Where are the mortgage products for informal sector?

In Nigeria, good ideas abound. The country is never in lack of good ideas. What is lacking, however, is the will power to implement ideas. There are so many ideas that have been initiated and launched by the government and its agencies that have never outlived the day of their launching.

A few years ago, the Federal Mortgage Bank of Nigeria (FMBN) packaged and launched a good scheme described then as a game changer for the informal sector operators. It was a mortgage product called ‘Informal Sector Co-operative Housing Scheme’ aimed at bringing that sector of the economy into the mortgage net to enable the operators own homes through mortgage loans.

The product with the theme ‘Affordable Home Ownership Through Co-operative Financing’ was launched as part of  the apex mortgage bank’s efforts at bridging the housing demand-supply gap,  and giving the vast majority of  this class of Nigerians the opportunity to have decent and affordable homes.

The informal sector in Nigeria comprises low income earners struggling to earn their daily living such as artisans, the road-side mechanics, the market traders, farmers and so on. Basically, these are individuals who do not wear suits, ties or polished shoes to work in air-conditioned offices, yet they contribute significantly to the national economy.

The National Housing Fund (NHF) scheme has always been accessible by only those in the formal sector, but by the launching of this new product, FMBN assured that Nigerians in the informal sector would be registered as bona fide contributors to NHF and become eligible for affordable loan to build, purchase or renovate residential accommodation.

Bola Ogunshola, who was the director, Loans Production/Securities Issuance and Market Development, at the time, explained that the loan facility under the scheme could be accessed in one of two ways, namely Cooperative Housing Development Loan (CHDL) and the Cooperative Housing Funds Loans (CNL).

The CHDL enables a cooperative society that has acquired a plot of land to develop houses for allocation to its members. The parcel of land should have title in the name of the society which would act as the facilitator on behalf of its members and in the loan transaction and would also facilitate construction of the housing units.

To qualify for this loan, the cooperative society must have been in existence for a minimum 12 months; the proposed estate must have good title that can be sub-leased to individual allottees/purchasers of the housing units therein, and  the tenor for the loan shall be 24 months with a moratorium period of 12 months at an interest rate of 10 percent.

CNL, on the other hand, offers individual cooperative members a mortgage loan to buy a house developed through the cooperative housing development loan or to renovate an existing one. Individual cooperator shall enjoy the housing loan at 6 percent interest rate repayable over a maximum period of 25years. “Cooperators shall make a down payment of 15 percent of the approved selling price/value or improvement as their personal stake in the loan”, Ogunsola informed.

Five years down the line, Nigerians are yet to hear of milestones or even the status of this scheme, giving way to the suspicion that it must have gone the ‘Nigerian way’. Government, at various times, has adopted strategic policies aimed at integrating the informal sector into mainstream national economy. Such policies include the promotion of small and medium scale enterprises (SMEs) , directive to commercial banks to engage in rural banking , encouragement of micro- finance banking  among others.

These policies are usually aimed at enhancing the contribution of the informal sector to the growth of Nigeria economy.  Unconfirmed report indicates that the informal sector in Nigeria constitutes about 85 percent of the country’s total workforce. In terms of economic output and employment, the informal sector accounts for as high as 60 percent of gross domestic product and about 70 percent  of total employment across all economic sectors.

The informal sector generates about 6.2 percent of aggregate employment in the United States, 22.3 percent in China, about 50 percent  in Israel and 80 percent in India which means that given the needed support and regulatory frame work, the informal sector should be a major facilitator in fighting unemployment and poverty in Nigeria. But this is yet to happen here.

In her speech at the launch, the then minister of housing, Amal Pepple,  described the scheme as a significant step towards improving access to affordable housing to a considerable number of people who may not have the opportunity of owning a home, in their life time, unless they are assisted to do so.

“It is important to resolve the housing challenges of this important segment of the population  who constitute about 60 percent of the productive labour force in urban areas; housing finance in Nigeria is encumbered; there is scarcity of long term funds for housing/mortgage finance; there is also unsatisfactory state of housing delivery which is accentuated by other factors such as high cost of land acquisition, difficulty  in obtaining land title, high cost of perfecting  legal processes and of building materials”, she noted.

The minister noted that the new product was remarkably different from the existing NHF; Estate Development Loans (EDL) for estate developers and the Cooperative Housing Development Loan (CHDL) which are for formal and private sector operators, adding that the new product has been designed  specifically with the informal sector operators in  mind to enable them to have access to cheap, reliable and affordable funds, with more relaxed condition for  access.

Pepple hoped to witness the handover of home keys to the lowly placed in the society, urging  all stakeholders including primary mortgage banks, estate developers and cooperative societies to lend their support to this venture in order to ensure sustainability.

But, from all indications, the scheme ended its journey with the minister’s closing remarks. The country has had other ministers since after Pepple and little or nothing is heard about this scheme. However,  Nigerians are hoping that with the ‘change’ government in place and in the spirit of economic diversification, the mortgage industry might be given deserved consideration and attention.

Chuka Uroko