Developing a financial strategy that is sound, strategic, viable and sustainable is critical to the overall development of any economy and therefore underscores the need for proper planning and implementation of financial policies if a Nation intends to advance.
Charged with the mandate of developing innovative strategies and solutions, the Financial System Strategy (FSS), 2020 is an initiative of the Federal Government of Nigeria aimed at developing a coherent and internally consistent blueprint, to develop Nigeria’s financial system in achieving its vision to becoming a major international financial centre and the safest, most diversified financial that supports the Nigerian real economy.
Speaking recently on the efforts of the initiative towards developing a working financial system especially for the Housing finance sector in Nigeria, Mr. Suleyman D. Mohammed, Director, FSS with the Central Bank of Nigeria, stated that the cost of housing finance in relation to the earning power of the average Nigeria worker is off par, hence the need for domestication of housing finance models tailored to the peculiar situation of the country.
Mr. Mohammed said this while speaking to issues as a guest panellist at a recent webinar hosted by the Housing Development Advocacy Network, HDAN with the theme: “Housing Finance Ecosystem: Matching the Demand and Supply and the Intervention”.
In his words, “If you look at the interest rate and the cost of mortgage in Nigeria, it’s exorbitant between 26 and 27% interest rate. That makes the cost of housing finance very expensive and if you look at the earning power of an average Nigerian, that means there is no average Nigerian that can open a mortgage account and access mortgage financing. That alone is enough reason why we need to think outside the box, we have to start domesticating our own housing finance model that will suit our own Nigerian environment and our peculiarity.
“FSS 2020 has come up with the need for us to rethink and start to move away from the conventional housing finance model that operates worldwide and to see if we can domesticate our own housing finance model that will meet our own requirements”
He further stated that a Committee has been set up to bring about a robust, more sustainable and more realistic financing model for Nigerian housing sector in order to foster housing affordability in the country.
“We have set up an inter-agency committee called the Housing Finance Ecosystem Committee to come up with a robust and more sustainable and more realistic financing model for Nigerian housing, which cuts across both private and public sectors.
“Public sector in the sense that there is need for governments to come into the provision of social housing, with a financing model that is sustainable and then the private sector should come in with a private sector financing that would be affordable to the average Nigerian looking at the earning power of the average Nigerian citizen” he said.
He however identified the lack of capacity by primary mortgage institutions as one of the challenges facing Housing finance in the country adding that it is important for stakeholders and institutions in housing finance to innovate in proffering solutions to the challenges in the sector. .
“I think one of the major obstacles inhibiting the success of housing finance in Nigeria is the lack of capacity by primary mortgage institutions in Nigeria. Even if you look at it from the primary mortgage bank and the secondary mortgage bank, NMRC is a secondary mortgage bank and today how much can NMRC proudly say they can afford to pump into the primary market to support the primary market in delivering what is desirable? We really need to think outside the box and to address this thing squarely” he said.
The FSS Director also stated that more needs to be done in the area of housing finance if the housing deficit in the country is ever to be reduced or closed and Primary Mortgage Banks have a critical role to play in that regard.
“Looking at this deficiency and the deficit that we have in the system, we have moved away from having to rely on the deposit money banks to fund housing in Nigeria by introducing the primary mortgage Banks. And today 35 primary mortgage banks have been licensed in Nigeria with an asset base of about 451 billion. While the advances made by these Banks to the sector, by way of credit is just about 229 billion. So you can see the shortfall in that area”-
“If we need about 60 trillion in order to close the housing gap in Nigeria in the next 6 to 7 or 10 years this is a far cry from the reality of where we should be. This in perspective, puts us in a very challenging situation that we need to do something, moving away from the conventional mortgage models that we have worldwide in Europe and America” he noted.
While describing as apt, the proposed intervention by CBN, the Director noted that “Over time, we have had interventions in different sectors that never yielded any desirable results. I think this time around we have to structure it in such a way that it will be able to meet the objective of what it is meant for.
“I think the CBN intervention is quite laudable and I commend the Central Bank governor for bringing it in because it is an area that we have always identified as a very worrisome area particularly when you look at housing finance in Nigeria”
On the issue of on whether the proposed CBN intervention for the Housing sector should be directed at the demand or supply side of the housing value chain, Mr. Mohammed said “My personal opinion on this is that attention should be on both sections, but in the supply side and in the demand side. In the supply side I think we need to start to encourage entrepreneurs or entities that are involved in the manufacturing of cheap building materials.
“That would translate into making house construction more affordable than it is today. In the demand side I think it is important to support the financial institutions that will be engaged in funding some of these interventions. If you don’t have the money how do you extend your credit?” he added.