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

130 Walley
institution’s own capital. This is a source of funds that is both expensive
and limited, given that it cannot easily be increased.
Secondary mortgage markets have developed to different extents in
Africa, but the only true secondary mortgage market of any scale is in
South Africa. Although it is worth noting that Morocco and Tunisia have
developed securitization legal frameworks (in 1999 and 2001, respectively),
the actual usage of the instrument has been limited: three transactions
occurred in Morocco (US$150 million total) and two in Tunisia
(US$80 million), by a single institution in both cases. Morocco is currently
working to establish a mortgage-covered bond system, similar to
the European system, which would be the first of its kind on the African
continent.
Three key factors have enabled South Africa to develop the secondary
mortgage market where others have not been able to (see box 4.3). First,
there is a deep, active, and liquid government debt market. With some
exceptions this is a necessary precursor to private debt markets. It allows
“risk free” pricing points or benchmarks to be set, which allow the pricing
of private issuances. Second, an active and developed institutional investor
community is necessary. The life blood of secondary mortgage
Box 4.3
Pension-Backed Housing Loans in South Africa
Pension-secured housing loans are increasingly forming a critical part of the
financial sector’s housing finance armory in South Africa. Some 257,000 loans,
valued at R 4.8 billion, have been extended in the five-year period since inception
of the Financial Sector Charter in January 2004. In this case, the loans provided by
financiers to individuals are for housing purposes, and the collateral for the loan is
some percentage of the borrower’s accumulated retirement savings.
Proponents of the product see pension-secured housing loans as an integral
part of the private sector’s housing finance solution, which offers an opportunity
for low-income earners to release equity “trapped” in pension/provident funds to
satisfy immediate housing needs. They also see these loans as a means to ultimately
create wealth over the long term. Others view these loans as the first step
on the road to penury, putting people’s retirement savings at risk and, in the long
term, compounding the state’s burden of having to provide adequate social support
for an aging population.
Source: Sing, 2009.