EVALUATION OF THE PERFORMANCE OF NATIONAL HOUSING TRUST FUND SCHEME TOWARDS HOUSING DELIVERY IN NIGERIA.

BY NAME: B. DEPARTMENT: MANAGEMENT (M.SC. ESTATE MGT.) MATRIC NO.: COURSE: 050502001 BLD 815 ESTATE ABIDOYE ROTIMI.

LECTURER:

DR. T.G

NUBI
MARCH, 2012.

1.0

INTRODUCTION

The housing sector of a country plays a critical role in a countrys welfare as it affects not only the well-being of the citizenry, but also the performance of other sectors of the economy. Nubi (2000) noted that among other things, housing is one of the three basic needs of mankind while other things are food and clothing. Secondly, housing is a very important consumer item, which impacts positively on productivity as a decent house significantly increases workers health and well-being. Thirdly, it is one of the indices for measuring the standard of living of people in a country. It is worth mentioning that Nigeria with a population of about 167 million from about 250 ethnic groups (National Population Commission, Nigeria, 2011) still suffers from inadequate housing provision since independence in 1960. Adequate housing provision has since the early 1970s consequently engaged the attention of the country for a number of reasons highlighted above. Nigeria is not left in this problem alone; other developing countries are also involved. That was why the United Nations launched an aggressive campaign through the government of Nations on the need to provide shelter for all. The slogan, housing for all by year 2000 was carried far and wide in all of the world including Nigeria. The attention on finance has been prominent because housing requires huge capital outlay, which is even beyond the capacity of the medium/low income groups which dominates Nigeria demographic of People Living on less than US$2(1) a day. It is in recognition of the critical importance of finance in housing delivery that warrants the setting up of Primary Mortgage institutions (PMIs) to facilitate the delivery, being the sole intermediary between Federal Mortgage Bank of Nigeria (FMBN) and the mortgagors in disbursing the proceeds of National Housing Fund (now National Housing Trust Fund).

In the emerging economies, formal housing finance is operated through both policy driven housing finance channel and the market-oriented housing finance channel (Deng and Fei 2008). The policydriven housing finance is mainly through housing funds schemes, which are mandatory housing savings scheme and the market-oriented housing finance is characterised by commercial loans from financial institutions. It is under this policy-driven housing finance that the National Housing Trust Fund was established by Federal government of Nigeria to bridge the gap between peoples incomes and the price paid for housing.

2.0

LITERATURE REVIEW

Housing Requirement of Nigerians The pooled effect of high population upsurge and urbanisation in a declining economy has thrown Nigeria into serious housing problems. Ironically, the low-income groups who constitute the majority in the Nigerian society are the most affected by the finance menace. Conceivably, a major trait of housing crisis notable in urban centres in most developing nations is that of inadequate supply to meet demand (Olotuah, 2000). Using various assumptions of urbanisation rates Onibokun (1990), estimated the following figures as summarised in Table1. Table 1: Estimated Housing Needs between the periods 1990-2020

Income Group
Low-income Medium-income High-income Source: Onibokun, 1990

1990
8,413,980 7,770,005 7,624,230

2000
14,372,293 13,273,291 12,419,068

2020
39,989,286 33,573,900 28,548,633

The World Bank estimated the housing shortfall in Nigeria to be between 14 16 million units and the World Bank notes that the country needs to produce about 720 000 units annually for the next 20 years to begin to solve the problem which requires nothing less than N56 Trillion at an average of N3.5million per housing unit. The rental market is big; about 85 per cent of the urban population lives

in rented accommodation, spending more than 40 per cent of their income on rent. Ninety per cent of houses in Nigeria are self-built, with less than five per cent having formal title. A substantial amount of work needs to be done to supply serviced land, and infrastructure provision in Nigerias main urban centres is poor. The government owns a substantial amount of housing stock, which it has been selling into the open market from time to time. There are also some small private sector players in housing construction in the country, but they are almost exclusively serving the very high end of the housing sector. Further, they have limited capacity: Nigeria has neither a single indigenous construction company capable of handling large-scale projects, nor a real estate developer that builds more than 100 housing units per annum. The developers rely on bank loans (with interest rates as high as 27 per cent for terms as short as two years) and cannot access long-term financing that capital markets offer. Besides the private sector, there are the activities of the FMBN, which is also involved in housing construction. In 34 years, it has built only 30 000 houses. One of its most recent efforts is a N2billion (US$13 million) affordable housing project in Kogi State for civil servants. TheCentral Bank of Nigeria has established a 200 billion Naira (USD 1.3 billion) housing intervention fund, structured as a loan facility that would be provided for prospective beneficiaries through the Federal Mortgage Bank. Nigeria National Housing Fund Decree No. 3 Of 1992 The National Housing Fund Decree is an instrument formulated to give leverage to housing delivery in Nigeria. It was set basically as a legal re-affirmation of vital aspects of the National Housing Policy with the primary purpose of supporting it to achieve its ultimate goal of ensuring that all Nigerian own or have access to decent housing accommodation at affordable cost by year 2000AD. The concept is to ensure continuous flow of long term fund for housing development and to provide affordable loan for income housing. Section 2 of the National Housing Fund Decree specifically stipulate the following as its objectives: a. b. To facilitate the mobilization of funds for provision of houses for Nigerians at affordable prices. To ensure the constant supply of loans to Nigerians for the purpose of building, purchasing and improvement of residential houses.

c. d.

To provide incentives for the capital market to invest in property development. To encourage the development of specific programmes that would ensure effective financing of housing development in particular for low income workers.

e.

To provide proper policy control over the allocation of resources and funds between the housing sector and other sections of the Nigeria economy; and

f.

To provide long term loan to mortgage institutions for on lending to contributors to the fund.

In order to achieve these objectives, some demands were made of certain sectors of the economy to make one form of contribution or the other to the fund . Section 5(2) of the decree states that all registered insurance companies shall invest a minimum of 20 percent of their non- life funds and 40 percent of their life fund in real estate development, and at least one half (50 percent, that is 10 percent of their non- life funds and 2 percent of life ) of such investment must be channelled through The Federal Mortgage Bank of Nigeria at an interest rate that does not exceed 4 percent annum Review of the State of National Housing Trust Fund Scheme Adedokun (2006) stressed that the poor and the middle-income group are the immediate sufferers of the housing problem, while Ogunsemi and Abiola- Falemu (2006) categorically affirmed that about 70% of the Nigerian population are very poor and are either homeless or live in shanties and batchers. Some 40% spends about 35% of their income on rent, which is about 16% higher than the recommendations of United Nation of 20% (Ogunsemi and Abiola- Falemu, 2006) and Onibokun (1986) says rent in major cities of Nigeria is also about 60% of an average workers disposable income. Also this almost triples the requirement of United Nation which ranges between 20 30%. Therefore the problem is not availability of fund but stringent measures to prevent default which makes the housing problems to persist. The Concept of Mortgage Finance Ogunsemi and Abiola-Falemu (2005) defined mortgage financing as a specialized type of credit transactions involving the granting of long-term finance for housing development. The mortgage institutions in Nigeria include the Federal Mortgage of Bank of Nigeria (FMBN), which is the apex

mortgage bank under the supervision of Central Bank of Nigeria, the Commercial and Merchant Banks, Insurance companies and the National Housing Trust Fund, the Primary Mortgage Institutions which include: building societies, building corporative and privately owned banks and the State Housing Corporations. Development of Mortgage Finance System In Nigeria Mortgage banking development in Nigeria can be traced to the establishment of the Nigeria Building Society in 1956. The vehicle used for this capital investment was the Common Wealth Development Corporation with advance share capital of 81,625,000, GB pounds. The society collapsed in early seventies due to its inability to perform its statutory functions. This led to government injecting N20m and changing its name to Federal Mortgage Bank of Nigeria (FMBN). The FMBN took off in 1977, with a take-off capital of N20 million from the federal government. The FMBN was unable to meet up with the pressure of demand. In 1970, outstanding application were N223.8 million and available funds equalled N127.0million, meaning that demand and supply was in the ratio of 2:1. This degenerated to ratio 4:1 in 1986 when the outstanding application increased to N465.8 million and only N105.3 million was available. The bank has never been able to meet up with demand. The failure of the FMBN over the years and acute shortage of housing led to the promulgation of the National Housing Policy of 1991. The policy of National Housing Fund and the decree of 1992 was promulgated to strengthen housing finance. The legal framework for the establishment, operation and regulation of mortgage business in Nigeria are prescribed in the Mortgage Institutions Decree No. 53 of 1989. The promulgation of the decree was informed by the need to promote the rational evolution of institutional structures, and to accelerate the development of institutional structures to accelerate the development of financial intermediation within the housing delivery system. Through the development of appropriate financial instrument, the ultimate aim of FMBN is to encourage an enhanced level of mobilization to support a credible housing delivery system to serve all Nigerians. The mortgage institutions in Nigeria are operated according to the National Housing Fund

Decree of 1992, which was revised in 1996. The terms and conditions for National Housing Fund loaned by mortgage institutions according to Bichi (2000) and Chionuma (2000) are as follows: i. ii. A mortgage institution seeking a loan from the fund shall apply to the bank. The mortgage Institution shall submit its loan application to the bank in conjunction with applications received for loans from individuals contributors as a basis for extensions of facility requested from the fund against which the loan shall be disbursed. iii. No mortgage institution shall, in any given year, be granted an amount more than 50 percent of its shareholders fund. To obtain loan through the National Housing Fund, the following conditions must be satisfied. i. A loan granted to a mortgage institution under the decree shall be secured by a block of existing mortgage previously granted by the mortgage institution, which shall have been created by the mortgage institution with financing from the fund. ii. A mortgage institution shall, at the same time of requesting for a loan, execute with the FMFN a sale and administration agreement and deed of assignment in such forms as may be prescribed by the bank from time to time stamped and registered. iii. Where a waiver is not given, the mortgage institution shall bear the cost for stamping and registration at the lands registry. iv. The bank may require a Mortgage Institution to execute a floating charge over its assets. To disburse loan to an applicant the following conditions must be satisfied. i. To safeguard the resources of the fund and prevent mis-allocation or diversion of loans, the bank shall: a. Make disbursement to a mortgage institution after the presentation of an acceptable security as stipulated in these regulations.

b. Demand the immediate repayment of the loan with interest thereon and payment of a penalty of 200 percent of the interest differential between the market rate and the fund rate from a mortgage institution which misallocates or diverts its loan c. Suspend the mortgage institution from further borrowing until it complies with the previous of paragraph (i) (b) of these regulations and thereafter for a further period of six months. ii. Loans to a mortgage institution shall be released in accordance with disbursement plans agreed between the bank and the mortgage institution. iii. All disbursements from the fund shall be by cheque or any other acceptable instrument of settlement. iv. The bank shall, for services rendered in granting a loan to mortgage institution, charge not more than 0.25 percent of the loan which shall include legal, survey and administrative charges but shall exclude stamping, registration and other statutory fees Despite the effort by government and the provisions in the National Housing Fund, new constraints have been identified as obstacles to mortgage finance in Nigeria. They include poverty, cost of construction, weak savings, unstable microeconomic environment, land accessibility and poor structure of mortgage in Nigeria. Primary Mortgage Institutions Primary Mortgage Institutions (PMIs) are financial intermediaries in the housing finance sector, having distinct legal character as defined in the enabling decree. Primary Mortgage Institutions in Nigeria today are registered companies operating in accordance with the provisions of the affirmation licensed by the FMBN. The promulgation of the Mortgage Institutions decree No 53 of 1989 provided the regulatory framework for the establishment and operation of PMIs by private entrepreneurs. The FMBN under the decree became the apex institution, which regulates PMIs and was empowered to license the PMIs as second-tier housing finance institutions. The PMIs, under the decree were to mobilize savings from the public and grant housing loans to individuals, while FMBN mobilizes capital to enhance private sector participation in housing finance.

Trend of Existence of PMIs As a matter of fact, about 280 PMIs having complied with minimum requirements stipulated for licensing were registered immediately after the promulgation of the decree (Sanusi, 2003). However, many of these PMIs have collapsed shortly after commencing operation mainly because of wide spread distress in the financial sector at that time, a trend that affected also commercial and merchant banks. An account of PMIs as given by Ogunsemi and Abiola Falemu (2006), who are qualified to assess NHTF as at 2012 are 98 in all with Lagos alone having 59 and Abuja with 10 while other states of the federation have less than that of Abuja. Hindrances to PMIs Active Involvement in the Operation of the Scheme Ogunsemi and Abiola-Falemu (2006) reiterated that many of the PMIs are confronted with hindrances standing in their way of active participation and these hindrances as was found in Adedokun (2006) evolved from the disbursement process, terms and condition to be met which are cumbersome and tend to inhibit early approval and subsequent disbursement. Among these hindrances are: The method of application and its financial requirements. Applications for loan as spelt out under the terms and conditions for obtaining loans (FMBN,2006) are required to be made on a prescribed form with a nonrefundable fee of =N=200.00 for each application. Each PMI is required to print these application forms for sales to applicant for not more than =N=200.00. The implication of this is that PMI will submit application form with a non-refundable fee of =N=200.00 to FMBN. Yet the instruction is that no PMI should charge more than =N=200.00 from the applicant. How then can the PMI recoup its administrative and printing expenses? The terms and condition also stipulate that the board of the PMIs shall pass resolution to borrow each loan amount from the fund. The implication of this according to Adedokun (2006) is that for every loan amount, the board has to meet to pass resolution before any application can be forwarded to the FMBN and board meetings are usually held either weekly or fortnightly and sometimes on monthly basis which constitute a barrier to smooth implementation. The requirements that copies of memo and articles of association of PMI be always made to accompany each application is another unnecessary waste of stationery and money. Other documents that are always required to accompany each application are audited account for three years, fidelity bond, errors and omission policy and tax clearance. The restriction of the charges by the PMIs

to 0.5% of the loan amount for legal, inspection, survey and other administrative handling and processes is a big hindrance. Yet, of this 0.5%, 50% of it has to be remitted to FMBN. This then means that a borrower granted a loan of =N=1,000,000.00 would pay =N=5,000.00 to the PMI and the PMI in turn would pay =N=2,500.00 out of =N=5,000.00 to FMBN. This is unremunerative and could be discouraging. No wonder the number of PMIs considerably reduced from 280 in 1998 to about 32 at the end of July, 2003. Problems of Housing Development First and foremost cost of construction and income posed a great problem as Windapo (2000) is of the opinion that the gap between income and shelter costin Nigeria is very wide which has invariably eliminated low-income earners from housing market. Rising cost of building materials, inflation rate in the economy, fees of professionals involved in housing designs and construction, excessive profit of contractors and interest payable NHTF loan. The cost of urban land is a big discouragement to urban poor and is a major problem in housing development. Nubi (2000) asserts that only marginal land, with no title document and infrastructure at the periphery are available for the poor to build on which has resulted into housing that cannot qualify as homes and urban sprawl. Reliance on quacks is one of the major setbacks in the industry as noted in Windapo (2000) because of acute shortage of skilled personnel in various trades and the large multinational firms employ few skilled personnel while Zubairu (2000) had shown that the absence of large real estate development companies with access to the relevant technology and financial muscle to develop cheap houses on mass scale culminated with proliferation of low quality contractors. The operation of the financial institutions, commercial banks, finance houses, merchants banks didnt help matters as many caused their savings to distress and liquidated thereby creating a big distortion in the saving culture of the masses. The poor response to NHTF in terms of voluntary savings is not unconnected to the poor performance of these institutions in the 90s.

3.0

RESEARCH METHODS

This study adopted the use of secondary data obtained from the Federal Mortgage Bank of Nigeria (FMBN) which is the apex bank for mortgage institutions and information relating to the study was

readily available from FMBN. Percentiles and t-test were used for analysis. Also Pearson product moment of correlation was used to examine the extent of relationship not only between the amount applied for and the amount subsequently approved to the mortgagors but also amount collected and amount disbursed by the scheme. Also the results were crossed referenced with the results of the literature reviewed from the works of myriads of author. Table 2. Number of Beneficiaries and the Contributors to the Scheme. Year 1992 2011 Benefiaciaries Numbers 50,134 Percentage (100%) 1.40 98.60 100.00

Outstanding beneficiaries 3,523,533 Contributors 3,573,667 Source: Federal Mortgage Bank of Nigeria, 2012.

Table 2 reveals that out of three million, five hundred and seventy three thousand, six hundred and sixty seven (3,573,667) contributors to the scheme to date, just only fifty thousand, one hundred and thirty four (50,134) representing 1.40% have benefitted from the scheme while 98.60% are yet to benefit from same scheme. Table 3. Cumulative Amount Collected and Disbursed till 2011. Year 1992 2011 Amount collected (billion) 70.81 Amount disbursed (billion) 69.80

Source: Federal Mortgage Bank of Nigeria, 2012. Table 3, it shows that 98.57% of the cumulative amount collected of about seventy billion naira (N70.81bn) which represent about sixty nine billion naira (N69.80bn) has been disbursed to date.

Table 4. NHTF Cumulative Performance (1992-2011)

INDICES NHTF Cummulative Collections As At 31st May 2011 Approved loans from 1992 to 31st May 2011 1. Estate Development Loans 2. NHTF Mortgage Loans 3. Total Approved Loans Disbursed Loans from 1992 to 31st May 2011 1. Estate Development Loans 2. NHTF Mortgage Loans 3. Total Disbursed Loans NHTF Refund from 1992 to 31st May 2011) 1. Total Amount Refunded 2. Number of individual NHTF contributors refunded Housing Units Financed From 1992 To 31st May 2011 1. Units financed in Housing Estates 2. NHTF Mortgages 3. FCT Houses Financed(1st tranche) Total Houses (1992 2011)

CUMMULATIVE PERFORMANCE N70.81 billion N81.0 billion N56.0 billion N137.0 billion

N40.9 billion N28.9 billion N69.8 billion

N1.1 billion 60,760

30,116 10,443 9,575

50,134 Source :FMBN 2012.

4.0

DISCUSSION OF FINDINGS

From Table 2, it can be seen that out of three million, five hundred and seventy three thousand, six hundred and sixty seven (3,573,667) contributors to the scheme to date, just only fifty thousand, one hundred and thirty four (50,134) representing 1.40% have benefitted from the scheme while 98.60% are yet to benefit from same scheme and the reasons are not farfetched because the primary mortgage institutions through which the fund could be assessed by the contributors of the fund are decreasing at alarming rate and also potential contributors will be discouraged to assess the fund because of the wide significant difference between the amount applied for and the amount subsequently approved to the mortgagors.

Table 3 depicts that there is no significant difference between the amount of money collected to date and amount of money disbursed in form of loan to contributors of the fund, but when compared to the N56 trillion need to meet the housing need of Nigerian, it can be established that no substantial performance can be said to have been recorded by FMBN through NHTF. This can also be inferred from Table 2 that shows that fifty thousand, one hundred and thirty four (50,134) contributors have benefitted from the scheme since inception to date, and making reference to the decree establishing the scheme, it says the fund so assessed could be used for purchase of building, refurbishing the existing building or for the construction of new ones, indirectly it can be said that through the scheme, only 50,134 housing units have been produced till date and this is nothing compared with the prediction of The World Bank that the housing deficit in Nigeria stands at 16 million housing units, so this figure would be required as this only amounted to 0.22%.

5.0

CONCLUSION

Based on the analysis carried out and literature reviewed, the following conclusion can be made that national housing fund scheme has not contributed significantly to the provision of housing accommodation to the citizen right from the inception of the scheme. Existing unfavourable environmental conditions prevent wide spread of existing PMIs and the emergence of the new ones across the states to enable contributors of the fund to assess loan for development purposes. Adequate attention is not paid towards creation of awareness so as to enable potential individuals to join the scheme as there is a very strong positive correlation between the contributors and beneficiaries. There are no incentives schemes put in place for contributors of the fund so as to encourage them in making application for loans such as granting to them 100% of their loan application submitted. Amount of money so approved by FMBN should be disbursed to the mortgagors through their respective PMIs on time so that there could be time value for money as it was observed that it takes atleast 1, years to get the loan approved and disbursed to the applicants.

REFERENCES

(1) Adedokun, O.A (2006). An appraisal of the performance of National Housing Fund Scheme in Housing delivery in Nigeria. PGD Thesis submitted to the department of Quantity Surveying, Federal University of Technology, Akure, Nigeria. (2) Bichi, K. (2000). The Role of Federal Mortgage Bank of Nigeria in the Financing and Procurement of Housing and Infrastructure in Nigeria. National workshop Organised by Nigerian Institute of Quantity Surveyor. Abuja. (3) Chionuma, N. (2000). The Role of Primary Mortgage Institutions In the Provision of Housing in Nigeria. National workshop Organised by Nigerian Institute of Quantity Surveyor. Abuja. (4) Deng, Y. and Fei, P. (2008). The Emerging Mortgage Markets in China in Ben-Shahar,
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