MFIs can salvage housing deficit

Head of HFC Bank’s Mortgage and Technology Charles Bonsu has tasked microfinance institutions to help provide affordable housing to the masses or the informal sector in the country.

Mr. Bonsu, who heads the mortgage arm of one of the country’s foremost financial institutions with specialty in real estate, explained that it is very expensive for banks and mortgage firms to try and provide homes to the informal sector -- a sector mastered by microfinance institutions.

He said microfinance institutions by their training and experience stand in a better position to help provide homes to the informal sector, which constitute a large part of the population in desperate need for housing.

“The solution is microfinance. There are micro-mortgages where these MFIs are helping people to build from scratch, and on weekly or bi-weekly basis the MFIs go round to collect monies.

“The difference is that it is going to be more expensive for the banks and mortgage firms to serve the informal sector. What happens is that the informal person doesn’t have the requisite documents, but the MFIs are trained to deal with them. They know their homes and other locations and go to pick up money on a regular basis,” he said.

Over the past decade there has been a 55.5percent increment in the demand for housing, which has now put the housing back-log at about 2million.

Data in Ghana indicates that the mortgage to population ratio stands at a paltry 0.5percent, whereas in the UK the ratio stands at 88 percent and that of the US is 77 percent. Also, mortgage loan penetration stands at only 3 percent.

With over 500 licenced microfinance institutions focused on serving, mainly, the informal sector, Mr. Bonsu believes that these MFIs are better placed to provide mortgage products for millions of people without formal work to own homes and live comfortably.

Mr. Bonsu’s remarks are a response to a call by Anthony Okyere, Chief Executive Officer of the Appolonia Development Company Limited -- one of Africa’s largest urban developers -- on the need for mortgage firms and banks to study local markets and provide suitable products to consumers instead of replicating western models of real estate financing.

To buttress his point, Mr. Okyere cited the example of how the telecom companies have been able to reach the masses with their services through scratch-cards; meanwhile, in the developed economies the telcos just debit the accounts of customers monthly.

It is expected that government’s ongoing projects are expected to provide only 10,000 housing units in the next two years. But with more than 80 percent of Ghanaians unable to afford homes or qualify for a mortgage, most real estate developers focus on the high end of the market -- putting a majority of the populace in a situation where they have to rent homes.

But Mr. Bonsu noted that one of the reasons why home provision is not increasing at the rate it should is simply because of lack of planning on the part of authorities. “In Europe and America, there are laws and people obey the laws. For example, you are given a social security number which can be used to track you anywhere, so if you earn an income that can be traced.”

Mr. Bonsu said the laxity in law enforcement has also compounded the problem faced by investors in addressing the country’s housing issues.

“We started a national identification scheme but we stopped. Nothing works as long as we don’t plan toward it. And the lack of planning is making it difficult to reach the millions of Ghanaians with mortgages.”

He explained that the reason banks like to work with those in the formal sector is because it is easy to track and work with them, since they can make available necessary documents on demand...which reduces the risk involved.

“But if you look at the informal sector, your risk is higher. They can’t produce documents and they cannot be tracked. The pricing will therefore be different.”

Mr. Bonsu was also alarmed at the fact that only about a million people in this country contribute to social security. According to him, the new pension scheme provides opportunities for people to save toward buying a house, since one can use that accumulated pension for a mortgage.

“If you are not contributing toward social security you are out. Why is it that people in the informal sector are not contributing toward social security? The moment you don’t contribute to social security you cut yourself from cheaper funding.”

At the 2015 edition of the MultiTV Habitat Fair, Dr. Kweku Agyeman-Mensah, Minister for Water Resources, Works and Housing, in a speech read on his behalf said the only way the huge housing deficit can be reduced is for the private sector to collaborate with government in building homes for people.

“If we are to address the huge housing deficit in the country, the Ministry of Water Resources, Works and Housing should collaborate with the private sector by creating the enabling environment for provisioning Ghanaians with shelter,” he said.