FMBN seeks framework for mandatory investors
The Federal Mortgage Bank of Nigeria (FMBN) estimates that over N1.5 trillion investments in the National Housing Fund (NHF) scheme have been denied the housing finance sector due to the non-compliance of commercial and merchant banks with the NHF Act.
The magnitude of the challenge, however, is amplified by official records which show that the contributor base is over 5.1 million NHF subscribers while 34 of the 36 states are compliant regarding workers’ contributions with five states resuming contributions within the past three years.
The scheme, established by Act 3 of 1992, was created to serve as a pool of long-term funds for housing delivery, funded by 2.5 per cent of workers’ monthly income and mandatory investments of percentages of the business portfolios of banks and insurance companies.
The NHF is similar to such contributory schemes operated in Mexico, Singapore, and more recently, Ghana. It offers the unique advantages of single-digit interest on loans (only 6-7per cent), long repayment tenors of up to 30 years for a mortgage, and very basic loan terms aimed at making housing finance affordable to its target market of low- and medium-income earners.
Over the years, the loan products under the NHF scheme have been expanded to cater to the various needs of its contributors. Presently, the NHF provides fixed interest mortgages for home acquisition, an individual construction loan to aid self-development, a micro-loan for home renovation and rent-to-own.
In addition to these demand-side facilities, the NHF has several loan windows granted to real estate developers and cooperative societies to fund the construction of affordable houses at regulated prices.
In recognition of the obstacles identified by banks and insurance companies, the Managing Director, Federal Mortgage Bank of Nigeria (FMBN), Ahmed Dangiwa, an architect, said the bank is advocating a new NHF investment framework that addresses the concerns of these mandatory investors.
He explained that the framework proposes that banks and insurance companies contribute five per cent of their profit-after-tax (PAT) as mandatory investments into the NHF as opposed to portions of their loan portfolios of life/non-life funds.
“The proceeds are remitted into a Special Purpose Vehicle (SPV) jointly established by these institutions and FMBN to ring-fence the investments. Proceeds accruing to the SPV are to be invested in either real estate capital market instruments or the financing of large-scale residential housing projects on an affordable but economically viable basis, for a specified tenor and at an agreed rate of return.
“As an incentive, the investments could be computed as liquid assets for banks, profit will be tax-exempted, the investments could be computed as part of the loan to deposit ratio for banks and a set housing for the economically-disadvantaged to count as corporate social responsibility.
“Our intention is to see banks and insurance companies to be good corporate citizens in compliance with the law of the land by investing in the NHF Scheme as stipulated by law but under a risk-sensitive, safe and lucrative arrangement. This provides a win-win solution for them and Nigerians who are in dire need of affordable housing.”
Dangiwa said mortgages indirectly funded by these investments would be required to have a mortgage guarantee, thereby providing capital relief for the mortgage originating banks.
“Based on our projections, it is expected that not less than N100 billion will accrue to supplement the resources of the NHF scheme as mandatory investments from banks and insurance companies if this proposal is implemented.”
He noted that despite the shortfall, the NHF scheme has improved its performance significantly. For instance, NHF collections grew by 80 per cent within the last three years by N186 billion to reach a cumulative of N418 billion as of September 2020
It disbursed a cumulative of N265 billion, an increase by over N112 billion (74 per cent) over the N152.5 billion and about 8,700 new homes have been added, a growth of 43per cent, to attain a cumulative 29,133 funded housing units
Similarly, about 5,000 mortgages were originated to grow our portfolio by 26 per cent to a total of 21,587 and home renovation micro-loan grew by over 2,000 per cent from about 2,600 to about 56,000 loans over the past three years.
Already, the NHF Scheme has improved its performance significantly. For instance, NHF collections grew by 80 percent within the last three years by N186 billion to reach a cumulative of N418 billion as of September 2020
While there is still a lot of work to be done in addressing the housing needs of Nigerians, these figures support the inherent potentialities within the NHF Scheme both in terms of coverage and affordability to most Nigerians. For instance, with just a contribution of N450 per month over a period of six months, a contributor becomes eligible for any of FMBN’s loans.
Under a five-year strategic plan, FMBN intends to target the non-salaried informal sector into the NHF scheme to achieve the goals of financial inclusion.
The FMBN boss, Dangiwa stated that capital market funding for housing, which FMBN pioneered in Sub-saharan Africa in year 2007, is gaining more ground, as a developing economy facing severe macroeconomic and household affordability challenges compounded by the COVID-19 pandemic.
“The reality is that most Nigerians cannot simply afford market-determined loans which attract high double-digit interest rates. We cannot or rather, must not neglect the significant opportunities for affordable housing finance that the NHF offers in providing low-cost funds for both the demand and supply sides of the housing market.
Meanwhile, Dangiwa has revealed that the bank will be delivering about 5,000 housing units from its mini-city housing development programme under the National Economic Sustainability Plan of the Federal Government.
This is in addition to the delivery of about 2,500 units under the labour projects. The bank has already delivered 1,400 units under the Nigerian Workers Affordable Housing Development Programme.
“The impact of FMBN in advancing home-ownership to Nigerian workers has been tremendous.
The FMBN managing director, who spoke at the Send Forth Party for Mrs. Eucheria Alozie, the retiring Director, Public-Private Partnership (PPP) Department of the Federal Ministry of Works and Housing, said the Rent-to-Own product has taken off to support other products like the FMBN home renovation loans, NHF individual construction loans, cooperative housing development loans, and others.
At FMBN, he said, “Alozie helped expand the frontiers of our housing delivery efforts through her active involvement in one of our flagship programs, the Ministerial Housing Pilot Scheme (MHPS). That product has helped deliver thousands of housing units across the nation.
“We have also developed other products and schemes in our efforts at exploring and expanding all angles to facilitate mortgage lending and homeownership to Nigerians particularly low-income earners.”