low cost housing report in east africa

7/22/2019 Low Cost Housing Report in East Africa

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The Executive Summary 2

Background to the Peer Exchange 4

Country Paper Presentations (Tanzania, Kenya and Uganda) 7

International Reflections (Ghana, USAID/DCA) 19

Theme 1 - Private Sector Approaches to Affordable Housing 23

Theme 2 The Role of Housing Finance Intermediaries 29

Theme 3 The Role of Government: Regulatory Frameworks 34and Institutional Arrangements

Analysis of Trends 35

Importance of Peer to Peer Learning in East Africa 39

Defining Support Functions of the International Community 40

Implementation of Action Plans 42

List of Participants 48

CONTENTS


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The Executive Summary

Need for Housing Finance in East Africa is Great but so too are theOpportunities

The profound gap between the limited supply and enormous demand for

housing necessitates private lending for affordable housing.

Macro-economic conditions, monetary policy frameworks, and popular

participation are increasingly favorable for private lending for affordable

housing but reforms and regulations are not yet in place.

Banking sector is nascent but vibrant, dynamic and innovative.

Financial intermediaries provide a bridge between banks and the previously

un-bankable they are a key ingredient in financing affordable housing.

Government enablement of communities and markets is a pre-requisite for

greater private lending for affordable housing.

Collaboration in each country between the Ministries of Finance and Lands/

Housing is essential for the promotion of investment in affordable housing.

Cooperation between the Countries of East Africa Accelerates

Reform and Innovation

East African countries share common history, problems and solutions.

Most of the ingredients for policy reform and innovation are within East Africa.

Kenya offers a relatively mature domestic capital market and fully-liberalized

domestic financial service sector, including innovative micro-finance

institutions.

Tanzania offers a framework for policy and regulatory reform in mortgage

finance within the Second Generation Financial Sector Reforms, as well as

innovative partnerships between banks and cooperatives.

Uganda offers strong economic growth and a model for decentralization and

local self-governance: ingredients crucial for the delivery and maintenance of

basic services that augment housing.


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Peer Exchange is Sound Public Diplomacy and EffectiveDevelopment Cooperation

South-to-South, peer-to-peer learning supported by bilateral

experience and multilateral UN facilitation offers a powerful

model for development cooperation.

Bilateral support to such processes is sound public diplomacy as it

draws upon local talent/innovation, making available bilateral

expertise rather than proscribing policy.

Implementation of Action Plans Underway

Implementation of action plans prepared at the Peer Exchange are well

underway in Kenya, Tanzania and Uganda.

Kenya is establishing a special purpose development company for large-

scale housing development in slum areas of Nairobi in preparation for a

high-level investment conference (May 2006), while at the same time

presenting to Parliament a framework for asset backed securitization and

Housing Bill that will accelerate private lending for affordable housing.

Tanzania is developing a long-term credit facility for mortgage lending

available to private banks, with preferential consideration to banks

that partner with financial intermediaries, and is promoting a

commercially operated national housing finance institution a part of itssecond generation financial sector reforms.

Uganda, is preparing a national framework for the promotion of housing

finance.


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At its Twentieth Session in April2005, the Governing Council ofUN-HABITAT comprising 57 member

states of the United Nations conveneda high level dialogue on Financing

Human Settlements in Nairobi, Kenya.

Lasting over 3 hours in duration, the

dialogue included presentations from

heads of delegations from 6 member

states and over 50 interventionsfrom among 600 participatingrepresentatives of governments, local

authorities and nongovernmental

organizations. The debate thattranspired in Nairobi was regarded by

the Governing Council as a high point

of its Twentieth Session.Subsequently, the United StatesDepartment of Housing and UrbanDevelopment (HUD) -- one of the six

panel presenters -- and UN-HABITAT

held consultations to consider how

the US housing agency could sharelessons learned about public sector

support for private sector financing

of affordable housing. As a first step,

HUD and UN-HABITAT together with

the Government of Uganda proposed

to co-organize an initial peer exchangeto take place in Kampala, Uganda.Specifically to bring together for three

days HUD officials, select international

experts, and government and private

sector representatives from the Kenya,

Tanzania and Uganda to discuss ways

governments could facilitate private

sector lending for affordable housing.

Growing interest in the sub-region for

innovative approaches to financing

affordable housing made East Africa

it an ideal location for the peer

exchange. Commercial banks have

in recent years entered into retailmortgage lending, reacting to lower

interest rates and greater competition

in a newly-liberalized financial service

sector. Community organizations,cooperatives, and micro-financialinstitutions are emerging as credible

financial intermediaries often lending

where banks can not. The respective

Ministries of Housing and Finance in

the three East African countries are

exploring how best to support thesetrends with legislation and policyguidelines designed to ensure housingis affordable to the majority of their

populations.

The Human Settlements FinancingDivision (HSFD), the newest of fourdivisions of UN-HABITAT together the

International Programs Department of

HUD initiated the preparations for thePeer Exchange by developing an aide

memoir and consulting prospective

participants. The aide memoir outlinedthree sub-themes to help structure

the Peer Exchange, specifically:private sector approaches to housing

finance, financial intermediation, and

government enabling strategies.

UN-HABITAT then consultedg o v e r n m e n t o f f i c i a l s a n drepresentatives of private banks and

micro-finance institutions in thethree countries to identify ongoing

initiatives related to housing finance

and to discuss with them how a the

Peer Exchange could be designed to

accelerate these initiatives. In parallel,

HUD consulted the DevelopmentCredit Authority of the United States

Agency for International Development(DCA) and the International Housing

Finance Program of the Wharton Schoolof Business to solicit their interest in

participating in the Peer Exchange.

Background to the Peer Exchange


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The consensus reached among the

representatives consulted in preparationfor the 3-day event in Kampala was to

create a forum for country delegationsfrom Kenya, Tanzania and Uganda to

share ideas, learn from each other andinternational experiences. Consensus

was also reached about promoting

a working meeting rather than a

talk shop by agreeing to developcountry action plans based on ongoinghousing finance initiatives that could betaken forward after the Peer Exchange.

Participants agreed further to preparein depth country presentationsdrawing upon experiences ofgovernments and the private sector

in each of their respective countries.

Similarly, international participants

agreed to prepare backgroundpapers tapping innovations emerging

worldwide in housing finance, financialintermediation and governmentregulatory reform.


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The Peer Exchange commencedwith a series of opening remarks byrepresentatives of the organizinginstitutions, followed by presentations

by the heads of delegations on thestatus of housing finance in theirrespective countries.

Opening Remarks

The Honorable Francis Babu, Minister of Statefor Works, Housing and Communication (Housing)

officially opened the High-Level Peer Exchange. In hisopening remarks, he thanked the Government of theUnited States for making the Peer Exchange possibleand for offering its experiences in housing finance,and acknowledge the important role ofUN-HABITAT in facilitating the event and in promotingshelter for all. The Honorable Minister thanked alsothe senior representatives of the Governments of

Kenya and Tanzania, urging participants to adoptEast African solutions to East African problems of

rapid urbanization, housing, and slums. He alsoacknowledged in presence of the Development Credit

Authority of USAID, the Wharton School of Businessand the participation of representatives of theGovernment of Ghana.

Mr. Chris Williamsspeaking on behalf of Mrs. AnnaTibaijuka, Under-Secretary-General and Executive

Director of UN-HABITAT underscored the crisis ofhousing confronting the three countries of East

Africa and the importance of combining communityparticipation and private sector lending with dedicatedsupport from central and local governments. He lateroutlined the principles of the Peer Exchange to drawupon the talent and innovation within East Africa asthe central resource of policy reform and innovationin private lending for affordable housing.

Dr. Julius Malombe, Acting Director of Housing,Ministry of Lands and Housing (currently Ministry ofHousing) of the Government of Kenya emphasized the

excellent timing of the Peer Exchange. He explainedthe seriousness with which Kenya was addressing thecrisis of housing and slums, referencing the regulatoryreforms in the financial and housing sectors that arecurrently under discussion at the highest levels ofgovernment.

Ms. Shannon Sorzano, speaking on behalf of theHon. Alphonso Jackson, Secretary of Housing, US

Department of Housing and Urban Development(HUD) emphasized the importance of home ownershipas an engine for economic development. She urged

participants to view housing as an investment activityrather than as a social expenditure, explaining thatworldwide public expenditure for housing is limitedand therefore needs to leverage private capital ratherthan be the sole source of finance for housing. Ms.

Sorzano described the experience of housing financein the United States as a long-term process lasting

over 70 years and still continuing, arguing that thereare no quick fixes. She concluded that governmentsand private sector professionals in the sub-regioncan learn from experience in the United Statesand other countries but that ultimately they mustdevelop solutions that reflect the local conditions andstrengthens of East Africa.

Mr. Seleki, Director of Housing, Ministry of Landsand Human Settlements of the Government ofTanzania describing the recent success of efforts ofthe government to regularize land ownership in themajor cities of Tanzania. He indicated that with land

properly regularized, there was now the opportunityto promote private lending for affordable housing.

Opening Remarks and CountryPresentations


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Uganda

Country Paper


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Dr. William Kalema., Chairman of theUganda Investment Authority andCommissioner of the Commission ofAfrica, presented the paper offering

a comprehensive background to thechallenges of providing affordablehousing finance in the private sectorin Uganda. The key elements of thepaper are as follows:

The effect of political turmoil andeconomic instability of the 1971-1986era has led to indiscipline and lack of

enforcement of the building standardsand regulation and an accumulation of

housing backlog all over the countrywith a current backlog in 2005 of 80,000houses at the cost of $2.4 billion anda projected 2015 backlog of 300,000houses to cost $9 billion. Availableexisting liabilities for housing wouldcover only 13% of the value of housingbacklog in the capital Kampala.

The government instituted in 1992

a National Shelter Strategy to put ineffect constitutional land reform aimedat improving ownership, security oftenure and management of land, andthe divestiture of government ofphysical housing of civil servants.

Other steps taken by government tocreate an enabling environment forthe development of the housing sector

have been the implementation of thePEAP (Poverty Eradication Action Plan)aimed at improving the earning andsavings capacity of the poor, and thedivestiture of ownership of variousparastatal organizations and otherpolicies to stimulate economic growth.

Steps taken by the NSS have left many

gaps. These include the effectiveutilization of land use planning andenforcement of development standardsand regulations, and the provisionof development plans of urban andlocal authorities primary infrastructureand services. They also concern thelack of coordination of utility agencies

and developers and the high cost ofinfrastructure and development andservices because of lack of adequatelong term financial services.

The current status of mortgage financeis twofold. On the supply side, thepurchase of land, compensation ofexisting occupants where applicable,development of a master plans,provision of primary infrastructure, andthe landscaping and construction ofhousing units. On the demand side,

the completion of construction and thefinancing of the completion of houses

(in both cases lenders usually require30% down payment in money orequivalent value).

The two main mortgage financeproviders, (DFCU and HFCU) holda combined total of a paltry 2,000

mortgages worth only USD 43 million.These concentrate primarily on thedemand side of financing. Ninetypercent of the financial institutionsare commercial banks with short termmoney. The environment discourageslarge developers who use their ownresources or expensive commercialloans to finance projects. Consequently

most developers build in single unitor small batches resulting in high unitcosts and prices. Out of five millionhouseholds nationwide, approximately2,000 are financed by mortgages.The obstacles to increasing mortgagelending include the lack of long termUgandan shilling lending in both

Uganda Country Paper


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domestic banking system and onthe capital market with a match formortgages not helped by the lowdisposable income of the bulk of the

population. Complicating matters isthe fact that large amount of financialassets are held outside of the formalbanking system and are thereforeunavailable for intermediation.Further there is the limited awarenessof financial assets and a perceiveddifficulty of investing them as wellas financial illiteracy and low income

among the general population toservices a mortgage. Significant delays

at land registry in the registration ofproperties; the general poor quality ofexisting stock of mortgaged propertieswhich is a disincentive to developmentof a secondary market, and lack of trustin the quality of titles that discourageswould be buyers and mortgageproviders also feature in Uganda.

In response to these obstacles, the

Government of Uganda has takenseveral steps to support investment inthe housing sector. The government in1998 implemented the Land Act of theprovisions of the 1995 Constitution onthe right of ownership and tenure, andthe Land Sector Strategic Plan (LSSP)under which the land registry is beingcomputerized. A national housingpolicy is in place with work underway

to reform the pensions sector tobroaden the base for long term savingsand national identity program is beingevaluated to help curb fraud causedby misidentification. The governmenthas made a revision to the Land Surveyand the Town and Country Act withwork underway on a new land policycovering taxation traditional ownership

resettlement inheritance succession.Plans are underway for the establishmentof a Land Fund for compensationpurposes; to turn Kampala andenvirons into a metropolitan areawith a master plan; and the InspectorGeneral of Government (IGG) has beenstrengthened to enforce ethics.


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Other proposals for government actionin support of the housing sector areto review the Land Law to reducewrangling between developers and

occupants, while computerizingthe land office and training staff incustomer care and technical re-skillin the building profession. This officewill attempt to enforce zoning lawsbuilding standards and regulations.Efforts are being considered tocoordinate physical planning andprimary infrastructure development

and to put in place mechanismsto reimburse costs to developers

where applicable, and to put in placeappropriate regulatory framework formortgage finance institutions andfiscal incentives for long term savings inareas such as insurance, retirement andsocial security. Also on the agenda areefforts by the government to provideserviced land to developers of low cost

housing for low income earners whilereviewing the 18% vat on house prices

to buyers, and to embark on a programto promote financial literacy of thegeneral public; support the bankingsector to establish a credit ratingsystem to qualify bureaus and sourcesuitable long-term lines of credit forhousing development.

The main challenges are the low qualityof existing primary mortgages due tolow quality of underlying assets and thelow quality of existing housing stock

due to non-adherence to constructionstandards and in unplanned locationsmaking securitization difficult. Thegovernment in the coming years willtherefore develop a national strategy forcommercially viable housing bearingin mind the serious constraint of lackof availability of long term shillingliabilities in the financial sector.


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Kenya

Country Paper


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Dr. Malombe, Acting Director ofHousing of the Ministry of Landsand Housing, and by Mr. Julius Mwia,Acting Director of Operations,

Housing Finance, Ltd. jointly presentedthe report, beginning with key factsabout housing conditions inKenya.

They noted that the scale of thehousing challenge and therefore theinvestment required to address it areenormous. Sixty percent of Kenyans

urban residents live in slums andinformal settlements in large and small

cities throughout the country. The costof improving livelihoods of 5.4 millionKenyans living in slums between 2005and 2020 is estimated at KShs 880billion (US$12 billion) i.e. $ 787 millionper year. Urban annual housingdemand for lower middle and upperincome categories is estimated at

150,000 units; whiles current annualproduction is at 50,000. The cost of

meeting the 100,000 annual housingsupply deficit is KShs150 billion (US$2billion). An estimated 300,000 housingunits require improvements annually inrural areas, including small towns at anaverage cost of USD 1,000 each. This willrequire over Kshs 23 billion (US$307million) for the Rural HousingImprovement Program (RHIP).

The available public investment inhousing at present is a small proportionof what is required to finance thehousing gap in Kenya.Central government, local authorities,National Housing Corporation (NHC)and other public agencies have acombined average annual budgetaryallocation for housing of about Kshs 2

billion (USD 27 million) less than 1%of the require total amount. This publicsector expenditure spent on housing isless than 1% of the total annual revenuesof government and Local Authoritiesamounting to Kshs 283 billion (USD 2.7billion). Stated another way, total statespending on housing is less than 0.5%

of annual Central Government Budgetand less than 0.2% of the nations grossdomestic product (Kshs 1.2 Trillion).The average annual financing gap to be

filled by the private sector, communitysavings and other non-governmentalorganizations is Kshs230 billion (USD3.07 billion).

The Government of Kenya recognizesthe need to create conditions

conducive for non- governmentalactors to invest in housing given the

huge sums of money required to meetthe housing gap and the limitationsof public expenditure. Private sectorlending for housing will requireseveral key conditions for investment.Interest rates need to be reduced foraffordability by removing from the cashreserve requirements deposits relatedto housing so that mortgage interestrates will not exceed 13% such that 91-

day treasury bills should range 4-6%,ten-year bonds should be in the region8- 9%, and 20-year infrastructure bondsbe at 10- 11%. The proposed CentralBank Interest benchmark rate shouldbe based on the underlying inflationrate that is more stable instead of theoverall inflation rate. Money supply canbe increased and cash reserve ratio can

be reduced by the Central Bank as longas the economy is growing in real termswithout leading to a fueling of demand-pull-inflation, to make credit availablefor housing. The careful managementof the exchange rate of the KenyanShilling is necessary because a strongshilling helps imports of oil etc., but

Kenya Country Paper


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hurts exports (e.g. flowers, tea, coffee,tourism). Further, a stable yield curvewill enable institutions in the housingand infrastructure sectors to raise

money cheaply and in large volumeand invest in development of housingto absorb any increased money supplyand address inflation. Kenya lacks asovereign rating that is needed togive local ratings international flavor/legitimacy.

The proposed policy actions in the

coming year necessary to create theabove conditions for private lending for

affordable housing include finalizationof the already adopted June 2004National Housing Bill, paper 3 as policy,and the decimation to create awarenessof the bill. The Government of Kenya isalso considering the establishment of aNational Housing Authority. It wouldbe charged with the responsibility of

standardizing mortgage documents,enforcing foreclosures, compiling data

on volumes of mortgages and housingbuilt stock, carrying out research,and actualizing the proposed CreditReference Bureau to shorten timeperiod of processes. The Central Bankproposed policy action would be toset a minimum percentage lending tothe housing sector and accelerate thepromotion/establishment of micro-finance institutions (MFIs) to bring

banking services to the people therebyimproving savings, and increasingdeposits bases and the ability of peopleto borrow. This may include efforts byKenya to submit assessments tointernational rating agencies to helpMFIs.

The legislative proposals that could

further attract private investment forhousing include incorporating intothe FY2005/6 Budget and Finance Actapproval for the creation of specialpurpose vehicles or SPVs.Effectiveness of such publicly-chartered,commercially owned and operated,combined housing development and

mortgage companies will requireexemption of Stamp duty on assettransfers for securitization and taxemption on income-earned by the

SPV. The Capital Markets Authoritycan accelerate the implementationof such legislative reforms for transferfor securitization. There will be needto amend the retirement benefit rulesto enable members to borrow forhousing with guarantee from theirpension/provident funds. Further, itwill be necessary for government to

review and possibly amend all acts,rules and regulations that govern rents.

Other proposals which will provideincentives for the housing sectorare:

Free Land, tax holidays over a 10-yearperiod for developers of specified housing.

Reduced costs of infrastructure such as

water, electricity, roads etc.

Tax waiver withholding tax on mortgage bonds.

Increase of interest on mortgage relief andtenant purchase.

Increase in housing sector budget provision to

say 5% of revenues.

Government to sort out land for housing to begiven to developers.

Build financial capacity/expertise of buildingauthorities.

Establish a mortgage insurance Scheme forlenders.


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Tanzania

Country Paper


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The Tanzanian country report waspresented by Mr. N.K Mchechu,Director of Housing of the Ministry ofLands and Human Settlements. The

overall financial sector in Tanzania wasliberalized in 1991 but lacked a stable,long-term housing finance institutionwith collapse in 1995 of the TanzaniaHousing Bank. The general trend inTanzania today is that home ownersmobilize their own funds to acquirehousing often from non-housingcredit financing.

The estimated housing shortage in

Tanzania is 2.2 million countrywide.There is an expected increase inthe estimated shortage due to rapidurbanization that is likely to rise from21.7% to in 2004 to 27% in 2007(estimates by the National HousingProgram 2002/2007). The Ministry ofLand estimates demand for formal land

for housing countrywide to be 150,000plots.

The supply of surveyed plots annuallyfrom 1991 to 2001 was 8,000 (i.e. 96.000over 10 years). Infrastructure provisionis poor overall in both planned anunplanned areas. Most households ownhouses from savings over a long periodof time. The lack of housing financehas tended to deprive low incomehouseholds of housing ownership and

for those who can afford to build it takesa longer period with residentialmobility constrained.

The challenges facing the housingfinance in the private sector are theneed to establish proper mortgage

finance system, and long-term financeoptions to enable households serviceloans of acquired homes as opposedto saving to buy while renting. There isneed to length the period used to buildhousing which freezes investments withno returns until houses are completed,and to orient housing finance systemsto enable opportunities for low income

earners in the society for houseownership. Such system must confront

the high rents for existing stock dueto slow construction period of housesthat often forces the poor into slums ormarginal land.

Since the winding down of the TanzaniaHousing Bank due to poor recoveryperformance and governance issues

in 1995, only two banks have offeredfinance for owner occupied housing:

Azania Bancorp and InternationalCommercial Bank. The overall estimatedamount of loans from these two bankscould be TZS 2 billion equaling 0.15%of the total assets of the private sector.The National Social Security Fund hasstarted offering finance to buyers ofthe housing it is developing, as are afew other organizations like the Bank ofTanzania to its employees. The Tanzania

macro economic management hasresulted in the lowering of inflation,paramount for long term financing andtherefore development on the capitalmarkets where two commercial bankshave issued bonds to raise longterm funds for mortgages.

There are difficulties facing the

development of the housing financemarket.Regarding the legal framework, the2004 amendment of the Land Lawabolished the powers of the lender/mortgagee to foreclose the equityon redemption making mortgageenforcement processes cumbersome,

Tanzania Country Paper


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lengthy and difficult and excludesmortgages for residential purposes.The capacity of the judicial systemto handle mortgage collateral

enforcement a new channel is alreadyclogged with long delays in mortgageexercise. The Bank of Tanzania doesnot encourage mortgage financingby requiring collaterization of largebank loans especially for residentialreal estate that requires the consent ofspouses living on the property in orderto mortgage. Concerning monetary

policies, there remains the problem ofmoping up liquidity in the monetary

system without creating high interestrates for housing which is at 15% for T/bills and so likely to push housing loaninterest rates to over 40%.

The country also faces difficulty inattracting medium and long termfunds. The challenge of availability ofmedium and long term liabilities tofund the growing need of medium tolong term assets, as the demand formedium term assets rise to reflect the

confidence of the business communityin the economy. Banks have a majorconstraint in lack of skills and systemsto manage the liquidity and marketrisks. The need for a better creditreference system, vital in mortgagefinance which in Tanzania is focusedon the confirmation of the borrowersemployment and income, because

the present laws prohibit access tobank records by a third party. There isthe need for more fiscal incentives toreduce the cost of mortgages, interestrates and other loans product suchas taxes rebate etc. Proposals toencourage the private lending forhousing include a progressively

enhanced legal framework that willresolve foreclosure laws and providejudicial clarity on due diligencerelating to spousal and matrimonial

consent. The legal framework will alsonecessitate the reinforcement of thejudicial system and the establishmentof communal laws that will facilitateswift processing and enforcementof mortgage disputes. Also forconsideration is the establishment of ahousing finance/liquidity facility to helpprimary mortgage lenders improve

their asset/liability ratios, attend toliquidity, and access to medium and

long term funds for the tenure oftheir traditional sources of funds.Greater bank lending in affordablehousing will also require technicalexpertise in mortgage lending whichis a new activity for most banks in thecountry, and training for consumers topromote understand about housing

finance systems, credit, and repaymentobligations. A further proposal is to

build upon existing efforts in Tanzaniato strengthen the land deliverysystem especially the land registrationprocess, the allocation of plot on costrecovery basis; involvement of theprivate sector; legal regularization ofinformal settlements, the provision ofinfrastructure, and transfer of land. TheGovernment of Tanzania is also keenlyaware that a subset of the population

will not be able to afford mortgagesand will require subsidize housing tobe administered by such organizationsas the National Housing Corporation(NHC) and the National SocialSecurity Fund (NSSF).

Regarding the former, yet anotherproposal is the restructuring the

National Housing Corporation into acommercially owned and operatedmortgage finance institution. Aspart of the transitioning of NHC, thegovernment would seek to utilize theasset base of the corporation (in excessof TZS300 billion, or USD 500 million) todevelop new housing for sale to create


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a regularized revenue stream, upgradeits existing houses and sell them atreal market prices to generate more

revenue; use the huge accumulationof unpaid rent to expand its housingprogram; and use the ability to raisemedium and long term liabilities fromthe capital market. NHC could aswell change its business structure to

reflect three main units: a house rentunit to deal with current business,concentrating on the key strategicprofitable area; a house development,

to deal with housing development;and a secondary market unit before theformal set up of secondary mortgagefinance and a treasury unit.


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Three speakers offered their reflectionson the country presentations andsubsequent question and answersession by drawing upon their

experience in housing finance outsideof East Africa. The speakers includedMr. John Wasielewski, Director theDevelopment Credit Authority ofUSAID; Mr. F. Dei of the Ministry of WaterResources, Works and Housing of theGovernment of Ghana; and Ms MarjaHeok-Smit, Director of the InternationalHousing Finance Program of the US-

based Wharton School of Business.

Development Credit Authority

Mr. Wasielewski urged participants to appreciatethat in East Africa and much of Africa, Asiaand Latin America, people are constructing alarge quantity of housing but that these assetsare rarely capitalized, leveraged, and used asinvestment vehicles. Citing the host city of thePeer Exchange he speculated that the value ofthe private housing stock in Kampala is probably

well over USD 500 million but its outside of thebanking system. He said that the Government of

Uganda could generate wealth and employmentif together with the private sector created theconditions for these properties to be used ascollateral to start small businesses and constructother buildings.

The Director of DCA said that he was impressedwith the talent, creative thinking, and

commitment of the participants from the threeEast African countries. The ingredients for

promoting private sector lending for affordablehousing were available and that if one tappedthe innovations emerging from each of the threecountries, one would have what is necessaryto move things forward. He urged participantsto draw inward on East Africa rather thanrely on official development assistance andinternational expertise as the drivers of change:

define an agenda and then engage selectivelywith ODA, where possible drawing on domesticcapital for financing housing and infrastructureas this would at once source requisite financingand deepen capital markets. Mr. Weleniskiconcluded with a brief overview of DCA localcurrency, partial guarantees offered to banksworking in partnership with governments and

private companies to improve living and workingconditions for people in Africa, Asia, Eastern

Europe and Latin America.

International Reflections


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Government of Ghana

Mr. Frank Dei expressed his thanks to the EastAfrican group for offering him the opportunityto come to Kampala from Accra to learnhow government officials and private sectorrepresentatives were trying to address the housingbacklog and promoting conditions for lending.He explained that the situation in Ghana wasin many ways similar to Kenya, Tanzania and

Uganda. Ghana has a population of about 20 mil-lion with 60% resident in the rural areas with an

estimated backlog of housing of about 600,000housing units. The annual demand is an averageof 125,000 units and supply presently at 25,000units with a net deficit of 100,000 units. Housingdelivery is largely by the formal private sector:Real estate developers and private individualswho cater mainly the high end of the mar-ket. Central government agencies and other

organizations deliver only a limited extent ofhousing in the country.

The amount required by government andthe private sector to eliminate the backlog ofhousing is estimated to be USD 5.4 billion, anda further USD 350 million per annum is requiredto keep pace with annual demand above whatis supplied. The challenges to providing a viablehousing finance system are to improve on the

countrys financial rating (currently B+), reduceinflation and interest rates to single digits fromthe current 12% and 15%, implement the GhanaPoverty Reduction Strategy II, approval of the re-viewed and completed wage and salary structure,and review the 1963 Rent Act (Act 220) that ad-dresses foreclosure, rent assessment, and disputeresolution mechanisms. Further the governmentseeks to establish a National Housing Authoritywhen the Review of the National Housing Pol-

icy is completed by the end of 2005 to addressissues of land tenure security, land registration,infrastructure provision and slum upgrading; to

establish a primary mortgage finance insti-tution to provide soft and long term credit to

developers; and a comprehensive program tobuild the capacity of all stake holders in housingfinance.

Interventions by government to facilitatedevelopment of housing finance are theacquisition of 50,000 acres of land throughoutGhana for housing by the private sector and the

provision of 5,000 serviced plots annually, andthe facilitation of 20,000 and 90,000 units of

various housing units for rental and direct saleannually. The government also plans to float a

National Housing Convertible Bond to raiseUS$200 million from local and foreign sources forhousing and to sell 5,665 low cost housing unitsto raise 350 billion Cedis (USD 28 million) to

provide more units. A further initiative of govern-ment is the provision of 150 billion Cedis (USD16 million) in 2005 budget and a further 250billion (USD 27 million) this year for social

housing.


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Global Perspectives on Housing

Finance

Ms Marja Heok-Smit drawing upon her expe-rience in Nigeria, Thailand, India, Chile, andMexico, offered a number of salient reflectionson the East Africa country presentations. Sheurged participants not to fixate on bond in-struments but rather to consider better bank

management strategies and the establishmentof a Liquidity Facility. She concurred with the

presentations that long-term capital is a problemand that banks face a mismatch between short-term deposits and exposure to long-term lend-ing but argued that tighter controls, advancedfinancial management techniques, and better in-formation technology platforms could solve halfthe problem. Ms. Heok-Smit encouraged partici-

pants to explore bonds, but also to consider the

establishment of liquidity facilities. She saidthat the experience in other countries show that

liquidity facilities offer alternatives to one-offbond instruments and can provide a more regularflow of long-term financing to mortgage lenders.She sited the US Federal Home Loan Banks, theCaisse de Refinancement Hypothecaaire (CRH),the Cagamas (recourse) Bank of Malysia, andthe Jordan Mortgage Refinancing Company.

The Professor of Anthropology and Interna-tional Finance also advised participants not toabandon the state in the process of promot-ing affordable shelter, as governments providefunctions that simply can not be undertaken bythe private sector. The Central Bureau of Statisticsin Kenya, Tanzania and Uganda, for example isthe source of information on risk that is crucial to

pricing mortgages and insurance. State insti-tutions can as well lower the cost of capital by

offering partial housing guarantees, helpingprivate lenders share risk; introduce a mortgageinsurance system that mitigates risk for lenders;

and enforcing foreclosure laws so that mortgagefinance rests on a viable legal framework-

The state is essential to any effort to ensuresecuritization of assets or establish liquidity win-dows. Generally speaking government enable of

private lending is about the lowering of transac-tion costs, risk mitigation, targeted subsidy, partialloan guarantees, and securitization. Ms. Heok-Smit concluded by underscoring the sentiments ofMr. Weleniski that the institutional and privateinvestors in East Africa held more capital than ten

years of official development assistance. Govern-

ment must play a central role in linking capitalmarkets to private lending for affordable hous-

ing. Fortunately, East Africans possess the talentand expertise to see this through provided theirgovernments exercise the requisite political will.


22/52


23/5223

Theme One - Private SectorApproaches to Affordable HousingHaving discussed in plenary the broadissue of housing finance, participantsworked in three small group sessionsto discuss private sector approaches

to affordable housing, the first of threethematic areas of the Peer Exchange.The purpose of this session was to offerparticipants and opportunity to zero-in on how private lenders saw the issueand how, from their perspective, creditcould be more readily extended to awider cross-section of the populationincluding low- income households.

The working groups were deliberatelycomprised of participants from

different countries such that peoplefrom Tanzania, Kenya, Uganda, and fromoutside the sub- region to learn fromeach other. Given the complexity ofprivate sector approaches to affordablehousing, each working groupsaddressed the theme from differentangles. Group one considered macro-

economic frameworks, financial sectorreforms, and capital markets; while

group two discussed questions of landregularization, housing policy and slumupgrading. Group three reviewed ingreater depth the questions raised in thecountry presentations about liquidity,long- term capital, housing markets,and loan product development. Whatfollows are the findings of the workinggroup sessions as reported in fullplenary session by representatives of

the groups.

Macro-EconomicFrameworks, Financial

Sector Reforms, andCapital Markets

Working group participants found thatfrom the perspective of the privatesector, a stable macro-economicenvironment is crucial. It can ensure astable yield curve in housing as itpromotes initiatives that contributesignificantly to poverty reduction and itimproves the homeowners credit

rating thereby increasing access to loanproducts. Regarding financial sector

reforms, these must address the supplyside of capital for mortgage finance,attracting capital from retirementbenefits (esp. pension funds), insurancecompanies, cooperatives, collectiveinvestment schemes/vehicle, retailbanking and micro-finance institutions.Such reforms at once increase the flow

of available finance for housing anddeepen the capital markets. Rating

agencies can facilitate financial sectorreforms by rating bonds and theinstitutions that are issuing them, andby increasing the acceptability of thedebt instruments to prospectivesubscribers and lowering the cost ofcapital. Regulatory frameworks need tosimply the issuance of debt instrumentsand eventually, securitize mortgagesso as to mobilize more capital for

housing finance.


24/5224

The working group urgedparticipants of the Peer Exchangeto consider a number of facilitationmeasures governments of the three

East African nations might use toaccelerate private lending foraffordable housing. These includethe establishment of:

Liquidity facilities with seed capital, operatedcommercially as public-private partnerships.

An apex body, preferably a publicly-chartered,

commercially operated housing development\ authority, to take charge of all aspects ofhousing delivery systems.

Tax incentives to developers (access to land orhighly subsidized land for special groups),financers (waive tax in interest on bondfor grace period), and consumers (rebate on

interest paid on mortgages).

Credit enhancements where government issues bond under its good name at

preferential rates, and passes it tocommercially operated housing developmentagent.

Credit enhancement where government

provides partial, local currency guarantee to

a private agent issuing the bond in order to lower cost and improve investor confidence.

Capacity building initiatives that strengthenline ministries, housing developmentauthorities, and implementing agencies;drawing targeted technical support frominternational agencies and outsourceddomestic expertise specializing in training.

Data collection and dissemination strategiesthat make information on marketconditions particularly of low-income

populations widely available to allimplementing parties and the public, throughenhancement of Central Bureaus ofStatistics (including specialized marketstudies).

The group concluded that from theperspective of the private sector,governments needed to move beyondgood ideas, and development concrete

implementation strategies. As a firststep, governments should considerseriously the immediate establishmentof an apex body for system- widehousing delivery, as appropriate to eachcountry, preferably an independent,commercially operated housingdevelopment authority. This should beaugmented by efforts by multilateral

development agencies, such asUN-HABITAT, to use their convening

power to facilitate the coordination andimplementation of recommendationsof Peer Exchanges. Fund raisingstrategies should be put into place toattract targeted technical assistanceand seed capital (grants, soft-loans, andloan guarantees) to actualize thespecific recommendations.


25/5225

The group observed that theemphasis placed by governmentshousing delivery/promotion in thepost independence era has declined

such that it is not a priority in thenational budget nor does it featureprominently in strategic documentssuch as the Poverty ReductionStrategy Papers. All three countries are,however, in the process of reviewingpolicies, regulatory and institutionalframeworks to ensure the environmentis conducive for private capital to be

invested in housing and related urbaninfrastructure. These include reforms

directed at land regularization, housingpolicy and slum upgrading that impactdirectly on the incentives of banks andcapital markets to reach what in mostcities of the sub-region constitute themajority of the urban population.

Of the three countries Kenya is the

most advanced in the promotion ofhousing policy and slum upgrading.

This is evidenced by the adoption of aNational Housing Policy and the specialtrust fund for slum upgrading, low-costhousing and infrastructure (with USD7 million allocated in FY05/06 nationalbudget). Thestrategies pursued by thegovernment include increasing accessto land, research on low-cost buildingmaterials and technology, and reformof the banking and insurance acts.

A draft housing act is now in placefor consideration and adoption byparliament. The government has alsoestablished a Civil Servant HousingFund that will be financed in partby the proceeds of sales of statehousing.

Where Kenya has excelled in housing

policy, Tanzania has made significantprogress in regularizing land. In 1995,the country put in place a national landpolicy and in 1999 Land Acts No. 4 andNo. 5, followed by the Land RegulationsAct in 2002. Since 2003, the Land Actshave been put into use in a project fordelivering more than 30,000 plots in Dar

es Salaam and 3,500 plots in Mwanza.The Ministry of Lands and HumanSettlements is currently in the processof regularizing informal settlements

where 300,000 houses have beenregistered and where government isready for issuing owners with ResidentialLicenses. These licenses are regardedas important in enabling the ownersto access loans from formal financialinstitutions. Government has in placea number slum upgrading initiatives inpartnership with UN-HABITAT and the

World Bank, and is seeking toimplement the recommendations of a

joint government of Tanzania andUN-HABITAT study on the revitalizationof housing finance. The Ministry ofLands intends in 2006 to preparea National Housing Act.

The Government of Uganda has beensuccessful in implementing a national

decentralization policy such that localauthorities enjoy powers of local self

governance that are not yet in place inKenya and Tanzania. While land reformand housing policy are not as advancedin the other two countries, the countryhas in place local council structures forimplementing such reforms at the locallevel. Constitutional land reform hasbeen undertaken to streamline landtenure and establish the basis for landpolicy. A land sector strategic plan has

been developed and is now in place.The Ministry of Works, Housing andCommunications is currently preparinga National Housing Policy and aNational Housing Revolving Fundfinanced, as in Kenya, using theproceeds from sales of governmenthousing.

Land Regularization, HousingPolicy, and Slum Upgrading


26/5226

Having reviewed the current policyand regulatory changes underway inthe three countries of East Africa,the working group argued that within

the sub-region there are experiencesof relevance to each country. Theconcluded by making specificrecommendations for governmentto actively promote:

Security of tenure in informal settlements in

line with the Tanzania model but taking intoconsideration the land tenure situation pe-

culiar to each country. Where land is privatelyowned, government should negotiate withland owners, engage in land servicing, and beopen to re-adjustment and sharing;

Status of land, housing, and housing financein national debates, national budgets, andstrategic negotiations with multilateral

development agencies (e.g. PRSPs);

Capacity of government line ministry to pro mote housing finance and interface with

private lending and micro-finance institutions;

Housing cooperatives in slums and work places as institutions for resource mobilization

among low-income populations.


27/5227

The working group urged participantsto be sensitive to the significantdifferences between the three countries

of East Africa as regards liquidity, long-term capital and the segmentationof the housing markets. Liquidity inKenya is particularly high becauseof the reduction in the cash reserveratio, the high retail deposit level in

commercial banks, and the relativelylight enforcement by the Central Bankof asset/liability mismatches. In Ugandathese factors are not at play and liquidity

is low as deposits are concentrated inonly a handful of large institutions.In Tanzania, liquidity is higher thanUganda and less than Kenya but, likeUganda, there the playing field ofprivate lenders is confined to very

few institutions. Long-term capitalis also mixed. In Kenya, institutionalinvestors such as the National SocialSecurity Fund (NSSF) and life insurancecompanies hold vast sums of moneythat could offer a viable source oflong-term capital for housing finance.In addition to the Capital MarketsAuthority (CMA), the governmentestablished in 1999, the Retirement

Benefits Authority as a regulator bodypromoting the use of pension schemesand provident funds that hold thefunds of long-term members. Furtherthere is active bond trading program

on the Nairobi Stock Exchange thatenables dis-intermediation and greateruse of long-term debt instruments. InTanzania an estimated USD 1 billion isheld in pension funds but insurance

companies have only just started andare relatively small by the standardsof Kenya. The National Social SecurityFund of Uganda is currently undercapitalized and insurance companies,

like in Tanzania, are only just enteringthe market.

The table below captures the variationamong the three countries in thesegmentation of the housing marketas measured by the portfolio ofoutstanding mortgages.

The working group noted that privatelenders tend to shy away from potentialmortgage borrowers in rural areasas they are perceived as risky andbecause foreclosure is more difficult torealize. Regarding finance for housingdevelopment as apposed to mortgagefinance, the situation in East Africa is

mixed. In Kenya, the private sectorprovides most of the finance. Banks

scout for developers and provide themwith bridge finance with a view tofinance the end buyers to liquidate thebridging loan. In Tanzania funding forhouse construction is sourced outsidethe banking system through personaland familial channels and overseesremittances. Very little finance isavailable in Uganda and Tanzaniafor housing development generally.

Country Kenya Uganda Tanzania

High-incomeborrowers

60 90 Too smallto calculate

Middle-incomeborrowers


Low-incomeborrowers


Total 100 100

Liquidity, Long-Term Capital,Housing Markets, Loan ProductDevelopment


28/52


29/5229

The previous working group reveals

that private lending in the sub-region

is confined to the high-income

borrowers and is only just recentlybeing extended to middle-incomeborrowers. Low-income borrowersat present are largely excluded from

the formal private sector lending. The

working group also reveals however

that the situation is changing due to

favorable macro- economic conditions,emerging capital markets, bank liquidity,land regularization initiatives, growing

recognition of the need for long-termcredit facilities, and the development

of innovative loan products. Private

lending to middle-income borrowers

is set to rise substantially in the comingyears in Kenya, Tanzania andUganda.

The degree to which this growth in

the provision of financial services in

the sub-region extends to the low-income populations will depend

largely on how banks and low-incomehouseholds relate. People living inslums and informal settlements have

made considerable efforts to access

credit in the absence of formal, privatesector lending. They have established

their own social lending arrangements,formed cooperatives and federated,

daily savings associations, and utilized

credit made available through agrowing micro-finance sector. What is

missing, however, is a bridge betweenbanks and lending arrangements ininformal settlements.

The participants of the Peer Exchange

addressed this bridge by examining

the role of financial intermediaries

cooperatives, apex organizations, micro-

finance institutions. They consideredfirst some concrete experiences in the

United States and in Tanzania, and thendelved more deeply into the issue in

small working groups presenting their

results in plenary.

Theme Two The Role of Financial Intermediaries

The Role of HousingCooperatives in the USA

Ms. Kakra Taylor Hayford gave a broad

overview of the cooperative housing inthe United States and the role they playin the housing market. The cooperativehousing market has a niche in the UnitedStates housing market in serving the

lower income population in the relativedensely populated areas of the countryand also special groups such as the

elderly, and physically handicapped.Organized groups of cooperative have

also served as development financial

intermediaries that can source capital

from private lenders and on lend to

cooperative members who are oftenunable to access credit directly.

Housing cooperatives in the United

States enable individual cooperatives

members an opportunity to own theirown housing units as well as cover the

cost of maintaining common services.

The cooperatives work with private

lenders to ensure their members fulfill

the banks requirements and become

qualified borrowers. The borrowers

then agree on the terms of financing

not only their own mortgages butalso the fees required to maintain the

utilities and services that they sharein common.

Partnerships betweenMortgage Lenders andHousing Cooperatives inTanzania

Mr. Charles Singili, Chief ExecutiveOfficer of Azania Bancorp, Ltd described

to the participants of the Peer Exchangea partnership his bank has entered intowith the Tanzania Womens Land AccessTrust (TAWLAT), a union of six womenshousing cooperatives in Dar es Salaam.Azania Bancorp has agreed to provide

two sets of lending arrangements.In the first set, the bank will furnish


30/5230

loans to members of the housingcooperatives that will enable those

members to purchase flats in a multi-

unit block housing project. TAWLAT will

work with Azania to identify and qualifyindividual women borrowers fromamong the cooperatives. In the secondset, the bank will provide TAWLAT withconstruction loan to build the blocks.

The financial intermediary will payback this loan with the

mortgages secured for

women who will own

and occupy theflats. UN-HABITAT aspart of the agreement

has made a grant tothe womens housing

cooperatives of USD100,000. Rather thangive the grant directly

to the cooperatives for

housing development

or housing purchase,UN- H A B IT A T h a sdeposited the monies

in Azania Bancorp with

the agreement by the

bank to use these fundsas a loan guarantee.Azania Bancorp willlend to members ofthe cooperative up to

USD 400,000, drawing

down if necessaryupon the USD 100,000

deposit/grant shouldborrowers default ontheir loans. UN-HABITATalso provides modest

technical assistancegrants to TAWLAT tostrengthen its capacity

to work with cooperative

members to securemortgage finance, that

is, to intermediatew i t h b a n k s l i k eAzania Bancorp, and

to manage theconstruction ofthe housing blocks.

Regulatory Frameworksfor MFIs , Housing Co-

operative, and otherIntermediaries

The working group compared the ex-isting regulatory frameworks andrelat-ed policies for the various countriesas captured in the table below.

Element/

Country

Uganda Tanzania Kenya

RegulatoryBody ofMFIs

Bank ofUganda

Bank of Tanzania(starting 2003)

Bank of Kenya(BOK may in futureregulate MFIs butat present theyare notregulated) MFIpolicey

MFI policyreforms

Ministry ofFinance(consideringamendments

to bankingAct)

Ministry ofFinance (2000national policyon microfinance)

Ministry of Finance(consideringamendments tobanking Act)

Bodyregulating

Ministrystryof TradeandIndustries,Dept. ofCooperatives

Commission ofCooperatives

Commission ofCooperatives

Status of

other

Building

Societieshave all butcollapses

Building societies

serving high-end marketonly; -Saccos arestartingto assume bank-like operationsbut these arenot regulated;-CBOs thatmobilize savingsare depositingin banks andstocks, but not

recognized

-Building societiesserving high-endmarket only;-Saccos arestarting toassume bank-like operationsbut these arenot regulated;-CBOs thatmobilize savingsare depositingin banks and

stocks, but notrecognized


31/5231

The work ing group identified anumber of potential regulatory reformsthat they felt should be introduced

gradually. These pertained to thesize of the financial intermediary, its

membership and client coverage, the

level of involvement in deposit taking

(members based or open to the public);and the implications to the financial

system if they collapse. Regulationshould be specific to institutions

as follows:

The reforms should also include

capacity building initiatives. Forexample, licensing authorities should

demand from MFIs, SACCOs, etc. basic

performance standards and quality

human resources to bring them to

higher levels of financial intermediation.There is need to consider how insurancecould be integrated into financialintermediaries as they build capacity

and increase investor confidence.

Partnerships betweenBanks and Financial

Intermediaries

The working group addressed issues

on the incentive for banks to enter

into partnerships with financialintermediaries, the products that banks

could offer intermediaries, and therole of intermediaries in on-lending

and identifying qualified borrowers.The group also considered the extent

and type of partnerships betweenbanks and intermediaries in respective

countries, the types of partnerships thateffectively mobilize housing finance

for low income households, and the

function and responsibilities of each,

including how the can be initiated.

The types of financial intermediaries

identified from the normal commercialbanking system include;

There are various incentives for banksto enter into partnerships. The overall

attraction to such partnerships from

the perspective of banks is that financialintermediaries are better placed to

mobilize small savers and to pool their

resources for investment. Private lenderswould also like to see an enhanced

Deposit taking MFIs and cooperatives shouldfall under the Central Bank regulation;

Non-deposit taking financial institutionsshould be required to register with the Commission of Cooperatives under Ministry of

Trade or under the Register of Societiesof the Ministry of Home Affairs;

SACCOs that are now involved in collection of

deposits and front office banking operationsshould be regulated under the Central bank;

Cooperative Act needs to be amended tocapture above regulatory reforms;

Special regulation should be introduced forSACCOs that have outgrown their functions

and have a large enough capital base toconvert into a qualified financial entity.

Cooperatives: These are active in Kenya.Uganda is in the process of revitalizing itscooperative system after the collapse of theCooperative Bank. Tanzania has instituted anew law intended to ensure strong supervi-

sion and regulation of cooperatives and hasa few in operation.

Micro Finance Institutions: These are very ac-

tive in the region and laws are in place fortheir operation. Many are taking deposits.

Collective Investment Schemes: There arevarious schemes in operation including

mutual funds, unit trust etc. These are set up

by groups or members with the purpose ofpooling together their funds to achieve a cer-

tain objective.


32/5232

legislative and regulatory framework toreduce risk in the partnership, and the

availability of credit enhancement

through guarantees that couldreduce risk further.The kinds of products private lenders

might offer financial intermediaries

include long- term loans for on-lending to the beneficiaries, anddedicated surplus funds (possiblyequity investments) to generateearnings through investment in

Treasury Bills bonds or overdrafts. Bankscould as well offer financial services

to the intermediaries as part of the

partnership agreement. In return,

financial intermediaries offer theprivate banks the ability to mobilize

un- captured savings for investment,

the extension of credit to underservedmarket segments, and the recovery

of loans from the borrowers for

repayment of credit.

The working group recommendedthe need to establish appropriatelegal and regulatory framework that

can consolidate and strengthenthe partnership arrangements, and

to amend existing laws to providea legal basis for the partnership.Capacity building strategies were also

suggested. There is need to conduct

regular education and capacitybuilding programs for intermediaries

to ensure efficiency and sustainability

and sensitize all intermediaries and

the banking community generallyabout the opportunities and benefits

of the partnership. The group urged

participants to promote of regionalcooperation initiatives to harmonize

the operations of the intermediaries,

possibly establishing an East AfricanAssociation of Cooperatives.


33/5233

Strategies forStrengthening the

Capacity ofFinancial Intermediaries

The working group recognized the

shared need in the three countries of

East Africa to strengthen the capacity

of MFIs, SACCOs, and other types of

financial intermediaries or what they

termed Alternative Financial Houses

(AFH). They felt it important to

strengthen the staff, clarify functionsand structures, diversify the boardcomposition, formalize terms of

incorporation, capitalize the institutionsproperly, define transaction types(detailing the costs and recouping of

the said transaction), and establish

proper financial management systems

required to increase size andscope of activities of financial

intermediation.

The group determined that as an initial

step such institutions should raise longterm capital and find mechanisms thatwill reduce the interest rate to enable

it make affordable loans to members.

Strategies proposed include:

Seeking Government Guarantees to enableaccess to long-term deposit at a compara

tively lower cost because of reduced credit risk; Putting in place strict terms of reference

among members to minimize the default rate

of borrowers and decide on own insurancescheme which could be included in repay

ments;

Securing loan guarantees from other international institutions and NGOs;

Ensuring members of financial intermediariesconsider moving into smaller units in linewith their ability to service the mortgage, and

consider making investments in housing forbusiness purposes, buying/building housesthat can help generate cash;

Encouraging members of financial intermediaries adopt contractual saving schemes to

help with well negotiated rates on deposits

and put in escrow accounts with the interestused to reduce the overall mortgage in future.Contractual savings enable commercial

banks to assess the credit worthiness of AFHmembers and reduce the risk premium.

In their conclusion to plenary theworking group urged participants to

promote the establishment of strong

Apex organizations that can help to

strengthen AFHs and hence increasetheir absorptive capacity. The Apex

organization could train AFH memberson financial management, cash flow

knowledge, budgeting and planning,

and preliminary business analysis.They could introduce updated and

efficient management informationsystem to facilitate increasedunderstanding of operations. Further,

the Apex organization could promotea code of conduct, instill inggood governance in leadership,

organizaregulations, terms ofreference, and constitution/ charter.


34/5234

Participants on the final day of the PeerExchange prepared detailed country

action plans for governments toenable private lending for affordable

housing. Before working in country

groups, the participants assembled

in plenary to discuss the terms ofreference for developing countryaction plans. Dr. Julius Malombe, ActingDirector of Housing, Kenya Ministryof Lands and Housing presented the

terms of reference urging participantsto ground their action plans in a

statement of the extent of the problemin their respective countries as regardsthe actual housing needs, housingsupply, constraints to housing finance

systems, policies, regulations, etc. He

encouraged participants to develop a

realistic strategy for improving private

lending for affordable housing that

set attainable outputs in the short andmedium term. The three countryaction plans as developed by country

delegations and presented in plenary

are provided as appendixes to thisdocument. What follows is a briefanalysis of trends emerging from the

action plans.

Theme Three:Country Action Plans onGovernment Enablement


35/5235

Area ofWork

Kenya Tanzania Uganda

Policy and

Legislative

Reform

- Speed up finalizationnational housing bill

- Establish framework

for asset-backedsecurities

- Accelerate work ofCapital MarketsAuthority to preparerules for establishingspecial purpose housingdevelopment company

- Revise rules ofRetirement BenefitsAuthority to enablemembers borrow forhousing using pensionas guarantee

- Reform all acts, rules,regs governing rents

- Launch manifesto onnational political priorityof housing

- Harmonize process offormulizing three, relatedacts: Pension Fund Act,Mortgage Finance Act,and Housing Act

- Review housing financeelements in related leg:Cooperative Act, LandAct, Town Planning Act,and Local Authorities Act.

- Revise townshipregulations

- Revise marriage act onspousal consent for takingout loans

- Revise outdatedNational HousingPolicy to incorporate

private sector lendingfor affordable housingand home ownership

- Review and re-draftbuilding codes andland-use regulations

- Reform andharmonize socialsecurity, insuranceand capital markets

The table makes clear that governmentsare quite active in promoting private

lending for affordable housing in East

Africa and that despite the enormouschallenges ahead a great deal isalready underway. All three countries

are engaged actively in reforminglegislation on housing with a view to

address housing finance and to link

policy reforms in housing with related

reforms pertaining to land and finance.Concerning institutional arrangements,all three countries seek to elevate

the status of housing in central andlocal government and to establish a

national authority that will serve as a

commercially operated, clearing housefor housing finance and related issuesof land, infrastructure, building costs.

They also recognize the need toestablish a national consultative groupto advance the Country Action Plans,

ideally within an existing policy makingframework widened to include private

lenders, financial intermediaries andacademics.

Analysis of Trendsin Housing Finance


36/5236

Institu-tionalArrange-ments

- Elevate status ofhousing in cabinet,raise budget provisionfor housing by 5%

- Establish commercialoperated nat. housing

development authority- Identify existing forumfor consultation onhousing finance, orestablish new one

- Institutionalframework at sub-regional level

- Actualize CreditReference Bureau

- Encourage GOK tosubmit to Internationalrating agencies

- Elevate status of housingfro m section to fulldepartment

- Establish overallcommercially operatedhousing authority

- Establish housingdepartments in localauthorities

- Create nation mortgagefinance facility

- Establish national agencyfor land provision

- Situate consultation onhousing finance in secondgeneration financial sectorreforms

- Establish institutionalframework at sub-regionallevel, focus on judiciary

enforcement of condo,foreclosure, marriage leg.

- Elevate status ofhousing to stand-aloneMinistry

- Establishcommerciallyoperated national

housing authority- Elevate housingdepartments of localauthorities (LC5 & 3)

- EstablishConsultative Groupon Housing led byprivate sector

- Participate ininstitutionalframework at sub-regional level tosustain peer exchange

- Establish land

registration authority

Product andPartnershipInnovation

- Build upon precedentestablished byStandard-CharteredBanks five-year fixedterm mortgage

- Build upon establishedMFI experience to

mobilize savings andcreate credit history forthe un-bankable

- Partner MFIs withSpecial Purpose devtcompanies to serviceaffordable mortgages

- Establish cooperativesto organize borrowers

-Promote financialintermediaries such as

TAWLAT- Encourage partnershipsbetween banks andintermediaries

- Promote affordablehousing loan projects

- Promote affordablehousing constructiontechniques (land,materials, size, design)

- Establish liquidityfacility to attract long-term capital for lendersfrom the domestic capitalmarkets

- Develop a 30-yearnational housing bond

- Promote formation ofhousing cooperatives,micro-financeinstitutions, financialintermediaries

- Establish liquidityfacility

IncentivesforPrivateLending

- Set clear Central Bankbenchmark for

minimum % lending tohousing sector

- Offer 10-year taxholiday to developers

for specified housing- Reduce costs on water,electricity and road toreduce burden of infra.

- Waive withholding taxon mortgage bonds

- Reduce to 13% interestfor 1st-time mortgagesand tenant purchases

- Introduce mortgageinsurance to lenders

- Base Central Bankinterest benchmark rateon underlying, notoverall inflation rate

- Reduce cash reserverequirements so bankscan extend long-termcredit for housing

- Waive withholding taxes- Offer waiver on deposit

rates for primary lenders- Offer tax reduction on

mortgage income- Offer partial guarantees

to banks for low-incomelending (sovereign orinternational)

- Introduce mortgageinsurance to lenders

- Lower taxes on buildingmaterials

- Offer 5-year taxwithholding to 1st timehomeowners

- Eliminate stamp duty forproperty transfers

- Create incentives forindividual savings tocombat absence ofsavings culture

- Provide serviced landin urban area

designated for lowand moderate incomehousing

- Review taxincentives in light ofoverall fiscal regime


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DataCollectionandAnalysis

- 60% of urban in slums-1.8 m. in Nairobi-$12 b. to improve livesof 5.4 m. slum dwellersover 15 years, $787 m.per year

- Public sector meetsonly 1% of cost- Private sector andintermediaries mustmobilize gap

- 38 m total pop of which12.3 m urban (30%)

- 2.2 m urban housesbacklog needed (2004)

- 200,000 new unitsdemanded each year,

120,000 urban- 15,000 units (public) and14,700 units (privatewith no financing) supplied

- $3.1 b. finance requiredfor deficit of 2.4 m units

- Institute the regularcollection, analysisand dissemination ofkey housing indicators

- Establish housingshortfall, total costs,

cost per unit; totalpublic investment;requisite privateinvestment andcommunity savings

DataCollection

andAnalysis

- Strengthen capacity ofhousing departments atcentral and local levels,particularly in finance

- Ensure top financialexpertise available toNat. Housing Authority

- Make finance trainingcourses available tostrategically placedpublic and privatesector participants

- Strengthen capacity ofhousing section toaugment accomplishmentsin land regularization withhousing finance, inpartnership with MOF andBOT

- Draw upon innovationsin private lending andreforms in policy andlegislation to definecapacity building needs

- Strengthen capacityof housing departmentat central and locallevels in finance

Further, there is agreement on the need

to establish mortgage insurance forlenders and to consider a sub- regionalframework for continuing peer

exchange and learning in housing

finance.

All countries view the innovationemerging in the domest icfinancial service industry as areal asset. This applies to new

loan products of private lendersand to creative partnershipsbetween private lenders andfinancial intermediaries that extend

credit to populations that were

previously un-bankable. Thethree East African nations sharein common an interest in givingincentives to private lendersto accelerate innovation. The

approach is to ease regulations onprivate lenders and to give taxincentives to borrowers, privatedevelopers and special purposedevelopment companies. Avail-

able data on housing conditionsin Kenya and Tanzania indicatesthat the present backlog of housing

units is staggering. Financingrequired to meet this backlog aswel l as the expected new

demand for housing annually isover $1 billion annually in eachcountry. The deficit underscoresthe urgency of private lendingfor affordable housing as present

public investment makes up a paltry1% of total requisite expenditure.As argued by Uganda andequally relevant for Kenya and

Tanzania, is the urgent need for

better data on actual housingconditions and housing finance.Finally, all three countries ofEast Africa are keen to build thecapacity of their institutions to

realize their housing financeagenda. This will vary among thecountries but all three share adesperate need to strengthen finance

expertise in their departmentsof housing both at the national

and local levels.


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39/5239

The results of the three-day High LevelEast Africa Peer Exchange suggest thatprofessionals can gain a great deal by

interacting with their counterpartsfrom neighboring countries. Eachdelegation succeeded in producing

during the meeting concrete action

plans that drew upon the experiences

from other countries and frominternational settings including the

United States. Identifying how differentcountries deal with commonly shared

problems engendered reflection and

stimulated the kind of thinking thatmight not be possible if participants

came only from one country. Participantsfrom the same country learned a greatdeal about each other and theconstraints each face in the privatesector, housing ministry, and finance

ministry. Why is this so? What were theaspects of the Peer Exchange thatmade the learning and concreteoutputs happen?

(a) Each of the country delegations planned inadvance what they wanted to get out of themeeting and prepared background papers.

(b) Participants saw the exchange as an oppor-tunity to step out of their hectic schedules as

professionals in their respective countries in or-der to zero-in on housing finance.

(c) Participants took advantage of the historicallinks between Tanzania, Kenya and Ugandaincluding the revitalization of the East African

Community.

(d) The participants from outside the sub-regiondid not proscribe how housing financeshould be done in East Africa. They recognizedinstead that professionals from the sub-region were best placed to discern what external

experiences were useful locally,appreciating that the professionals were respon-sible for follow up and implementation.

(e) The participants from outside the sub-regionoffered constructive inputs and reflections,

sharing where appropriate their experiencesfrom the United States and other

international settings which the country delega-tions found useful.

(f) The meeting was structured along thematiclines that enabled participants to learn moreabout and dedicate discussion towards specificaspects of housing finance (e.g. privatesector perspectives, financial intermediation,and government enablement).

(g) The composition of the small groups changedwith each thematic session enabling

participants to interface with professionals fromother sectors and other countries.

(h) The Peer Exchange was less a seminar andmore a working meeting in which

participants had to produce outputs, report toplenary, and articulate a realistic agenda.

(i) An entire day was devoted to the preparationof country action plans by people who will

play an instrumental role in implementing theseplans.

(j) The United Nations maintained a light foot-print in the meeting, facilitating discussions,offering reflections, and ensuring participantsachieved the goals of the peer exchange.

Reflections onPeer Exchange Learning


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Representatives from the USDepartment of Housing and Urban

Development, the Development Credit

Authority of USAID, the InternationalHousing Finance Program of Wharton

Business School, and UN-HABITAT heldconsultations on the third day of the PeerExchange to outline a broad frameworkfor support. The Support Group first

articulated a set of principles and

then identified prospective areas oftechnical and financial support.

One underlying principle guidingthe framework is a commitment to

coordinate better the often disparate

and competing interventions ofinternational development cooperationagencies. The Support Grouplamented that many external actors

are successful in developing a productor implementing a project but that

their interventions are one-offs that aredisconnected to the policy reforms andinstitutional arrangements necessary

to scale these up. A way of promotingcooperation identified by the Support

Group is to encourage all externalinstitutions to agree to engage

local officials and private sectorrepresentatives to determine how bestto situate external assistance within

ongoing national initiatives. While sucha practice is difficult to enforce it can

be promoted by external agentsinternally within their respectiveagencies and in collectively ininternational forum.

Domestic capital mobilization isa second principle that was agreed

upon by the Support Group. Toooften international organizationsoffer assistance that crowds-out the

local banks and the domestic capitalmarkets. Like local human expertise,

local domestic capital is omnipresent

in Kenya, Tanzania and Uganda but it

is poorly harnessed by international

development organizations in their

efforts to eradicate poverty. Lessreliance on international capital was

seen as important as less reliance on

international consultants given thatboth financial and human resources

were abundant in the sub-region.

The Support Group drew upon these

guiding principles to outline areas of

support that they would encourage

their respective institutions to make

available to promote private lendingfor affordable housing.

Defining Support Functionof International Community


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(a) US Department of Housing and Urban Development agreedto support a second peer exchange in Accra, Ghana modeled after the

Kampala meeting and possibly involve representatives from Kenya,Tanzania and Uganda to travel to West Africa to provide continuity andadditional learning.

(b) USAID Development Credit Authority expressed interest in extendinglocal currency partial guarantees to banks in the three countries of East

Africa that had worked through the respective USAID Country Missions toqualify for the guarantees. They agreed to work where appropriate with theUN-HABITAT Slum Upgrading Facility to accelerate the process of identifyingbanks working in partnership with intermediaries to promote affordable

housing.

(c) Wharton Business School outlined opportunities for follow uptechnical support that could assist local professionals in the sub-regionto formulate institutional arrangements and develop loan products formortgage finance. The representative described short-term courses offeredby the International Housing Finance Department that public and privatesector professionals in East Africa could participate in to gain expertise infinance. Both technical support and short-term training would requireexternal sources for financing as none were available for this purpose at

Wharton.

(d) UN-HABITAT agreed to undertake follow up missions with each ofthe country teams to facilitate the implementation of the country action

plans. This would involve helping the governments to anchor the actionplans in existing mechanisms for policy making, and working with privatesector, financial intermediaries, governments and low-income borrowersto promote partnerships and develop innovative products for affordablehousing. These activities would be supported by the Human SettlementsFinancing Division, including the Slum Upgrading Facility. Limited fundingwill be available for convening follow up meetings and recruiting local

consultancies to support the work of the country teams. UN-HABITAT agreedalso to support HUD in organizing the West Africa Peer Exchange, and tolink country teams to international events such as the African MinisterialConference on Housing and Urban Development in Nairobi in April 2006,and the World Urban Forum III, in Vancouver in June 2006.


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From November 2005 to May 2006,each of the delegations to the peerexchange have undertaken follow up

actions to implement their respectivecountry action plans. What followsis a brief overview of their efforts topromote private lending for affordablelending in East Africa.

KenyaThe Government of Kenya has beensuccessful subsequent to the PeerExchange in implementing severalelements of the country action plan. Infollow up meetings in Kenya organizedby UN-HABITAT, members of the Kenyadelegation to the Peer Exchangedescribed a number of key initiatives

underway. The Ministry of Housinghas submitted to Parliament the DraftHousing Bill pursuant to Sessional Paperof 2004 on National Housing Policy thatcalls for legislation to reform housingpolicy in Kenya. The Draft Housing Billis unique because contrary to previouslegislative reforms, it is not restrictedtopically to the National HousingCorporation. It encompasses all aspects

of housing policy including security

of tenure, slum upgrading, housingfinance, and housing constructionamong other issues. The Ministry ofHousing is actively promoting the Billby holding stakeholder consultationsthroughout the country with civicgroups,

private sector representatives, NGOs,and government at all levels. Parliamentis expected to vote on the Bill soon.

The delegates to the Peer Exchangealso mentioned that they have heldconsultations with representativesof the Retirement Benefits Authority(RBA) to identify how pension funds

can be used to accelerate housingfinance in Kenya. Under discussionare regulatory reforms that wouldallow individuals to use their pensions

as collateral to secure mortgages onagreed terms and conditions. Effortsby RBA to revise regulations in this waywould make housing finance availableto a large segment of the Kenyanpopulation who otherwise lack access

to finance. It would also deepen thehousing market creating business forprimary mortgage lenders, housingdevelopers, and building materials. Thiswould in turn generate employmentand economic growth. In line withthe country action plan, the delegatesof the Peer Exchange have also heldconsultations with the Ministry ofFinance. Discussions have centered on

incentives f

low cost housing report in east africa

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