Mortgage finance in sub-Saharan mortgage

A growing acceptance of personal debt as a way of meeting spiraling aspirations is driving the penetration of retail financial services into sub-Saharan markets.

For decades, the only way to fulfill the dream of home ownership in much of Africa has been to buy a house outright, making it a luxury reserved for the very rich. Most people build their houses incrementally, buying a component if and when they have enough cash to do so. Acquiring a plot of land and laying the foundation alone can take years and many houses exist in a perpetually unfinished state.

Excepting South Africa, the sub-Saharan mortgage market has been virtually non-existent up to a few years ago. Increasingly, populations in a number of sub-Saharan countries are being introduced to the concept of funding their lifestyles through debt. As formal personal financial services become more widely accepted on the continent, mortgages are now becoming an attainable reality for growing numbers of Africans. Yet despite optimism about the transformational potential of home ownership, few of these products truly extend below the well-heeled segment of society.

Scarcely discussed outside of South Africa a decade ago, mortgage products are now being aggressively rolled out in an attempt to capitalise on pent-up demand for financial services. Uganda and Kenya have proven to be fertile ground, where Standard Bank’s home loan services are accessible through their subsidiary, Stanbic. Barclays Kenya and Standard Chartered are also active across the region. The latter now offers mortgage products in Ghana, Uganda, Tanzania, Zimbabwe and Botswana. The eagerness to lend to consumers is shared by local banks, such as Skye Bank and Diamond Bank in Nigeria, which marks an evolution from their historical role, which amounted to little more than the recycling of deposits into short-term government bonds.

“If you look at the banking industry, whether it is in Kenya, Morocco or Nigeria, the next big thing is really consumer lending,” says Stephane Bwakira, portfolio manager at Stanlib, Standard Bank’s asset management arm. The modernisation and reform that has re-invigorated Africa’s banking sector in recent years is forcing banks to find alternative ways to deploy their capital, he argues. “The loan books are 80-85 percent commercial, versus 10-15 percent on the retail side. Obviously, with highly capitalised banks in a lot of countries, such as Nigeria, all fighting for the same business in the corporate space, the only place where they will actually maintain a good net interest margin and make good money is with the consumer.”

Sustained economic growth

Sub-Saharan Africa’s nascent personal finance markets are being fuelled by the sustained economic growth that underpins the development of the rest of the banking sector. High commodity prices, relative political stability and economic reform in the region have seen average annual growth rates in excess of 6 percent, and the International Monetary Fund expects the region to grow at an average rate of 6.4 percent in 2008. Economic success has manifested itself in the emergence of a middle class and increasing numbers of educated professionals from the diaspora returning to the continent. As more people enter the formal economy, the market for personal finance is seeing ever greater demand.

“It’s all about better economies,” exclaims Dominic Adu, the CEO of Ghana Home Loans. “The story is the same across Africa. Incomes are growing and…people feel a lot more confident to take on loans to buy their homes.” Ghana Home Loans operates under the supervision of the Bank of Ghana and its shareholders include South Africa’s Standard Bank. Mr Adu has high hopes for consumer borrowing in sub-Saharan Africa, and says that changing peoples’ perception of debt is an important step. “That is the first barrier. They perceive debt as a negative thing because they don’t understand the product. Once they become comfortable that debt is not something to be ashamed of, debt does not mean you’re going to be jailed, that you lose your livelihood, and that these institutions are there to help you overcome these concerns, they are happy to borrow.”

He is convinced that personal finance has the potential to transform African society. “It is still in its infancy but there is no doubt about it. We are seeing people who didn’t have any loans suddenly having a car loan, a television loan, a fridge loan and so on.”

Cross-selling potential

Friedemann Roy, director of the International Finance Corporation’s Africa Housing Programme, points to the broader potential of mortgage lending. “When you have a borrower, he stays with you for a couple of years. That allows you to not just give a housing loan but to sell life insurance, a current account and other savings products.”

According to Mr Roy, mortgage lending in Ghana increased from $2.4m in 2002 to $44.1m in June 2008, and there are signs that the customer base is widening. Since its inception in 2006, Ghana Home Loan’s average loan cost has dropped from $150,000 to $35,000. Yet even at these prices, mortgages remain out of reach for much of the country’s population. A $35,000 home loan is still around 35 times Ghana’s average household income.

by By Lanre Akinola