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

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financial literacy. A clear lesson from the crisis is the need for an effective
consumer protection framework. The creation of consumer protection
agencies with direct responsibility for financial services in both the
United Kingdom and the United States is a clear sign of intent by the
authorities. The need for such regulation is especially important in
housing finance because of the size of the financial commitment
relative to income, as well as the length of the commitment. In Africa,
consumer protection is often seen as a luxury part of market development
that only “developed” markets can afford. Quite the contrary:
given that much of the maturity transformation that is at the heart of
housing finance is based on confidence in the banking system, creating
mechanisms to underpin that confidence is crucial. This is all the more
necessary in markets where mortgages are not well understood and
levels of financial literacy are very low. A recent good example is the
new mortgage law passed in Tanzania, which explicitly requires lenders
to disclose pricing and terms and conditions of the mortgage loans in a
standard way that is comparable across lenders. As well as having laws
and regulations, having the systems to enforce them is also important.
Thus, having a clear complaint-handling procedure, and having dispute
resolution mechanisms or an ombudsman system are all important
parts of a working consumer protection framework.
In summary, the direct impact of the crisis on housing finance markets
in Africa has been relatively muted. This is in large part due to the overall
lower level of development of the mortgage sector and the lack of contagion
effect to Africa’s capital markets, which are not yet well integrated
into the global system. There are undoubtedly also some indirect impacts
resulting from the slower world growth that has had an effect on incomes
and prices. The expansion plans of large banking groups may also be subject
to some retrenchment. This reduction may slow the expansion of
financial access and development of new products. Equally, however,
many of the lessons learned and a more considered approach to opening
new housing finance markets could create better foundations for future
market development.
Obstacles to Financing the Housing Gap
Many constraints currently limit the growth of the housing finance market.
Figure 4.5 attempts to categorize some of the most prevalent obstacles
hampering the growth of housing finance across Africa. Each country