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Development of Mortgage Banking in Nigeria

Formal mortgage market was introduced in Nigeria with the establishment of the Nigerian Building Society (NBS) in 1956 with a share capital of N2.25 million.  Then, it was a joint venture between the Capital Development Corporation, the Nigerian Government and the former Eastern Region.  Because of the significant contributions of the Nigerian Building Society (NBS) the government was dissatisfied land decided to establish the Federal Mortgage Bank of Nigeria (FMBN) by Decree 7 of 1977 with N20 million initial capitals and N150 million capital by 1980. The FMBN assumed the assets and liabilities of the NBS.

In 1993, the FMBN was reconstituted to give birth to two separate institutions which were: (a) The Federal Mortgage Bank of Nigeria and the Federal Mortgage Finance Limited (FMF Ltd.) The National Housing Policy and Mortgage Institutions Decree No 53 1989 restructured the Nigerian Mortgage market.  This divided the Nigerian mortgage market into two-tiers:  (1) The FMBN as the apex (licensing and supervisory) mortgage bank and (2) Primary Mortgage Institutions (PMIs).  Under the decree, the PMIs are allowed to collect savings, deposits, money market funds, pension funds, insurance funds, capital market funds, and national housing funds.  The number of the PMIs in the Nigeria increased rapidly but the development is slow.  As at December 2005 there were about ninety (90) PMIs in operation.

The focus of the first generation of the primary mortgage banking institutions was the traditional products of the FMBN namely popular savings, target savings, term savings and children savings.  The second generation PMIs were influenced by the direction of mainstream banking as well as competition introduced by insurance and treasury linked products.  The third generation now focuses on the implementation of the securitisation of mortgage, which is the final linkage with the capital market.

The National Housing Fund was established by the National Housing Fund Decree No. 3 of 1992.  The main objective of the fund was to facilitate the mobilization of financial resources from different sources for the provision of houses for Nigerian, (especially low income earners) at affordable costs.  The management of the fund is vested in the FMBN.  The fund sourced its fund from the mainstream banks, insurance companies, Nigerian income earners – (2.5% of basic salaries of N3,000 and above), and budgetary allocation by the Federal Government.  The proceeds of the fund were to be channelled by FMBN to the PMIs to finance individual efforts in house ownership.

As at December 2005 the aggregate shareholders’ fund in the Nigerian Mortgage banking sub-sector stood at N18.1 billion while total deposit liabilities and loans and advances were N47.5 billion and N28.5 billion respectively.  A total of 5,250 mortgage loans were originated through the PMIs and 11,216 housing units were financed through estate developers with a combined disbursement of N13.2 billion or 69% of N19 billion mobilized under the National Housing Fund (NHF).

In spite of the above, it was through various returns filed by the PMIs that the performance of the Nigerian Mortgage banking in their area of core mortgage banking operations.  For instance as at 31st December 2005 only 15 out of the 70 PMIs met the prescribed minimum mortgage assets to total asset ratio of 30 per cent.  These called for the need to re-engineer the services of the PMIs and reposition the mortgage-banking sector for the sustainable economic growth and development of Nigeria.  According to the Central Bank of Nigeria (CBN) this could be achieved through its 10 – point mortgage reform agenda.


The Mortgage Banking Sector Reform Agenda of the Central Bank of Nigeria (CBN)

The existence of a wide gap between the current level of performance of the PMIs and the original mandate of the PMIs prompted the CBN’s mortgage reform agenda.  According to Prof. Charles Soludo the Governor of the Central Bank of Nigeria the level of capitalisation, scope of operations and volume of core mortgage activities as well as the capacity of the management and staff has remained low.  This and other factors made the central Bank of Nigeria to come up with its 10-point Mortgage Banking sector reform agenda in December 2005. Items on the reform agenda include: 

1.      Phased Recapitalisation of the Primary Mortgage Institutions (PMIs) between January 2007 and December 2010 with emphasis on the actual injection of fresh funds to provide the needed liquidity for the sub-sector.

2.      The promotion of professionalism in PMI operation – through the institution of professional training and certification process for the executive management tean and loan/mortgage officers.

3.      The encouragement of merger and acquisition in the sub-sector and the enforcement of good governance in the sub-sector.

4.      The evolvement of a level-playing field for all operators especially by mobilizing requisite resources suitable for commitment into mortgages such pension fund management.

5.      The restructuring of Federal Mortgage Bank of Nigeria (FMBN) to improve its credit appraisal and disbursement mechanism and procedures.

6.      Encouraging adequate capitalized and repositioned FMIs to package their developer – clients for the purpose of accessing the estate development loan of FMBN.

7.      Drastic overhauling of the administration of the National Housing Fund in the realms of registration, mobilization and disbursement as well as transforming it to a trust.

8.      To broadly define mortgage business to include areas like tourism, hospitality business, furniture and fittings, construction, estate management and development, consumer lending.

9.      Establishment of Secondary Mortgage Companies (SMG) to promote secondary   mortgage market facilities for residential mortgage loans.

10. Promoting of mortgage insurance as public-private partnership ventures as a financial risk coverage/mitigation to the owners of mortgage loans.


Strategies for Accomplishing the Mortgage Banking Reform  

The reform in housing finance activities is expected to be midwived on the following platforms in order to achieve the targets and objectives of the reform agenda:

(a)  Enhancement of housing finance process to meet the challenges of funding the housing deficit gap, particular to the low-income group in Nigeria.

(b)  Strategically repositioning and strengthening the PMIs as a vehicle for housing and home ownership delivery in consonance with the dictates of the National Housing Policy and mortgage business.

(c)  Promoting rural housing programme through market support incentives for asset collaterization through mortgage origination to make finance available for the development of micro, small and medium enterprises.

(d)  Promoting the development of efficient secondary mortgage market by solidifying the capital base of mortgage market by strengthening the capital base of the mortgage originating institution. 

The recapitalisation of Primary Mortgage institutions to the tune of five billion naira gave rise to the advancement of a number of them to the status of Primary Mortgage Banks who are licensed to operate all over the country. Some of the mortgage institutions were relegated to the state level as a result of their inability to meet the capital requirement.

Also as part of the government’s efforts to boost the availability of long term funding of the sector it established the National Mortgage Refinance Company (NMRC). The National Mortgage Refinance Company was set up by the Goodluck Jonathan administration to ensure increased mortgage penetration and a sustainable housing finance mechanism in support of home ownership in Nigeria. It was established to re-finance mortgage loans created by Primary Mortgage Banks basically to free-up more funds with these institutions to enable them have funds enough to create more mortgages and enabling more people access to housing.

The mortgage process is relatively new in Nigeria compared to the developed world.

According to the World Bank Global Financial Inclusion (Global Findex) Database, despite the size of the Nigerian economy, mortgage debt to GDP is still about one percent. Only about five percent of the 13.7 million housing units presently available in Nigeria are currently financed with a mortgage. Nigerians are yet to fully appreciate the processes and procedures involved and are also yet to develop enough trust in its efficacy. This will change as time goes by and as more and more dynamic methods of mortgage finance are deployed to enable the average citizens have access to affordable housing.