Nigeria’s apex bank’s recent approval for NMRC to expand mortgage refinancing operations to all banks in Nigeria is a welcome development. Hitherto, the refinancing window was only open to “member” financial institutions, who have contributed funds, as stake holding interest in the refinance institution.
Housing plays a key socio-economic role and represents the main wealth of the poor in most developing countries. The UN estimates that the global population will reach 8.5 billion by 2030, with almost 60% of the population living in urban centers. An estimated 3 billion people will need new housing and basic urban infrastructure by 2030. Against the backdrop of rapid urbanization putting pressure on housing delivery systems, many urban poor will not be able to afford formal housing without proper housing finance solutions. This puts the issue of housing finance at the forefront of the global development agenda. (The World Bank)
The lack of long-term housing finance is the major bottleneck for the development of the housing market. The housing finance sector has been subject to extensive diagnostic work
Nigeria’s housing deficit has been estimated to be between 16 -17 million units12. In Lagos, Ibadan, Kano, and Abuja where the urbanization is accentuated, there is an average rising need for housing by 20% annually. Current total output in the formal housing sector is estimated at no more than 100,000 units, but no good data exists. However, it is clear that the formal sector is only producing a fraction of the total number of urban units needed each year. By 2050, the UN estimates that 75% of the population will be living in cities; this translates into an annual housing requirement over the coming decades of at least 700,000 units just to keep up with growing demand and urban migration.
Expanding the refinancing window to all banks in Nigeria has strategic objectives as follows:
- Increase Access to Lower-Income and Informal Markets through credit markets, housing microfinance, and guarantee.
- Create and Deliver Long-Term Funding Solutions and as well improved systems to incentivize longer-term savings.
Before now, NMRC was set up as a mortgage liquidity facility to address the long-term funding constraint in the banking sector, which was hindering the growth of the primary mortgage market. It is a secure source of long-term funding at attractive rates and at the same time ensuring sound lending habits amongst MEMBER institutions.
With the latest development, its driving force will be three-fold namely: 1). Facilitate reduction in maturity mismatch risk for all institutions and 2). Boost the availability of fixed rate mortgages and increase the maturity structure of the mortgage loans – this in turn would not only help improve the affordability of mortgages but also increase the number of qualifying borrowers.
Moving forward, NMRC should also strive to play a key role in developing and providing medium and long-term funding to non-conventional (Islamic Product Focused) financial institutions.
In summary, these initiatives will result in an expansion of the primary mortgage market. As the Company’s principal source of funding will be from the local bond market, another important objective of the Company is to break new grounds in the development of the local bond and possibly sukuk markets.
