim to complete the study within a period of one year. The findings will produce knowledge on how the green mortgage market could be expanded, including to the B40 (low-income) and M40 (middle-income) and female-headed household segments. These can inform the issuance of a future Cagamas green bond/sukuk (Islamic bonds) to support these market segments.”

The agreement was signed by Datuk Chung and ADB Private Sector Financial Institutions Division Director Christine Engstrom at the “Developing and Financing Green Housing in Asia” conference organized by Cagamas in Kuala Lumpur on 21 September. The event was supported by the ASEAN Catalytic Green Finance Facility and the ASEAN+3 Asian Bond Markets Initiative.

ADB’s partnership with Cagamas will explore “opportunities to create a sustainable and green housing finance ecosystem in Malaysia,” said Engstrom. “Supporting green residential housing supply through sustainable construction methods to ensuring proper standards and quality control, as well as ensuring adequate financing, are all of utmost importance in contributing to this outcome.”

“Addressing climate change impacts and supporting our private sector clients with business solutions is a key priority for ADB. Our partnership with Cagamas is a significant step in addressing the impacts of climate change in housing, while also ensuring that low-income segments, including women, are not left behind,” she said.

Greening the buildings and construction sector

According to the International Energy Agency, the buildings and construction sector accounted for “39% of energy and process-related carbon dioxide (CO2) emissions in 2018, 11% of which resulted from manufacturing building materials and products such as steel, cement and glass.”

“Building and ensuring the resilience of our physical infrastructure has become both a moral and economic imperative, and key to ensuring our people’s resilience,” said Malaysia’s Finance Minister Zafrul Aziz in his keynote address at the conference. “Holistically, the transition and implementation of green practices across all sectors of the economy will require the deployment of significant resources, both financial and nonfinancial.”

“While we have made significant inroads on our path to sustainability, more can and must be done,” he said. “We urgently need to scale up support using innovative approaches, and this is where sustainable finance development in the financial sector will play a significant role.”

Innovative business model

An ADB report noted that “Cagamas has contributed to the building of a sustainable housing finance system in Malaysia by continuously innovating its business model to meet the liquidity and capital needs of financial institutions.”

Cagamas was established in 1986 under a national plan to promote homeownership and the growth of the country’s secondary mortgage market. It issues bonds and sukuk to finance the purchase of housing loans from financial and nonfinancial institutions to encourage further expansion of affordable financing for houses.

To date, Cagamas said it has issued RM1.70 billion (about $367 million) worth of sustainability-related bonds and sukuk. Proceeds were allocated in accordance with its Sustainability Bond/Sukuk Framework, which is aligned with internationally recognized market principles, standards, and best practices to support the growth of Malaysia’s social and green finance market.