Finally, a new mortgage standard that targets the informal sector
The recent launching of a uniform mortgage underwriting standard by the Central Bank of Nigeria (CBN) in conjunction with Mortgage Banking Association of Nigeria (MBAN), Nigeria Mortgage Refinance Company (NMRC), Federal Mortgage Bank of Nigeria (FMBN) and the Nigeria Deposit Insurance Corporation (NDIC) marks a major turning point in Nigeria’s mortgage system.
The new standards, which is focused on the informal sector of the economy, will, for the first time, attempt to bring the operators in this sector, who constitute about 67.54 million of Nigeria’s 81.15 million workforce, into the mortgage and housing net.
There is high expectation that the new mortgage standard is going to be a game-changer for the economy in the area of housing and homeownership because it is going to increase access to housing by narrowing the affordability gap which has been blamed for the wide housing demand-supply gap in the country.
Operators in the industry have always argued that the housing deficit has been closed because of the exclusion of the informal sector, which is the largest segment of the Nigerian population, from having access to mortgages to build their own homes. The informal sector is estimated to account for over 60 percent of the country’s GDP, which means that housing provision will not gain traction unless the country is able to bring them into the housing net.
But the launching of the new underwriting standards has put these fears to rest as it will capture the self-employed and business owners categorised under the Micro, Small and Medium Enterprises (MSME).
On paper, anyone who earns up to N3,000 and above monthly, is entitled to a mortgage loan but practically, even those who earn several times the amount has no access to mortgages. The National Housing Fund (NHF) set up to facilitate loans for those who want to own their own homes have been largely ineffective. Workers have deductions made from their salaries monthly but hit a brick wall whenever they attempt to access mortgage based on their contributions.
We, therefore, commend the CBN and its allies for the launch of this standard and hope that, unlike earlier failed efforts to bring the informal sector into the mortgage net, this current effort would succeed. We are not unaware of the fact that most initiatives solely funded and run by the government as social housing programmes were usually not successful. But this is private-sector driven, hence our hope it will succeed.
We share the optimism of Adedeji Adesemoye, Head, National Housing Finance Programme (NHFP) at the CBN, who believes that the new initiative will give those without structured salaries access to mortgage loans for their housing needs. It is just proper that this new standard does that.
Suggestions had been made in the past for the inclusion of informal sector in the contributory pension scheme, which is hoped will help in narrowing the housing affordability gap, which has been estimated at 17 million units. That suggestion is yet to receive the needed attention that it should.
We also commend the effort of the CBN at giving fillip to the plans to introduce a public private partnership scheme that seeks to increase access to housing finance by selecting 34 primary mortgage banks and four commercial banks to stimulate housing finance for low-income earners in the formal and informal sectors.
The banks will join nine other micro finance banks in the ‘My Own Home’ scheme, which is an offshoot of the Nigeria Housing Finance Programme (NHFP) set up by the Federal Government and implemented by CBN with the support of World Bank’s $300 million loan.
NHFP was primarily set up to catalyse the growth of the housing sector and also to increase access to housing finance and housing in Nigeria. It is also aimed to inspire young Nigerians on the need to key into mortgage process and start owning homes.
It is expected also that NHFP will be creating the enabling environment for strengthening the nation’s housing sector by setting up sustainable framework by mortgage originators such as financial institutions to access long-term refinancing. The scheme is also expected to scale-up mortgage and housing finance awareness through mortgage literacy, customers’ right, responsibilities and education.
We have high hopes that the scheme would revamp the housing finance sector and also make access to housing finance a lot easier, especially with the NMRC which has a mandate to increase liquidity in the mortgage finance system, by facilitating long-term funds for refinancing of mortgages backing it.