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

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144 Walley extremely well designed to ensure delivery of “smart” subsidies that target the right population and provide the right incentive structure. • Guarantee or insurance mechanisms also have a role to play. Another way to incentivize lenders to move downmarket is to create a guarantee or insurance mechanism. Morocco has a particularly successful scheme, described in box 4.7. As with subsidies, the schemes have to be carefully designed to have the right impact and target the right population. Guarantees should also be properly accounted for and represent a contingent liability on the balance sheet of government. Private insurance schemes are unlikely to be successful currently given the lack of data, which is essential in managing the risk and pricing private mortgage insurance. Sound Macroeconomic Management This recommendation may seem obvious, but the actual impact of stable inflation is often underestimated. This chapter presents several examples Box 4.7 The Moroccan FOGARIM Guarantee Scheme for Low-Income Housing Finance Created in 2004, FOGARIM (Guarantee Fund for Irregular and Modest Earners) targets primarily low-income households with irregular earnings. It provides guarantees covering 70 percent of losses on mortgage loans. Because of the type of income of the borrowers, the main selection criteria are prices (limited to US$25,000) and the level of monthly installments, capped at about the equivalent of US$200 (at the upper-income threshold) and 40 percent of the households’ income (at the lower threshold). Guarantee can be enforced after nine months in arrears, once the foreclosure process has been initiated. After an initial phase where guarantees were granted for free, FOGARIM switched to a risk-linked premium system, where the amount of premiums is inversely linked to the size of the down payment. In 2009, FOGARIM was merged with another guarantee fund that targeted the moderate-income civil servants, middle-class independent workers, and nonresident Moroccans buying or building houses worth to US$100,000. The consolidated fund, Damane Assakane, was guaranteeing DH 9.3 billion at the end of 2010 (US$1.2 billion), while its own funds amounted to DH 0.95 billion. Source: Author.
Housing Finance 145 of the impact of extending the terms of mortgage loans and the impact on affordability. By reducing inflation expectations, the implied discount rate falls. This drop has the double benefit of reducing the rate of interest and making it economically viable to discount a loan over a longer period. Across much of Africa, interest rates are often in the range of 10 to 15 percent; at these levels, there is little benefit in extending mortgage terms beyond 10 years. This automatically puts a severe constraint on affordability. It is no coincidence that the two most successful housing finance markets in Africa are Morocco and South Africa, both of which have benefited from strong macroeconomic indicators that make long-term finance favorable. Another key macro variable that should be subject to much greater scrutiny in the countries of Africa is the price of real estate. Real estate price bubbles can destroy mortgage markets and set back efforts to develop housing finance. The bubbles may be caused by speculation on land or real estate and may be fueled by a credit expansion. Whatever the causes, the monetary authorities need access to the data and information as early as possible so they can take corrective action. In African countries where the supply of housing may be limited, together with limited price elasticity of supply, any increase in credit can rapidly result in house price inflation. Key macroeconomic management recommendations (to the extent that they directly impact housing finance) are as follows: • Manage inflation and inflation expectations. Inflation increases the cost of long-term money and does more to constrain affordability than almost any other single factor. • Develop fixed income markets. Consider the role of government in fostering the development of fixed income markets through its debt management policy. A yield curve can be constructed through the strategic issuance of benchmark bonds at different maturities. A regular debt issuance program is needed to maintain liquidity and secondary trading. The yield curve allows for improved pricing and transparency in longterm financing. • Actively monitor real estate prices for residential and commercial property. Together with bank exposures to real estate, such monitoring can
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lic Disclosure Authorized Public Di
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Financial Sector Development in Afr
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Contents Foreword Acknowledgments E
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Contents vii PART III Safeguarding
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Contents ix 4.4 Size of Mortgage Lo
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xii Foreword In their own way, each
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xiv Acknowledgments led by Stefan N
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xvi Editors and Contributors of Acc
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xviii Editors and Contributors deve
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xx Abbreviations FSB FSD FSDT FSI G
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2 Beck and Maimbo to the bottom of
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4 Beck and Maimbo advocate a “bui
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CHAPTER 1 Microfinance in Africa Al
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Microfinance in Africa 9 Figure 1.1
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Microfinance in Africa 11 A Special
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Microfinance in Africa 13 Figure 1.
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Microfinance in Africa 15 Impedimen
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Microfinance in Africa 17 Figure 1.
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Microfinance in Africa 19 to physic
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Microfinance in Africa 21 Understan
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Microfinance in Africa 23 Some exam
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Table 1.2 Fanikisha Project Type of
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Microfinance in Africa 27 world reg
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Microfinance in Africa 29 implicitl
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Microfinance in Africa 31 Financial
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Microfinance in Africa 33 situation
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Microfinance in Africa 35 have yet
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Microfinance in Africa 37 9. This i
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Microfinance in Africa 39 Ehrbeck,
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CHAPTER 2 Mobile Financial Services
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Mobile Financial Services in Africa
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Table 2.2 African First- and Second
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Table 2A.1 ID and SIM Registration
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79 Guinea Yes http://fr.allafrica.c
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Togo Yes http://www.mediaf.org/fr/t
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84 Coates and Hofmeister chains. It
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86 Coates and Hofmeister unions in
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88 Coates and Hofmeister trap for t
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90 Coates and Hofmeister Sources of
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92 Coates and Hofmeister Box 3.1 Ca
Page 116 and 117: 94 Coates and Hofmeister farm input
Page 118 and 119: 96 Coates and Hofmeister Technical
Page 120 and 121: 98 Coates and Hofmeister agree to b
Page 122 and 123: 100 Coates and Hofmeister Box 3.3 C
Page 124 and 125: 102 Coates and Hofmeister Attitudes
Page 126 and 127: 104 Coates and Hofmeister developin
Page 128 and 129: 106 Coates and Hofmeister specifica
Page 130 and 131: 108 Coates and Hofmeister ———
Page 133 and 134: CHAPTER 4 Housing Finance Simon Wal
Page 135 and 136: Housing Finance 113 Figure 4.1 Mort
Page 137 and 138: Housing Finance 115 countries, down
Page 139 and 140: Housing Finance 117 • The housing
Page 141 and 142: Housing Finance 119 limited to a fe
Page 143 and 144: Housing Finance 121 housing and inf
Page 145 and 146: Housing Finance 123 borrowed by ext
Page 147 and 148: Housing Finance 125 Box 4.1 Afforda
Page 149 and 150: Housing Finance 127 Box 4.2 South A
Page 151 and 152: Housing Finance 129 the degree to w
Page 153 and 154: Housing Finance 131 markets is the
Page 155 and 156: Housing Finance 133 are unable to o
Page 157 and 158: Housing Finance 135 greenfield vent
Page 159 and 160: Housing Finance 137 Figure 4.5 Obst
Page 161 and 162: Housing Finance 139 changes in the
Page 163 and 164: Housing Finance 141 • Introduce a
Page 165: Housing Finance 143 Box 4.6 Progres
Page 169 and 170: Housing Finance 147 funds. Within s
Page 171: Housing Finance 149 Hassler, O., an
Page 175 and 176: CHAPTER 5 The Reform Agenda for Fin
Page 177 and 178: The Reform Agenda for Financial Reg
Page 199: PART IV Financial Sector Reform: Ac
Page 202 and 203: 180 Dafe lack access to external in
Page 204 and 205: 182 Dafe having a positive theory o
Page 206 and 207: 184 Dafe In sum, high transaction c
Page 208 and 209: 186 Dafe through the selective allo
Page 210 and 211: 188 Dafe institutions of the indust
Page 212 and 213: 190 Dafe the boundaries of informat
Page 214 and 215: 192 Dafe range of examples of both
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194 Table 6.1 Period Since the end
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196 Dafe state-owned financial inst
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198 Dafe The degree of success, in
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200 Dafe Although the current conse
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202 Dafe The interdependence of the
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204 Dafe in the 1980s and 1990s wer
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206 Dafe Alternative Approaches to
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208 Table 6.2 Approach to explain/
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210 Dafe state-centered, and interd
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212 Dafe particularly important fac
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214 Dafe Table 6.3 (continued) Mana
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216 Dafe activism in the developing
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218 Dafe structures can undermine m
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220 Dafe Conclusion There is strong
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222 Dafe policy is not straightforw
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224 Dafe banks that open agents in
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226 Dafe Bankable Frontier Associat
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228 Dafe Goldsheid, R. 1958. “A S
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230 Dafe ———. 2001. Types of
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