The recent declaration by the African Development Bank (AfDB) that Nigeria is West Africa’s largest market with great potential to be a main driver of regional integration considering its population, contained in the West African Mid-Term Review and Regional Portfolio Performance Review Paper 2011 – 2015 of the AfDb has drawn arguments from economic experts in the country that there is more, yet undisclosed reasons by the federal Government in its steps to source $2 billion loan to assist in the implementation of its policies and programmes this year. In this special report, Sylvester Enoghase, Andrew Airahuobhor, Emmanuel Okwuke, Abel Orukpe, Bamidele Ogunwusi and Olamide Bakare examines the issues and reactions of Nigerians to the loan.
The launch of the Nigeria Mortgage Refinance Company (NMRC) by President Goodluck Jonathan, on January 16, 2014 seems to be what the stakeholders in the industry are waiting for. The company appears to have been constituted to provide answers to all the impediments in the provision of housing.
This is clearly explained when the company provided answers to some of the questions that could agitate the minds of Nigerians.
For instance, the President at the launch said the Nigeria Mortgage Refinance Company (NMRC) is a Public Private Partnership arrangement between the Federal Government of Nigeria and private sector. The company is being implemented as a component of the Nigeria Housing Finance Programme initiated by the Federal Ministry of Finance in collaboration with the Central Bank of Nigeria (CBN), Federal Ministry of Lands, Housing & Urban Development (FMLHUD) and the World Bank/IFC.
NMRC is a vehicle set up to bridge the funding cost of residential mortgages and promote the availability and affordability of good housing to working Nigerians by providing mortgage lending banks with increased access to liquidity and longer terms funds in the mortgage market.
The company explained that the Nigeria Housing Programme seeks to address the key barrier to developing accessible and affordable housing in Nigeria. It will be implemented with parallel funded projects in land registration and construction sectors by the DFID and GIZ (Deutsche Gesellschaft fur Internationale Zusammenarbeit GmbH).
The Programme has three components, and will be most effective if a coordinated approach to all parts of the value chain is implemented. The main areas are: a) land and legal framework, b) access to affordable housing finance, and c) housing development and construction.
NMRC is being established with the primary aim of resolving access to affordable housing finance, and importantly, as a focal point for creating an enabling environment for housing finance by playing a strong developmental role in supporting the improvement of land and legal framework and housing development and construction.
Role of NMRC
NMRC will provide mortgage-lending institutions with access to long-term finance at an affordable interest rate, thereby enabling mortgages to be issued by these institutions to Nigerians, at longer tenors and affordable rates. The provision of mortgage loans at longer tenors will provide the average working Nigerian citizens an opportunity to buy a home and conveniently pay for it.
In simple words, NMRC is government inspired but a private sector led effort to provide affordable housing for Nigerians through loans accessed from mortgage and commercial banks. NMRC will contribute to a better alignment of the Housing Finance Programme.
A core strategic objective for the Nigerian government is to achieve broad based and inclusive growth by unlocking markets that have the potential to generate jobs.
The increasing gap in residential homes in Nigeria is estimated to be in a deficit of about 17million housing units as at 2013. This presents a huge opportunity for private investment and job creation. It is estimated – following labor impact assessments in countries such as Columbia, Malaysia and South Africa – that at least 5.62 direct jobs can be generated with every new home and 2.48 indirect jobs associated in housing related expenditure.
NMRC is a company that will sit as a financial intermediary between the Nigerian capital market and financial institutions that provide mortgage loans to average working Nigerian citizens.
NMRC will access the capital market by issuing long-term bonds, and will on-lend the proceeds of the bonds issued to these mortgage lending institutions by providing loan facilities secured by the mortgage pool created according to an agreed underwriting standard.
Contribution to affordable housing
The successful implementation of this project will significantly increase the ability of the working Nigerian to buy a home by supporting the current housing demand with access to affordable finance through mortgage lending banks. Developers will now need to meet this cash demand for housing by building homes of real value and not of speculative value.
The World Bank together with Federal and State governments as well as other partners will continue to work on improving the enabling environment for private developers to operate. Major steps have been taken first to reposition the Federal Housing Authority. With the introduction of NMRC, State governments are being encouraged to reduce the cost of housing delivery, these include making lands easily available, timely provision of property titling, providing infrastructure, and reduction on transaction costs.
The World Bank approved a concessional US$300 Million 40 year interest free International Development Association (IDA) loan, which is obtained to facilitate the execution of the Housing Finance Programme. US$250 million of the IDA loan will be disbursed in instalments to NMRC as Tier 2 Capital based on key performance indicators – it will be retained on NMRC’s balance sheet to provide credit support for NMRC’s bond issuances.
The balance of US$50 Million will be allocated to other components of the Housing Finance Programme as follows: US$25 million for the establishment of a Mortgage Guarantee Facility for lower income borrowers and US$25 Million to support the development and piloting of Housing Microfinance Products.
One of the roles of NMRC is to provide a safety net for financial institutions, allowing them to convert illiquid mortgage assets into cash when in difficulties. This allows for a facility such as NMRC to make direct provision of long term funding into the mortgage market.
In addition, given that the US$250 million IDA loan is being used as Tier 2 capital, it allows NMRC to raise its own funds through the issuance of long term bonds to institutional investors.
Difference between NMRC and existing institutions
This is the first time a co-owned institution such as NMRC is operating with a Public Private Governance structure. All other institutions have either a fully private or public function.
NMRC is a private sector led mortgage refinance institution. The project represents the first effective collaboration in the financial sector between the public sector – the States, the Ministries of Land, Justice, and Finance, the regulators, CBN, SEC, and the private sector – financial institutions, bilateral and multilateral institutions in addressing prevailing imperfections that limit access to finance, with all parties making meaningful contributions to the NMRC.
The NMRC provides long-term liquidity to financial institutions extending mortgages in Nigeria. The members and owners of NMRC have a common interest that the facility maintains its liquidity and can fulfill its functions.
It provides the capital market with a transparent and effective way, with little risk of investing in the mortgage market. The public institutions are funded by mandatory contributions and therefore should and will remain fully responsible to their mandatory contributors.
NMRC and FMBN
NMRC and FMBN are working on different aspects of providing affordable housing for Nigerians. Primarily, FMBN is a public sector institution focused on the role of providing mass housing and mobilisation of housing funds for the neediest in society. Loans are directly accessed by Nigerian citizens through the National Housing Fund in accordance with the provisions of the NHF Act. The NHF fund is also to service the non-salaried informal populace.
While NMRC as a secondary mortgage refinancing institution will inject liquidity from the capital market to support mortgage loans accessed through respective financial institutions. These institutions include mortgage and commercial banks. NMRC does not provide mortgage loans directly to individuals.