‘Mortgage financing model will aid financial inclusion’

The Group Chairman, FBN Holdings Plc, Dr. Oba Otudeko has said that mortgage financing models would provide Deposit Money Banks (DMB) greater access to the under-served lower to lower-middle income segments and reduce financial exclusion.

Besides, he said the multiplier effects of the additional financing on the construction value chain, employment and aggregate money supply would further drive the growth of deposits and assets in the Nigerian banking sector.

Speaking at Chartered Institute of Bankers of Nigeria (CIBN) valedictory service organised for its outgoing president in Lagos, Otudeko said, financial inclusiveness for sustainable development is a strategy that could unlock newer sources of growth, access to housing and by implication, mortgage financing.

According to him, the limitations of Nigeria’s current mortgage financing model that entail high equity contributions, leading to shallowness of the secondary refinancing market, which are obviously evidenced by the low contribution of mortgage loans and advances to Gross Domestic Product (GDP) at 0.5 per cent, compared to other developing countries such as South Africa and Malaysia with an average rate of 40 per cent.

“This is indeed indicative of the volume of re-engineering that needs to take place in the mortgage banking/housing finance sector. Invariably, this is a daunting task in a slowing economy with a 2.8 GDP growth rate, accompanied with much lower foreign direct and portfolio investment, which together create a much smaller pool of investible funds for housing,” he said.

In her valedictory speech titled, rethinking Nigeria’s mortgage financing policies for sustainable development and global competitiveness, the outgoing president, Mrs. Debola Osibogun said that “a developed mortgage finance sector impacts economic growth by way of reducing the loan interest rate, which in turn results to increased affordability of housing and with it, the possibility of increased savings on the part of individual households that can be invested in other economic activities.“

Osibogun added that the development of mortgage markets and the creation of mortgage bonds or instruments can be seen as overall financial deepening of capital markets, especially in emerging markets.

“The obvious outcome is that there is a gradual shift from the perspective that housing finance is mainly concerned about mobilizing short-term household deposit for long-term mortgage financing to a perspective that housing finance is more closely integrated with broader capital market developments,” she said.

However, she noted that against the background of the challenges of delivering affordable houses to Nigerians, there is need for a rethink of the approaches used hitherto in order to achieve the objectives of the housing policy.