Nigerian Exchange Wants to Kick-Start Mortgages to Boost Trading

LAGOS (Capital Markets in Africa) – Nigeria’s FMDQ Securities Exchange Plc is working on a plan to kick-start mortgages to boost trading on the nation’s capital markets.

“The lack of housing finance is one of the reasons why our capital market has not grown as it should,” Chief Executive Officer Bola “Koko” Onadele said in an interview. “We should be talking of 30-year mortgages for Nigerians. If you want 70% of the people to own their own houses, they can’t borrow at 20%.”

Most people save all their working lives to be able to buy or build a home, leaving them with little savings to invest in financial markets. On the other side of the spectrum, lenders in the country rely on short-term deposits when mortgages require long-term financing.

There are only about 50,000 homeloans in Africa’s most populous country of 200 million where poverty and the lack of a formalized title-deeds registry has led to a shortage of at least 17 million houses. Rapid urbanization is also causing a proliferation of slums and shanty towns, while most homes consist of informal structures on land passed down through generations.

Blueprint
FMDQ is now working on a blueprint it is developing with the support of other financial institutions, including International Finance Corp., Central Bank of Nigeria, Nigeria’s Securities and Exchange Commission and the National Pension Commission, that the entities will present to President Muhammadu Buhari within the next year, Onadale said.

The proposals will identify policy measures through which the government can “provide an enabling environment and facilitate single-digit interest rates,” Onadele said, adding that the right policies will trigger the inflow of private capital from foreign and local investors into the country. For instance, rather than subsidize gasoline, FMDQ’s CEO wants the government to channel the fund into cheap housing loans.

Risk Clearing
Separately, the Lagos-based FMDQ is also planning to attract more foreign capital into the country by playing the role of a central counterparty clearing house to reduce risk for investors, Onadele said. Its FMDQ Clear unit is expected to employ at least 20 people within three months of operating, he said, and is just waiting for legislation to be signed into effect by the president.

 “When we go on international road shows, foreign investors tell us they can bring significant amount of capital to Nigeria but only if there is a CCP to guarantee transactions,” Onadele said. “A CCP puts in place a default fund to ensure that any settlement failures in the market are covered accordingly.”

Source: Bloomberg Business News