Affordable Path to Homeownership for Workers
The Federal Mortgage Bank of Nigeria (FMBN) is unique in boosting decent, quality, and affordable housing for Nigerian workers. Decades before the recent improvements in Nigeria’s housing finance market, the apex mortgage bank maintained a low-interest rate regime and still provides housing loans at single-digit interest rates as low as six per cent per annum.
In comparison, commercial rates range from 22-25 per cent per annum.
FMBN is also the only institution that accommodates 30-year mortgage tenors in Nigeria. The best tenors on offer in the open market, aside from FMBN, range from ten to 20-years tops.
Additionally, the Bank allows zero equity requirement for loans below N5million and a maximum of 10 per cent equity for loans ranging from N5 million to N15 million.
The implication is eligible contributors to the National Housing Fund (NHF) Scheme can access a five million housing loan without a down payment and only one million naira for a loan worth ten million naira to build or purchase a home.
These favorable FMBN housing loan terms define the Bank’s offerings and are, unarguably, without competition in the Nigerian housing market. They provide the most affordable homeownership path to Nigerian workers within the low-to-medium income bracket.
Within the past four years alone, the Bank provided housing loans totaling N43.141 billion to 4,985 beneficiaries and Home Renovation Loans totaling N49.265billion to 60,500 beneficiaries.
In addition to ticking the affordability box, FMBN is a leading catalyst of affordable housing stock development. The Bank’s role in this supply side of the housing value chain is germane. Its mandate is not profit-driven.
Houses built with funds from commercial banks have profit at their core with price tags that workers can’t afford. As a social housing provider, FMBN leverages low-cost funds accruing to the National Housing Fund (NHF) Scheme to finance the development of purpose-built affordable housing stock that matches the financial standings of workers.
Within the past four years, the Bank also used over 38 billion naira to finance 9,540 affordable housing units across the country through different construction product windows.
The amount includes Estate Development Loans totaling N20.195billion, Cooperative Housing Development Loans totaling N10.985billion, and Ministerial Pilot Housing Scheme loans totaling N6.873billion.
Of course, these numbers are pretty small when weighed against the massive housing deficit that experts estimate to range between 17-22million units. The framers of the FMBN Act designed the Bank to play a more profound role as a catalyst of affordable housing growth. However, in reality, the Bank faces systemic encumbrances that have limited its ability to deliver the expected impact.
Housing analysts and stakeholders familiar with the FMBN Act and trends in the housing industry agree that FMBN would have recorded more significant achievements and impacted the housing deficit more save for two key factors.
One is adequate capitalisation, and two, a more robust National Housing Fund (NHF) scheme. At the core of these two pivotal factors lies finance.
This argument has merit at many levels. Take the size of the Bank’s capital base for a start. Statutorily, the FMBN has a total capitalisation of N5 billion.
The equivalent stake of its owners is 50 per cent for the federal government, 30 per cent for the Central Bank of Nigeria (CBN), and 20 per cent for the National Social Insurance Trust Fund (NSITF). Unfortunately, while the federal government with a 50 per cent stake has redeemed its share totaling N2.5 billion, none of the others are yet to do their bit; the CBN and the NSITF are yet to put down the cash value of their 30 and 20 per cent shareholdings, respectively.
This longstanding handicap has constrained the FMBN’s capacity to leverage housing finance to boost housing development and counter the housing deficit.
The second argument bordering on NHF’s financial resilience is also vital. Framers of the NHF in 1992 empowered the scheme with well-defined sources of finance to drive FMBN
operations.
First is the mandatory monthly contribution of 2.5 per cent of workers’ salaries. Second, commercial banks’ investment of 10 per cent of loan portfolios.
Three, insurance companies’ investment of 40 per cent and 20 per cent of life and non-life funds, and four, federal government direct financing interventions.
Unfortunately, gaps in the program’s framework have led to its abuse. The concerned financial institutions have failed to comply with the Act’s provisions, and legal enforcement has proven difficult owing to several institutional factors.
The federal government has also not lived up to its obligation to periodically inject capital into the scheme.
As a result, the NHF relies on the 2.5 per cent monthly contributions from workers’ salaries to drive its operations.
So from funds accruing to NHF, FMBN has done a remarkable job within the past four years.
The management team leading the Bank for the past four years has shown that progress and impact are possible despite these weaknesses.
Ahmed Musa Dangiwa leads the team as Managing Director. In April 2017, when President Muhammadu Buhari appointed Dangiwa to head FMBN as its Managing Director/Chief Executive, many industry experts widely commended his choice as fit and wise.
And for good reasons. First, Dangiwa combined an impressive track record of academic excellence and private sector experience as a housing industry practitioner and professional.
He boasts an MSc in Architecture and a master’s degree in business administration on the academic front, providing relevant foundations for his role.
Second, he had built an enviable track record as a successful, practicing architect with over thirty years of wide-ranging experience and understands at both the theoretical and practical levels the business of real estate as well as the social imperative upon which it rests. His career spanned both the private and public sectors.
From 1996 until his appointment, he built two leading architectural and construction companies: AM Design Consults, an architectural and real estate development consultancy firm, and Jarlo International Nigeria Limiteed, a construction company.
As the driver of those companies, he acquired practical experience in designing and supervising the delivery of several outstanding housing and related projects in diverse areas and sectors across the country.
Besides his expertise and experience as a top-level real estate consultant, Dangiwa came onboard as someone already familiar with the mortgage banking industry. He had worked with Sahel Mortgage Finance Limited, where he rose through the ranks from being a Property Manager to Manager of the Mortgage Banking Division.
In this role, Dangiwa experienced at close range the nitty-gritty of the mortgage industry, how it works, and the social impact that it can have in stimulating the growth of the housing sector and the economy at large.
Specifically, he designed and constructed various mortgage and real estate projects that provide housing solutions to different stakeholders, especially in the social mass housing end.
It has been four years since Dangiwa was appointed FMBN MD/CEO. A broad range of housing industry analysts and professionals attest that he has brought a new era of positive change at the FMBN. Dangiwa has led his equally competent management team to champion a series of bold corporate reforms and a private sector management edge to bear on the Bank’s operations.
Consider the accelerated stakeholder rally to bolster the financial capacity of the Bank. The Dangiwa-led management of the FMBN successfully lobbied critical players in the industry and the National Assembly to pass the reviewed FMBN and NHF establishment Acts. Although the president declined assent to the two bills, the feat is a critical milestone in the over twelve-year history of repealing the bills. FMBN is engaging stakeholders on identified problem provisions and, once resolved, the president is likely to grant consent. With two more years left, the possibility of ending this longstanding attempt to review the FMBN and NHF Acts within the Buhari administration is still high.
The implications for the FMBN are enormous. First, the reviewed Acts will provide the legal foundation for the Bank’s recapitalisation to the tune of N500 billion.
With such a heavy war chest, the FMBN will provide more housing loans to more Nigerian workers and catalyse housing development. Another notable result will be a stronger, more financially liquid NHF with a more robust legal framework for enforcing compliance to its provisions.
As the lead man at the FMBN in the past four years, Arc, Dangiwa has demonstrated a passionate commitment to putting the Nigerian worker first.
“I believe that in executing the mandate of the FMBN to deliver affordable housing, we must improve access to cheap housing finance and encourage developers to build houses that workers can afford,” he remarked recently.
“From design to finish, the uppermost consideration must be the financial capacity of workers. Many previous housing programs have failed in the past because they were not built based on a thorough understanding of the financial dynamic of the Nigerian worker in mind”.
A good reflection of this “worker-centric” mindset that Dangiwa has brought to bear on the Bank’s operations includes reducing the equity requirement for housing loans.
Instead of five and 20 per cent equity requirements, workers now pay zero equity for loans below N5 million and only 10 per cent for loans from N5 million to N15 million.
He has also led the Bank to introduce the ‘Rent-to-Own’ Homeownership Scheme. The scheme allows a beneficiary to move into FMBN-owned housing property as a tenant and pay to own the property in monthly or annual installments over 30 years at an interest rate of just nine per cent.
Another notable stride is the launch of FMBN Digital Platforms. The Digital Platforms have ushered in a new era of transparency and accountability in the National Housing Fund (NHF) operations by empowering contributors with real-time access to information on their NHF accounts.
Under his leadership, FMBN is implementing a digital core banking solution for its services. Once operational, it would help the FMBN to create an integrated technology-driven platform to activate its operations. On the back of the digital service provisioning eco-system, the Bank would then tackle the many systemic challenges that it has had to contend with over the years due to the largely manual nature of its operations.
Top on the list is fixing the longstanding inability of the Bank to update, in real-time, subscribers’ monthly contributions to the National Housing Fund (NHF) Scheme. The second is that the system would help redress the time it takes for subscribers to access credit from the Bank and, in the process, upgrade the overall customer experience of NHF subscribers.
Of particular note is the FinTrak Finance Module. Once implemented, it will aid the Bank in keeping proper records of its financial transaction of payments and receipts, general ledger, etc., that will provide the base for financial reporting.
Financial reporting automation would help improve audit readiness, promote reliable consolidation of financial statements, team sharing, optimised collaborations, electronic review, and monitoring while ensuring transparency and credibility of financial data.
Overall, the new direction of change at the FMBN inspires hope for expanding access to affordable housing for a more significant number of Nigerians. To sustain the tempo of reform at the FMBN, government and stakeholders should rally around the current management. They have demonstrated competence, transparency, and a passionate commitment to making a historic difference at the nation’s apex mortgage institution in dire need of reform. Enabling them to transform the Bank is critical to increasing access to affordable social housing for Nigerian workers.
Within the past four years alone, the Bank provided housing loans totaling N43.141 billion to 4,985 beneficiaries and Home Renovation Loans totaling N49.265billion to 60,500 beneficiaries