Repositioning FMBN for Affordable Mortgage Financing
The aggressive delivery of affordable housing for low and medium income earners appears to be the fulcrum on which the Federal Mortgage Bank of Nigeria (FMBN) is trying to reposition itself for leadership in mortgage financing, reportsNdubuisi Francis
Despite being in existence for several decades, the FMBN has been plagued by a combination of long-standing structural, institutional and policy challenges, which have negatively impacted its performance. Among them include undercapitalisation, lack of appropriate legal frameworks to enforce compliance to the provisions of the National Housing Fund (NHF) Act, and a deficient corporate governance system that eroded the confidence of critical local and international stakeholders.
But it does seem that a silver lining is in the horizon. Stakeholders in the housing sector agree that it has indeed been a good year for Nigeria’s foremost housing finance institution because of the innovative and progressive leadership of the new management team of the bank.
As the Managing Director, Arch. Ahmed Musa Dangiwa and his management team mark one year of overseeing affairs at the bank, it is instructive that he had clearly outlined his mission for the housing sector in his inaugural speech with an avowed commitment to pursue “a mortgage finance change agenda”, underscored by an aggressive multi-pronged strategy anchored on key priorities.
These include the promotion of a sound corporate governance culture to ensure transparency and accountability, implementation of a robust enterprise-wide risk management framework and an aggressive debt recovery drive. Other key planks of the plan comprised cost containment to ensure judicious use of resources; improvement of stakeholder relationship as well as the automation of business processes.
Performance indicators of the bank, one year down the line, seem to give practical expression of the aggressive implementation and effectiveness of the agenda which focuses on the delivery of affordable housing for low and medium income earners.
In the last 12 months, FMBN disbursed N7.1 billion (about 10 per cent) of the cumulative N78.2 billion NHF mortgage loan, through which 993 Nigerians achieved their dream of becoming homeowners. Its Home Renovation Loan portfolio, which provides microfinance loans to improve housing conditions also grew from N2.1 billion to N9.9 billion and from just 2,579 beneficiaries to 11,927. FMBN funded housing units also rose from 20,435 to 25,850 while construction loan portfolio grew by N12.3 billion, a 16 per cent rise from N79.2 billion to N91.6 billion. Overall, a total of N27.2 billion was disbursed within the review period (15 per cent of the aggregate loan portfolio of N179.7 billion).
The Bank’s process for the refund of NHF contributions was also greatly revamped in response to the concern of retired workers. Within the past one year, the sum of N7.8 billion (42 per cent of a cumulative N18.6 billion) was refunded to 64,676 ex-contributors. The current leadership has brought refreshing dynamism and clarity of purpose to Nigeria’s premier housing finance institution.
The management team not only displayed a quick understanding of these issues which torpedoed the performance of FMBN, but clear and quick in defining strategic actions to tackle them. It has done a good job of following through (at political and administrative levels), to earn good results.
The N500bn recapitalisation drive
A stakeholder rally to support the recapitalisation of FMBN from the current N5 billion capital base to at least N500 billion had been held. Even with the N5 billion capital base, only N2.5 billion or 50 per cent of it is paid-up. The Dangiwa-led management is spearheading the move to accelerate the final push to actualise the process of recapitalisation. The drive is renewed via strategic stakeholders and public advocacy, effectively using public and media outings, meetings and events. In collaboration with the Ministry of Power, Works & Housing, politicians, housing industry leaders as well as influential persons in the executive and legislature are being wooed to secure their buy-in on the need to expand and strengthen the Bank’s financial capacity to deliver on its mandate of providing affordable housing..
Considering the overall benefits, the management’s push to actualise the longstanding recapitalisation plan is one that deserves the support of stakeholders to enable the Bank provide affordable mortgages to more Nigerians through social housing. .
Reviewing the FMBN Act
FMBN’s management team also did a good job of rallying stakeholder support for the Bill to review the extant FMBN Act before the National Assembly. The Bill is meant to usher in a comprehensive overhaul of FMBN and strengthen its board to make it more effective by including stakeholders such as the Nigeria Labour Congress (NLC), Trade Union Congress (TUC), Nigeria Employers Consultative Association (NECA), etc. The Bill also supports the recapitalisation by prescribing a N500 billion share capital base with sole ownership. Dangiwa believes the bank should be wholly-owned by the federal government to avoid conflict of interest with co-owners–Central Bank of Nigeria (CBN) and Nigeria Social Insurance Trust Fund (NSITF).
Building a New Culture of Corporate Governance
FMBN has taken bold measures to strengthen the institutional system of rules, practices, and processes that guide the conduct of its operations as a necessary measure to win back the confidence of local and international investors as well as critical stakeholders in the industry.
These include the adoption of a robust Corporate Governance Framework which was put together by a reputable consultancy firms affiliated to the Institute of Directors. With the recent appointment of seasoned professionals to the Board of FMBN under the chairmanship of Dr. Adewale Adeeyo, the corporate governance project is set to be completed. The FMBN governance structure is also instituting a robust enterprise risk management framework facilitated by one of the world’s most reputable consulting firms, and aggressive debt recovery and cost containment.
The totality of the corporate governance culture are to achieve accountability, fairness, transparency and a sound corporate culture, all necessary to maintain the integrity of the Bank. The emphasis on ensuring that FMBN complies with international standards for conducting its operations is critical to efforts to reform it. If FMBN is to succeed as an institution with the mandate to develop a robust housing finance system, create a vibrant housing finance market, source funds from the capital market; having an operational framework that is transparent and complies with international best standards is fundamental. It is also needed to win back the confidence of global financing agencies such as the World Bank, and the International Finance Corporation, among others who have long seen it as a government-owned entity that is not primed for performance and results but political patronage.
Innovative Solutions to the Affordability Challenge
Series of innovative solutions have been developed and implemented to tackle the housing affordability problem which had prevented most Nigerian workers, particularly public servants, from taking advantage of FMBN’s housing solutions. A major challenge is the inability of public servants, because of their meagre incomes, to come up with equity contribution necessary for accessing mortgage facilities to purchase housing estates funded by FMBN in collaboration with real estate developers nationwide. FMBN’s underwriting guidelines require 10 per cent down payments (for loans of under N5 million), 20 per cent (for loans of between N5 and N10 million) and 30 per cent (for loans between N10 – N15 million). The FMBN management has adopted two innovative approaches to overcome this challenge.
One is the capitalisation of equity contributions and mortgage perfection fees over a two-year period for mortgage loans under N5 million. Loan applicants, therefore, do not require to make any down payment, thereby reducing upfront costs of homeownership by about 20 per cent. This has lessened the burden on low-income workers and opened up a new window of opportunity for more persons to partake in FMBN housing schemes. The FMBN CEO is strongly advocating a downward reduction of equity requirements for the higher loan classes, by between 10 and 20 per cent respectively.
Two, efforts are being put in to tidy up a ‘rent-to-own’ scheme designed to enable public servants and other low/medium income earners own houses funded by FMBN across the nation and pay on very convenient terms. Once approved for implementation, the ‘rent-to-own’ scheme, modelled along the lines of housing solutions in advanced countries, will serve as a significant innovative solution. Dangiwa described it thus: “It is almost like the owner-occupier which we used to have in the past. For instance, the Festac ‘77 houses built in the 1970s were built by the federal government for guests of the Pan-African festival and when they left, the houses were given out to Nigerians. The allottees were paying rent and at the same time, owning the house. Most of the FMBN) houses that are ready and are on ground now, can be used as the testing ground for this policy. This one is good even for the informal sector.”
FMBN’s strategic efforts to reach more Nigerians are also as much, a refreshing development that will buoy the Buhari administration’s promise to provide affordable housing to Nigerians. As an agency that was specifically set up to provide social housing, a vibrant, professionally run, and financially capable FMBN has the unique potential to significantly increase the chances of ordinary Nigerians accessing low-interest mortgage loans to purchase or build their dream homes with convenient payment plans.
At the heart of FMBN’s mass appeal is its low-interest rates and long pay-back periods. It offers loans at the lowest interest rates in the market of 6 per cent and the longest payback period of up to 30years. This is miles away from commercial rates that hover above 19 per cent.
The new management team has no doubt started off on a good note. Dangiwa as the arrowhead has proven himself a remarkably brilliant technocrat who combines the clarity of vision and passion with a robust capacity for progressive action.
The Bank’s leadership style reveals a multi-pronged strategy: to strengthen the legal and institutional framework as a premier mortgage institution with the capacity to enforce compliance and recover outstanding loans, and to tweak and create innovative mortgage products that are friendly, which speak directly to the social and economic realities of the target audience. The strategy also involves expanding and strengthening its financial base and capacity to fund social housing projects and chart a new course for affordable housing provision.
Fourth, to ensure adherence to corporate governance principles and risk management, towards winning the confidence of local and international stakeholders whose partnership and support will significantly boost its operations. These are strong pillars of growth and Dangiwa and his management team deserve the support of all stakeholders as he gears up for another year at FMBN.