Examining ‘Next Level’ Affordable Housing Delivery at FMBN


By John M. Agbokpile

The Federal Mortgage Bank of Nigeria (FMBN) occupies a strategic position as a proven institutional enabler of affordable housing delivery to Nigerian workers. The apex mortgage bank provides mortgage loans at single digit interest rates that are as low as per cent per annum. Open market interest rates range from 22-25 per cent.

Secondly, it is the only institution that accommodates long- term housing loan payback periods of over 30 years. This is quite significant. For a long time, maximum tenors for housing loans offered by private sector players capped at five years. In part, because financial institutions largely relied on short-term deposits.

In the last couple of years, however, the Nigeria Mortgage Refinance Company (NMRC) has bolstered the liquidity position of mortgage lenders with longer term funds sourced from the capital market. As a result, they have in the recent past started offering housing loans with tenors of up to 20 years.

Another distinctive feature of FMBN’s suite of affordable housing products is its ability to offer zero equity requirement for loans below N5 million, and a maximum of 10 per cent equity for loans ranging from N5 million to N15 million. These terms are, unarguably, without competition in the Nigerian housing market. Together, they have over time fortified the bank’s unique status as the leader in the delivery of affordable housing to Nigerian workers.

Beyond these unique housing offers, FMBN also accounts for majority of housing loans and real estate development projects. As at date, the bank has disbursed housing loans totaling over N265 billion. The N265 billion represents an increase by over N112 billion or 74 per cent over the N152.5 billion, which the current management met in early 2017.

Also, it has funded the construction of over 29,133 housing units in collaboration with reputable property development companies across the country since inception. Within the last three years alone, about 8,700 new homes have been added, representing a growth of 43 per cent.

The paradox of potential versus expectation

Of course, these numbers are quite small when weighed against the massive housing deficit that experts estimate to range between 17-22million units. However, this is not much of a surprise given the limitations, which the bank has faced over the years. Housing analysts and stakeholders familiar with the Act establishing the bank and trends in the housing industry opined that FMBN would have recorded greater achievements and impacted the housing deficit more if two key factors were addressed properly.

One is adequate capitalisation and two, a stronger National Housing Fund (NHF) scheme. At the core of these two pivotal factors is finance – the inadequacy of it. Catalysing housing development requires capital intensive.
This argument has strong merit at many levels. Take the size of the bank’s capital base for a start. Statutorily, the FMBN is supposed to have a total capitalisation of N5 billion – a sum that is still grossly inadequate given its mandate.

Some of the mortgage institutions that the bank on-lends to have even higher levels of financial capitalisation than it does. Even at that, it is only 50 per cent of the FMBN’s capitalisation that is actually paid up by its principal shareholders, which includes the Federal Government of Nigeria (FGN), the Central Bank of Nigeria (CBN) and the National Social Insurance Trust Fund (NSITF).

While the federal government has redeemed its portion of the shares amounting to N2.5 billion, the CBN and the NSITF are yet to put down the cash value of their 30 and 20 per cent shareholdings respectively. Several efforts over the decades to ensure redemption have failed.

This strengthens the premise that that the core of the bank’s growth drawback is inadequate empowerment. Expectedly, this longstanding systemic handicap has in great part constrained the FMBN’s capacity to leverage housing finance – locally and internationally – with consequential implications on its drive to boost housing development and counter the housing deficit.

The second plank of the argument bordering on the National Housing Fund (NHF) scheme is also quite vital. The NHF, which serves as a key financial pillar of the FMBN has a rather weak base. When the scheme was conceived and established in 1992, it was designed to have several strong self-sustaining avenues for mobilizing on a large scale, low-cost, long-term funds that will support the provision of affordable housing loans to low and medium income Nigerians that are payable over longer periods of time.

This includes the mandatory monthly contribution of 2.5 per cent of workers’ salaries, investments in the scheme by commercial and merchant banks of 10 per cent of their loans and advances. Likewise, insurance companies were required to invest in the scheme. As the owner of the bank, the federal government was also obliged to periodically inject funds into the scheme to bolster its ability to function as a more effective tool for housing development, a key state objective.

Unfortunately, gaps in the program’s legal enforcement framework compromised the potency for impact. Over the years, commercial and merchant banks have failed to comply with the provisions of the Act. The federal government too has also over these decades not lived up to its obligation to periodically inject massive capital into the scheme. The NHF has only relied basically on the 2.5 per cent monthly contributions from workers’ salaries to drive its operations. In the face of these clear violations of the NHF Act by principal players, there appears little that could be done to enforce compliance using existing laws. What is clear however is that given the resources pooled from contributions from workers under the NHF, the FMBN has indeed posted proportionally commensurate results.

Next Level FMBN

Clearly, for the FMBN to unleash its full potential as a tool for driving the Buhari Affordable Housing Plan for Nigerian workers, these twin issues that anchor on inadequate financial resources must be addressed frontally as part of a broader strategic reform of the bank that reflects the urgent and rising demands for affordable housing in Nigeria.
The good news is that the current Board and Executive Management Team that has been leading the bank for the past three years have demonstrated that they realise the urgency of the task at hand, have a clear understanding of the issues at stake and have marshalled a clear action plan to path to fixing them.
Bold Ideas, Charting New Path

In the lead of the new push to reform the FMBN as a stronger and more impactful provider of affordable housing is Ahmed Musa Dangiwa, a simple-minded technocrat that combines simplicity, progressive action with a passion for change. In April 2017, when Dangiwa was appointed to head FMBN as its Managing Director/Chief Executive President Muhammadu Buhari, many industry experts widely commended his choice as fit and wise.

And for many good reasons. First, he combined an impressive track record of academic excellence and private sector experience as a housing industry practitioner and professional. On the academic front, he boasted an MSc in Architecture and a master’s degree in business administration both providing relevant foundations for his role.

Secondly, he had built an enviable track record as a successful, practicing architect with over thirty years of wide-ranging experience and understands at both the theoretical and practical levels the business of real estate as well as the social imperative upon which it rests. His career spanned both the private and public sectors.

From 1996 until his appointment, he built two leading architectural and construction companies: AM Design Consults, an architectural and real estate development consultancy firm and Jarlo International Nig. Ltd, a Construction Company. As the driver of those companies, he acquired practical experience in designing and supervising the delivery of several outstanding housing and related projects in diverse areas and sectors across the country.

Besides his expertise and experience as a top-level real estate consultant, Dangiwa came onboard as someone already familiar with the mortgage banking industry. He had worked with Sahel Mortgage Finance Limited where he rose through the ranks from being a Property Manager to the position of Manager of the Mortgage Banking Division. In this role, Dangiwa experienced at close range, the nitty gritty of the mortgage industry, how it works and the social impact that it can have in stimulating growth of the housing sector and the economy at large.

Specifically, he was involved in the design and construction of wide variety of mortgage and real estate projects that provide housing solutions to varieties of stakeholders, especially in the social mass housing end.
On Track to Deliver

Three years down the line and Dangiwa has not disappointed bookmakers. He has led his management team to champion a series of bold corporate reforms, aggressed pursued longstanding programs that are designed to unlock the potential of the bank for impact and brought a private sector management edge to bear on the operations of the bank.

Consider the accelerated stakeholder rally to bolster the financial capacity of the bank. The Dangiwa-led management of the FMBN successfully lobbied critical players in the industry and the National Assembly to pass the reviewed FMBN and NHF establishment Acts. Although, the president declined assent to the two bills, the feat stands as a key milestone in the over twelve-year history of several attempts to repeal the bills. Moreover, with the identification of the problematic provisions, the chances of securing presidential assent in the next round is now stronger. The possibility of ending this longstanding attempt to review the FMBN and NHF Acts is very high.

The implications for the FMBN are enormous. First, the reviewed Acts will provide the legal foundation for the recapitalization of the bank to the tune of N500billion. With such a heavy war chest, the FMBN will be able to provide more housing loans to more Nigerian workers and catalyse housing development. Another notable result will be a stronger, more financially liquid NHF with stronger legal framework for enforcing compliance to its provisions.

As the lead man at the FMBN in the past two years, Dangiwa, has demonstrated a passionate commitment to putting the Nigerian worker first.

“I believe that in executing the mandate of the FMBN to deliver affordable housing, we must improve access to cheap housing finance and encourage developers to build houses that workers can afford” he remarked recently.
“From design to finish, the uppermost consideration must be the financial capacity of workers. Many previous housing programs have failed in the past because they were not built based on a thorough understanding of the financial dynamic of the Nigerian worker in mind”.

A good reflection of this, “worker-centric” mindset that Dangiwa has brought to bear on the operations of the bank include the reduction in the equity requirement for housing loans. Instead of five per cent and 20 per cent equity requirement, workers now pay zero equity for loans below N5 million and only 10 per cent for loans from N5 million to N15 million.

He has also led the bank to introduce the ‘Rent-to-Own’ Homeownership Scheme. The scheme allows a beneficiary to move into FMBN-owned housing property as a tenant and pay to own the property in monthly or annual instalments over 30 years at an interest rate of just nine years.

Another notable stride of the FMBN under Dangiwa’s leadership is the launch of FMBN Digital Platforms. The Digital Platforms have ushered in a new era of transparency and accountability in the operations of the National Housing Fund (NHF) by empowering contributors with real-time access to information on their NHF accounts.

Overall, the new direction of change at the FMBN inspires hope for expansion of access to affordable housing for a greater number of Nigerians. To sustain the tempo of reform, government and stakeholders should rally round the current management and provide needed support in its plans to recapitalise the bank and review the NHF and FMBN Act, both critical to taking the bank to the Next Level, in line with the plans of the Buhari administration for housing development.

Agbokpile is a public policy analyst based in Abuja