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Mortgage sector will account for 15% of GDP – Kumo

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In this interview with James Emejo, Managing Director/Chief Executive, Federal Mortgage Bank of Nigeria (FMBN), Mr. Gimba Ya’u Kumo, discusses his ambition to boost the mortgage sector contribution to the country’s Gross Domestic Product (GDP) to about 15 per cent from the current less than one per cent, before he leaves office. He also appealed to Nigerians to imbibe a mortgage culture as the market has grown over the years to accommodate anyone in need of decent and affordable housing
What are the statutory functions of the Federal Mortgage Bank of Nigeria?
FMBN is an instrument created by the Federal Government to provide affordable low cost housing to low income earners and to add to providing solution to the housing needs of Nigerians. It was established by the National Housing Fund Act 3, of 1992. The Act stipulates that a Nigerian worker earning the minimum national wage and above per annum in either the public or private sector of the economy, who is 18 years old and above shall contribute 2.5 per cent of his/her basic salary to the fund. The idea is to have a common pool of funds where the total of this 2.5 per cent will accumulate and will be available to finance mortgages for low income earners. Though this provision makes it compulsory for Nigerian workers to participate in the scheme, it should be seen as also offering them the opportunity to enjoy the numerous benefits of the scheme. The NHF scheme is for Nigerians in all sectors of the economy particularly those within the low and medium income levels who cannot afford commercial housing loans e.g. civil servants, traders, artisans, commercial drivers etc. any intending beneficiary must be a registered contributor and up to date with his/her contributions. With this in place, an average Nigerian can identify a house in any location in Nigeria and approach the FMBN to take a loan either for outright purchase of the house or to renovate an existing one. Initially the maximum any contributor can access as loan was N5million but was later increased to N15million.

How would you assess the mortgage industry at the moment?
The mortgage industry in Nigeria is just starting, if you look at the size of our contribution to the GDP its less than 1 per cent but my target before I leave here is that we should be able to contribute at least 15 per cent. That is why we are putting a lot of issues on ground to be able to drive this process. And how do you do that? If you look at the National Housing Fund that we are managing, out of the 170 million population, less than 1 per cent are the one contributing so we said this is not good, how do we reach the other segment of the society that are not in formal employment.

Do you think a single-digit mortgage rate is sustainable in view of the current monetary regime?
Yes, our rate have always been single digit, our estate development loan or construction loan is 10 per cent, our mortgages are at 6 per cent and we also intend to extend that same rate to the informal sector so that we can make the houses affordable to them. Nigerians cannot afford anything above single digit because the average income is very low; that’s why we are providing a buffer whereby they are able to pay. Like we took the minimum wage of N18,000 as a base, with that you can be able to do a mortgage of N450 monthly. So this is the minimum the informal sector beneficiaries are expected to pay but this will be difficult for some of them, so we are looking at a subsidy.

Can primary mortgage institutions (PMIs) agree to single-digit interest rate charge?
If you say government, you are talking in terms of agencies that deliver mortgages. On the government side for now it is only FMBN that is really delivering mortgage. And our mortgage is single digit, six per cent. That is what President Goodluck Jonathan has told us and that is what we are doing. We charge our mortgage at the rate of 6 per cent on a long tenure basis, 15, 20 and even up to 35 years.

How true is the allegation that contributors to NHF fund have not been able to access loans within the last few months?
Contributors to the National Housing Fund, (NHF) have in the last six months been paid over N9 billion either as refunds or as funds to assist them own their homes.
The information is in the public domain for anyone that wants to verify to do so. We have been paying contributors and in the last six months we have disbursed over N9billion to contributors. Publication of the list may not have been regular as before, but that does not mean that disbursement has not been going on. We have disbursed through over 57 Primary Mortgage Institutions (PMIs). We are doing all we can within the bank to ensure that our facilities are up to date so as to reduce the waiting time in the disbursement of loans to recipients to the shortest possible time.

Some Nigerians claim they don’t subscribe to NHF due to problems they encounter at maturity stage. How can these measures be corrected to restore confidence?
The issue of NHF loan is a transparent exercise and that is why we decided to be publishing the names of disbursements and refunds when we came on board. We published the names of refunds of those that have left service. It is because of our desire to address these discrepancies that we came up with the e-collection platform. So that each individual contributing to the scheme will be able to, on a monthly basis, know whether your account is credited or not. The essence of this is to make them inquire from their organisations why it is not done.

These are the issues and we will be able to address them as we move on. We have several strategies for implementation to provide houses to Nigerians. If you look at the minimum wage of 18, 000, the deduction is 2.5 per cent. If you run your numbers, it is about N450. We have 3, 777, 000 contributors.  We have delivered only 56, 000 houses. It takes 250 contributors contributing N500 monthly for 10 years for one person to be able to access N15million. That is the statistics and that is why we are talking to government to fund us, even if it is a low interest loan for a long tenure. By the time you run a mortgage for five years, it is not a mortgage. A mortgage should run for 15 years or more. What this means is that an average Nigerian can identify a house in any location in Nigeria and approach FMBN for a loan through a PMI for financing for either outright purchase or for renovation.

What is the rationale behind the proposed Diaspora mortgage scheme which you recently announced?
FMBN is working out modalities to roll out a Diaspora product to assist Nigerians living abroad own homes in Nigeria. The product has become necessary given the large number of Nigerians in Diaspora who wish to own homes in Nigeria and also as a means of reducing the housing deficit in the country.
We realised that about 17million Nigerians are living outside the country and most of them have plans to have houses and they have not been able to do so. We understand that over the years, people have been remitting money for the building or the buying of a house has not been getting good results. Stories have followed this money. What we are trying to do is that by the time we develop the Diaspora mortgage model, it will be a model whereby Nigerians living abroad who want to buy houses can resort to FMBN and at the end of the day if they do not take the mortgage, they can get refund of their money with interest. The reason why the bank has chosen the US is because out of the 17million Nigerians all over the world, America has about 58 per cent. We are going to do our case study here and in the UK. If it works well, we will try to replicate in Asia and other parts of the world.

The move would also lead to the inflow of finance from the diaspora to Nigeria which would further assist to reduce the housing needs in the country. The target of the Diaspora, the inflow of Diaspora money to Nigeria is about $10billion. If the housing sector takes about 25 per cent of that inflow, we are expecting that about $2.5billion is coming to us in the form of inflow from Diaspora people that would need houses and investments in the housing sector. That would translate to about N4billion and with that we can fund mortgages and build about 30, 000 units and that would be an opportunity for those who would want to have houses in Nigeria. That is within the envelope that we are allowed to operate, which is N15million or $90, 000.

How viable is the real estate sector in the country?
The total value of the real estate market in Nigeria is put at N59trillion and that is potentially six times bigger than the local stock market which is now valued at N12 trillion. On this basis,  the sector cannot be ignored. Let me explain how we arrived at that figure. The housing deficit in the country which is estimated to be 17 million units when multiplied by N3.5 million, which is  the estimated cost of a single housing unit, it will result in the amount. I am however optimistic that with the coming on stream of the mortgage utility refinancing company the housing sector would experience a revival that would attract investments to the sector and boost the economy.

Why has it been difficult for government to addressing the financing concern in the housing sector?
I think it has taken the government this long to decide to finance the sector because the government initially wanted to see if the funds would be well managed before doing so. Government initially wanted to see what we have done before they put their money there. This bank has been operating for 22 years and during that time, it was operating on deficit, we were able to break even last year and made profit. Secondly we did some reforms like full computerisation of the bank. The only source of income NHF we now collect through a portal, e-collection which has tripled collections. We were able to pay more mortgages and fund more constructions. We did that to show transparency so that contributors can see their contributions.  We went ahead to start publishing the names of those who benefitted and those we have refunded because the law says if they retire, they ought to take their contributions and two per cent interest. We have refunded N1.2billion to about 78, 000 people in the last two years.
The bank recently recorded a profit of N188 million in its operations in the first quarter of 2012 compared to N256.415million loss in 2011.
How were you able to reverse the negative trend?
I would attribute the feat to the reform strategy implemented by the new FMBN management in line with the transformation agenda of the federal government. Prior to the current year, the bank also had deficit of N4.420 billion in 2010; N8. 898 billion in 2009;  N6.560 billion in 2008; and N5.974 billion in 2007.
The FMBN-administered National Housing Fund (NHF) scheme had been making gradual impact on Nigerians; the scheme has since funded the building of more than 61,193 housing units in the six geopolitical zones in the country.
FMBN is also computerising its operations to make it easier for its over 3.7million customers to access its products and services the process has become necessary to conform to globally accepted standards and also serve the bank’s customers better. When we came in, we saw that the entire operations were being done manually and we reasoned that there was no way we could carry out effective and efficient banking operations if we continue to operate manually. That led us to award some contracts that will entail entire computerisation of our banking operations and in doing that, the issue of security came up that we have to secure our offices as well. So right now, we are carrying out this computerisation exercise at the head office in Abuja, our 36 branches as well as our eight zonal offices and this is going to be done in phases.

For the phase one which will comprise of full computerisation of the entire bank’s buildings, the bank has already paid out about N200million at the end of the exercise the bank would be able to track applications more efficiently. From this exercise, we intend to have a situation where an intending customer who wants to access a mortgage loan can go online to fill the form and submit to the Primary Mortgage Institution (PMI) and also to us. During the process of submission, it will indicate the date and then in the event that the PMI does not submit to us on time, we can then call them quoting the date the application was submitted and find out why we have not seen the application.

How would you react to further allegation that your management had spent about N600 million in renovating the head office?There has been an allegation that the Mortgage Refinancing Company had been introduced following the perceived shortcomings of FMBN. How true is this?
That is a wrong perception. Nigerian economy is so big, FMBN is supposed to address housing issues for the lower cadre while the Mortgage Refinancing Company is supposed to address housing needs of medium and upper class, and  also to some extent, that of the lower class by the introduction of micro financing. NMRC is going to be market driven, private sector driven. If you look at most Nigerian workers, they cannot afford any funding that is market-driven, we will now take care of that ladder. We will continue to do our social lending. Actually we have not been able to satisfy demand because we have more than 100, 000 requests with us and I told you we did less than 60, 000 mortgages including the construction that we have done. So there is a gap, we have been able to meet demand by about 40 per cent. People are on the queue why? Because the quantum of money we have is not sufficient to go round, these are some of the issues. If we had enough money, we would have given everybody that requires mortgage. But we cannot do it because we are not properly funded, the money is not there. These are some of the issues that we are facing.

What the board has approved for us to renovate the entire fourth floor that was damaged by fire and also give facelift of the entrance including replacement of two lifts, the board gave us approval to spend N245million and that is what we have started spending and I don’t think we will spend up to that.
How accessible are the NHF loans?
Those who want to access the loans need to have equity contribution of some per cent age of what they are asking for as loan. If for instance they require N5 to N10million from the bank, the equity contribution is 20 per cent, for N10 to N15million, the equity is 30 per cent while for N5million and below, the equity contribution is 10 per cent. The bank does not deal with individuals in its transactions as individuals wishing to buy a house or access the loans have to go through Primary Mortgage Institutions, PMIs.

Has the bank had problems with loans given to property developers?
Up till now we don’t have any problem with the loans we have  given to developers but the ones issued before we came on board there are problems we are trying to revive them. But generally Nigeria has an issue that has to do with titling, mortgage business is based on title, for you to get title in Nigeria, its difficult. Example, you are given a land in Abuja under the development lease agreement to build 500 houses, for you to be able to create mortgages for these houses you need an individual certificate for each of the houses. If you apply to FCTA to get these it takes you not less than 2 years, that of Lagos is worse. But on our own what we have done is to create a buffer zone which we call the internal record office whereby you will sign our legal mortgage documents and we give you your mortgage, leave us with the responsibility to get the title, by this we are trying to reduce the burden to beneficiaries.

What is the default rate in terms of repayment?
For the ones issued before we came in, it has not been encouraging and that is why we have embarked on an aggressive drive to recover loans in order to meet our obligations to our shareholders. The move is in line with the resolution of the last management meeting held in Abuja, the board of directors of the bank while mandating the management to go all out to recover loans given through the NHF, also resolved that primary mortgage institutions would be included in the loan recovery exercise.

What is the total amount to be recovered?
I am not going to mention specific figure for now, but we need to recover these monies in order to enable other Nigerians benefit from the fund. We noticed that some provisions in the Estate Development window gave rise to this and that is why we are planning to review the estate development loan window to remove observed lacuna, also, the National Housing Scheme would be reviewed to ensure better collection of contributions from the PMIs as FMBN is reforming its operations to enforce discipline and transparency.

Now, what major limitations do you face in the effort to make affordable housing available to Nigerians- and what roles can government play to address the challenge?
The major challenge is funding, the second challenge is re-capitalisation and the federal government is attending to this so apart from these we have others like the issue of corporate governance, we are trying to get the bank to be focused and competitive. FMBN was established 21 years ago and since then it has not made profit but when I came on board we were able to break even and make profit for the first time. At present, the National Housing Fund (NHF) only has 3,772,031 contributors and it would require 50 contributors to contribute N500 monthly for 10 years before the bank would be able to provide a loan of N15 million for one individual. So far, the bank has approved NHF loans of about N90billion out of  which only N39billion or about 22 per cent has been disbursed. While it has also approved N110billion Estate Development Loans (EDL) out of which only N62billion or 52 per cent has been disbursed.
The total disbursement we have made so far is N100.5billion and we have been able to deliver 56, 000 houses which is just a dropping the ocean when compared to the housing deficit we are confronted with. Since the NHF commenced, we have been able to collect a total of N106billion and looking at our disbursements, we have disbursed more than that. This is because some of the funds we collected from contributors, we put them in investments” he said. Also, out of the total number of houses delivered, 46-52 per cent was done by the current management of the bank within the last two years, while a further N1.6billion representing 1.58 per cent of total collections was refunded to retirees.
We would also urge the Federal Government to increase the share capital of the Federal Mortgage Bank of Nigeria from its present N5billion to N200billion to enable the bank address the housing deficit in the country adding that addressing the over 17 housing deficit in the country would require aggressive injection of funds by the Federal Government.
The bank presently has a share capital of N5billion out of which the Federal Government has paid up its own share of 2.5billion representing 50 per cent, while the Central Bank of Nigeria (CBN)  and the National Social Insurance Trust Fund(NSITF) have not paid up their 30 per cent and 20 per cent share respectively.

How can housing development be fast-tracked?
One, there is need  for government to put money two,  private sector initiative should also be put in place, with a view to fast-track Federal Government’s housing delivery programme. The issue of 17million housing deficit cannot be addressed by government alone. You know we have a delivery deficit of 17million at a delivery of N3.6 per unit, that is N56trillion, so there should be joint and coordinated efforts both by the private and public sector with a view to providing houses for Nigerians.

Generally, the so-called affordable houses are, in the real sense, expensive to the ordinary Nigerian. How can FMBN subsidise this cost?
Expensive in the sense that cost of materials for constructing these houses are also high. So, there is need for reduction in the cost of cement, there is need for a reduction in the cost of iron rod and other accessories that will make up the houses.  Once that is done, I think it will go a long way in reducing the cost of the houses.

How many housing units have you delivered to Nigerian in the last three years?
Within the last three years, at least, we have delivered  both in mortgage and construction that we have funded. We have delivered not less than 40, 000 both for EDL and mortgage and happily the number of houses that have been delivered within this period happen to constitute 40 per cent of the total houses that have been delivered by FMBN and we are the ones that have delivered these houses.

Do you think the Federal Government’s target to provide housing for all by 2020 is still realistic?
No, it is not. 2020 is the next five to six years. The implication is if you run your statistics to saying you need to cover the deficits in the next six years, each year you have to be building more than 2million housing units. But don’t forget the deficit keeps on growing because people keep coming up and the need for more houses. And where are you going to get all the resources? Government alone does not have all the money, so there will always continue to be gaps and we are working hard to see that we close it. So providing houses for all Nigerians in the next six years, I don’t think it is possible.

What would you identify as the major constraint in realising your mandate of providing affordable housing to Nigerians?
The major constraint is funding, which government is working on, two the laws that establish the institution needs to be reviewed and we are working on it.  And then thirdly we need public awareness on the existence of mortgage and the mortgage we are doing. That we are doing now through sensitisation of Nigerians.

What are the modalities put in place to ensure that information on housing gets down to the grassroots so the less privilege can be part of this?
We have come up with a product called the cooperative housing loan which is designed for people that are not earning salaries. Everyone is privileged. But the people that are not earning salaries we have made provisions for them such that they can form cooperatives and also access loans in the housing sector. The only way you can do that is through cooperatives or organised informal sector involving farmers, traders, carpenters etc. can form cooperative societies and benefit from corporate mortgage facility from us, with that we hope to grow the sector and contribute to the development of Nigeria.

What is this cooperative loan scheme all about?
Those in the lowest strata of the society have not benefitted from loans because they have limited capacity as to funds to pay for houses as the income they generate is very small. This led to the introduction of the Cooperative Loan Scheme.
It was brought about to extend the bank’s services to people who can be termed disadvantaged in the society because their income is low, irregular and difficult to access under the NHF loan window. What the bank has now done is to use cooperative societies in the informal sector. The services to people who can be termed disadvantaged in the society because their income is low, irregular and difficult to access under the NHF loan window. What the bank has now done is to use corporative societies in the informal sector. The informal sector constitutes a larger per cent of the Nigerian economy.
Since they do not get salaries on a monthly basis, what the bank has done is to look at ways to reach them so that they can contribute and also benefit by owning their own houses. The loan enables a cooperative society that has acquired a plot of land to develop houses for allocation to its members. The parcel of land would have title in the name of the society which would act as facilitator on behalf of its members in the loan transaction and which would facilitate construction of the housing units. The root of the title of the estate land would be subleased to the beneficiaries.
FMBN is aware that people gather in groups to contribute money like ajo, esusu as they call it in different places. People that have already formed cooperative can come together and join NHF by making a contribution of only N450 each month.
We know the amount is small, but we have to arrive at a scientific rate and N450 is 2.5 per cent of N18, 000 which is currently the minimum wage in Nigeria.


Article Credit: Businessnews

Updated 4 Years ago

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