Financial Sector Development in Africa: Opportunities ... - World Bank

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classed into general microfinance lenders offering a housing product and
those more focused on loans for housing purposes. The term housing
microfinance may be relatively new, but the concept has been around for
a long time. These institutions make small loans that are typically used for
incremental building or home improvement. The loan may come after a
savings period or be the result of earlier successful loan repayments. This
is the way a borrower is qualified for a larger, longer-term loan in the
absence of any formal credit history. One of the more successful providers
in Africa has been the Kuyassa Fund in South Africa, which may
provide a possible model for other markets. Given the relative wealth of
borrowers and the level of informality in terms of both income and property
ownership, housing microfinance has enormous potential, but it
needs to gain scale for it to become viable as a commercial activity.
Some African countries have gone down the route of specialized single
purpose nonbank mortgage lenders, or monoline lenders. Most notable
among these countries are Nigeria, which has primary mortgage institutions;
the Arab Republic of Egypt, which has mortgage finance companies;
Kenya, which has housing finance companies; and South Africa, which
has financial services providers specializing in mortgage lending. Typically
these institutions have a narrow banking license that limits their activities;
in particular, they are restricted on deposit collection. This means
that they typically rely on wholesale funding on the liabilities side of their
balance sheet. This type of institution has proved to be particularly vulnerable
during the crisis, when its cost of funds has risen to a much
greater extent than those lenders who have a deposit base. One response
has consolidation in the financial sector, with banks acquiring specialist
mortgage businesses or starting up their own. This is the case in Kenya
(S&L acquired by KCB); in Egypt, where a number of mortgage finance
companies have been acquired by banks; and in Nigeria, where banks
have been setting up primary mortgage institution subsidiaries to carry
out their mortgage lending business. This bank/subsidiary model allows a
specialization in mortgage lending, and it may attract some regulatory
benefits, but it avoids the funding downside because the bank can fall
back on a large deposit base.
The final category of lenders in Africa comprise those that operate in
the semi-formal area. They are often collectively referred to as savings
and credit cooperatives (SACCOs), but can include community banks
or credit unions. They operate in the space between the formal banking
sector and the much more informal microfinance lenders or the “susu”
savings schemes. How well established these semi-formal lenders are and