CBN selects 8 MFBs for housing microfinance scheme

Central Bank of Nigeria (CBN) has selected eight top microfinance banks (MFBs) to facilitate Housing Microfinance delivery in the country and help close the over 17 million housing deficit.

The CBN will support the MFBs with two technical firms that will help them with product development and construction of technical assistance, which the apex bank authorities see as very critical to successful housing microfinance delivery.

Adedeji Adesemoye, head, National Housing Fund Programme (NHFP) at the CBN, disclosed this in Abuja over the weekend at the second Housing Microfinance Academy organised by Lafarge Africa plc.

Housing microfinance “seeks to fill the void created by the traditional housing finance and building on the lessons of the recent Microfinance revolution. It shows how the shelter needs of the poor can be financed in a way that is economically viable, affordable, consistent with tested methods of delivery of Microfinance services to the poor. It is microfinance service to the poor, it is not a mortgage. Housing Microfinance is a component of the Nigeria Housing Finance programme and we have started to deliver on it,” Adesemoye said.

With the model, the CBN is targeting the informal sector, which is the larger part of the economy of developing countries. Adesemoye explained that this is important because with access to finance, people in the lower income bracket can build decent homes in well laid out areas.

“We are not building slums, we want to avoid high cost of urban renewal, and this will focus on the larger part of the segment of the country. Most of the people who have been borrowing money from MFBs have been using them largely to build houses so what we are doing is not all together new,” he said.

According to Adesemoye, the institutions that will participate include licensed Microfinance banks with state or national licenses with large assets, that will fully comply with microfinance laws and regulations, prudential and supervisory standards. “That means they have capital adequacy with robust capital and we will be looking at the possibility of having tier two capital.”

He explained that this would be discussed between the investors and equity owners so that they have tier 2 capital that is long and these institutions can always move on along this line because we would need to have confidence that the institutions have funds with longer gestation. He added that they must have strong risk management and their loan loss provision must be within the bands and lower than their peers.”

In addition, “they must be sound in our rating and fully sustainable in covering their operating costs both cost of capital and adjusted basis, they must also have positive net income for the current year, immediate past year and the possibility of continuing to be profitable, their audited financial statement must be unqualified for the past two years.”

The qualified MFBs are also expected to have well defined policies and written procedure for management of all relevant financial risk and acceptable risk profile. The institutions’ governance structures “must be fit and proper board, qualified and experienced managers that can guarantee adequate organizational oversight, internal audit and control and institutional capacity, adequate management information system is required.”

Adesemoye stated that “in regulation, CBN’s future prospect is to move on from the 24 months obtainable now into 36 months since survey of those that are in the industry and those who have the potential to deliver, indicate that they will require between 24 and 36 months to complete the circle of payment.

Meanwhile, Lafarge Africa has engendered the development of a MicroMass approach to housing in partnership with the Agence Francaise Developpement (AFD) and International Finance Corporation (IFC).

The action plan for MicroMass concept involves building in mass quantities through microfinance funding, with opportunity for individuals to own a core unit immediately and liberty to expand at their pace. It is also designed to help microfinance institutions in Nigeria participate more actively in the vast construction market at low risk, and reach out to local investors to reduce their cost of funding.

Welcoming participants at the meeting, Loren Zanin, Lafarge Africa’s Aggregates and Concrete director told participants that the challenge of providing access to housing for low-income earners provides an opportunity, which is fully aligned and central to the company’s strategic objectives.

According to him, providing access to financing to low income families is not enough, as the lack of knowledge on how to design and build a house properly is another major challenge.

“This is why Lafarge Africa provides housing microloan borrowers with free technical assistance to help them throughout the construction project, from the preparation of the drawings, to the optimization of the bill of quantities, to the supervision of their job sites,” Zanin said.