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

Housing Finance 129
the degree to which they are regulated vary from country to country, but
they are present across most of the continent. Very few offer any form of
loans with a term beyond one or two years, but their loans are commonly
used for housing materials in the incremental building process.
It is also worth highlighting that, in the absence of any widespread
provision of housing finance by banks, some countries have seen the
growth of lending through other channels such as social security funds or
employer-funded loans. Housing and real estate represents a major
investment for many social security funds, so providing loans to buy these
assets is part of a broader investment strategy, as well as providing additional
services to members. Staff loans are also common, especially within
banks themselves who see such loans as presenting a low credit risk and
a way of testing products before a wider launch.
Funding of Housing Finance
A range of funding options—from traditional deposits to, in some countries,
secondary mortgage markets—is available to housing finance lenders.
A major common difficulty faced across Africa is in matching the
maturity of the loan assets with an equally long-term funding base.
The traditional and most abundant form of funding for banks is deposits.
These may be retail deposits from consumers or deposits from corporations
or government bodies. Those lenders operating in the informal
space are also largely reliant on deposits and savings from their customers.
A major issue preventing the development of longer-term housing loans
is the reluctance of banks to engage in any form of maturity transformation.
This may be driven in part by conservative regulators wary of creating
any mismatch positions. The reality is that a large proportion of
deposits are “sticky,” and although they may be contractually short-term
or demand deposits, behaviorally they are the same as long-term funds.
This is especially true for deposits from government departments. This is
a fundamental precept for mortgage banking, on which building societies
in Europe were founded. Even taking 5 or 10 percent of deposits as
“behaviorally” long term can create a sufficient funding base to initiate a
large lending operation with terms extended out beyond 10 years. This
needs to be done with prudence, regular contractual and behavioral
analysis, and monitoring and reporting of deposits to the regulator, but it
does provide a core foundation for mortgage lending that can then be
complemented by other “wholesale” sources of funds.
Aside from deposits, the funding options in Africa remain limited—so
much so that often the only other source of long-term funds can be the