he recent announcement by the Federal Government of Nigeria to reintroduce housing and car loans for its employees is a laudable intervention. President Goodluck Jonathan alluded to this plan while speaking as a guest at the 54th yearly conference of the Nigerian Economic Society. The initiative which will be part of the 2014 fiscal budgetary package, will also benefit workers in the private sector.
As part of the effort, the government has established a Mortgage Refinance Company (MRC) that will provide financial services to implement the programme. According to the Central Bank of Nigeria, part of the mandate of the new company would be for it to "act as a specialized second-tier institution which would provide short-term liquidity, long-term funding and/or guarantees to mortgage originators and housing lenders".
To the Nigerian labour force, this scheme could not have come at a more propitious time, as many look forward to government programmes that will ameliorate the asphyxiating working condition in the country. As people move into the cities, the problem of overcrowding in urban housing has pushed many lowly paid groups into taking shelters in shanties.
In advanced economies, homeownership is a life fulfilling pursuit for the working population, but this hope remains a tall dream for most low to middle- income workers in Nigeria. Depending on the location, the cost of building or buying a decent home in the country can be exorbitant.
Buying a car may also present yet another formidable property to acquire. The high prices of brand new cars have forced most Nigerians to resort to the market for used automobiles or depend on public transportation for movement.
Under these circumstances, and after nearly 40 years of service, the Nigerian worker may retire in near impecunious state without a car or a house. The President recognises that the situation is de-motivating and sometimes fertilizes the temptation for employees to engage in graft practices, which often undermines the effective and efficient delivery of government services.
It is in the light of the need to address the plight of workers and bring some measure of succour to the country's workforce, that the President Jonathan administration introduced the current loan idea. Fortuitously, the proposal offers a strong ray of hope, given the backdrop of the soft loan assistance of $300 million offered by the World Bank, through its branch of the International Development Association.
The prevailing interest rate of about 20 percent for mortgage lending, charged by Primary Mortgage Institutions (PMIs) is high and discourages borrowing. In addition, the average worker who approaches the bank for a house or car loan may encounter arduous loan grant constraints, as most bank managers remain largely risk- averse. Also, the average share of the Gross Domestic Product invested in housing has not adequately risen to meet the increased demand for houses in recent time.
But critics of the new initiative point at the existing Federal Mortgage Bank of Nigeria, whose mandates when interfaced with those of the newly established MRC, appear duplicative. In hindsight, they refer to similar government efforts in the past in setting up the Federal Housing Authority and the various operating licenses granted to the PMIs, all of which have not made much impact in solving the nation's housing problems.
They also drew attention to several cases in the past where the good intentions of government in creating institutions to meet specific needs of the people were mired in cesspools of corruption. They cited the recent case of the Nigerian Pension Fund where there was massive looting, allegedly by some of the managers of the Fund.
Yet, others express fears about debauched mortgage bank managers who engage in unethical practices of either appropriating loans to themselves through proxies, or circumventing lending guidelines and steering loans away from intended beneficiaries. How will the government insulate the MRC from these vices, even though the company is expected to be devoid of political interference?
Despite these skepticisms, however, there are expectations from housing experts and other stakeholders that the initiative will succeed if it is implemented according to its provisions to avoid the pitfalls of the past.
The MRC should direct its focus mainly on the low and middle-income earners: secretaries, drivers, clerks, messengers, etc. These are people who are often discounted in the loan grant calculations and bear the brunt of the nation's housing and car shortages.
The interest rate charged by the MRC has to be substantially lower than the current market rate to achieve the core objective of this new plan. Soft loans backed by the government as the guarantor will infuse confidence in the exercise and enhance wide accessibility by borrowers. In a mortgage refinance, however, a borrower can replace an existing debt obligation with another loan, usually under different terms.
As Nigerian workers prepare to ululate in happiness over the new programme, the MRC should streamline its loan application process to remove the usual administrative red-tapism that sometime stymie the activities of mortgage institutions. The scheme has be transparent and include a long-term loan repayment pathway that will remove undue burden and anxiety on borrowers.
On a cautionary note, loan beneficiaries must utilize the loans for the purpose for which they were obtained. Perhaps, it may be necessary for the MRC to create a technical or inspection unit to monitor how the loans are being utilized. The loans may be released in tranches, and a loan utilization report submitted by the Inspection Unit before subsequent installments can be released.
It is also imperative that beneficiaries adhere to city and town masterplans for building and other constructions. For instance, a situation where the Federal Capital Territory had to demolish over 124,000 houses in 2010, because homeowners contravened the Abuja Masterplan does not bode well for a country where the citizens are faced with acute housing challenges.
State governments should continue to make contributions toward providing decent homes and car ownerships for their employees. The House of Assembly in Ogun State approved two billion Naira loan for the government to finance mass housing for the residents. This year, Kwara State distributed three billion Naira car loans to about 5000 workers. Similarly, Edo State, in 2008, granted over ten billion Naira as car loans to its employees. These are praise-worthy gestures, but in a country with nearly 160 million people and only about 37 percent of her citizens own houses, all the governments' efforts pale into insignificance. Therefore, in the prevailing situation, there is the urgent need to do more.
The Federal and State governments cannot solve the enormous housing difficulties alone. The private mortgage lenders and estate developers can form a strong partnership with the government to tackle the estimated 17 million housing units deficits in the country. They can support the current project by reviewing downward the present terms and conditions under which they extend loans to borrowers. This will augment the MRC program and increase borrowing opportunities with its attendant benefits of economies of scale.
Nigeria subscribes to the United Nations Millennium Development Goals, part of which behoove nations to provide decent housing for her citizens. The Federal Government should continue to develop and re-design its workers' mortgage and car loan policies to make them more relevant and responsive to current challenges. Part of the policies should include offering affordable mass housing and car ownership loan programmes that will meet, not only the needs of the nation's workers, but indeed, all Nigerians who wish to own these properties.