May 2009 www.shelterafrique.org Bulletin No. 20
3 Perspectives of US ver the years, traditional mortgage products have been known to be safe,
Subprime Mortgage stable, conservative and widely acceptable investments to be made by
both families and financial institutions. Governments, whether from the
Crisis right, left or centre, have always provided support, incentives and other fiscal
6 Managing Risk measures to spur and support housing investments and mortgage lending. This
in Housing Finance is because home ownership and acquisition has been on the top priority list for
most families. Researchers have extolled the sterling benefits of home ownership
Institutions and mortgage lending as the bedrock of modern society, a store of wealth, a
11 Experimental key driver of economic and social development, a cross cutting multi-sectoral
Reimbursable investment with both backward and forward linkages. We can write volumes
about the great contribution the housing and mortgage sector has made to
Seeding modern economic development. It has no doubt given both depth and breadth to
Operations modern financial systems with transactions translating into trillions of US dollars
12 Did You Know ? annually. No nation has made progress without developing its housing and home
ownership sector because it touches the life and well being of families.
12 Namibia Country
Profile Then came globalisation, financial innovation, derivatives, competition amongst
13 Book Review other things supposedly designed to extend and expand access and affordability
of housing finance not just in one country but across the globe. At least this is
14 Staff News what we were meant to believe. Although these are great ideas that ordinarily
15 Project Profiles should help market players and politicians achieve their common objective:
16 Indelible delivering services and value to key stakeholders. This should have been so until
greed and more greed got in, market liberalisation blossomed and regulators
went to sleep. What then started as financial innovation by way of re-packaging
Editor non-traditional mortgages or subprime mortgages in USA and selling them to
Osita Okonkwo investors across the world snowballed into something else and contaminated the
Assistant Editor banking system, the financial markets and eventually led to economic crisis.
The risks associated with subprime mortgages or borrowers were diced, sliced,
ShleterNet is published by Shelter repackaged and mitigated (through AAA credit insurance) and sold to big, over
Afrique and distributed free of
charge. century old triple A institutions and sophisticated investors. Huge profits were
made and declared, assets became over priced and the crash came. Some experts
Letters to the Editors and called it asset bubble and burst, others say it was market correction, a time bomb
contributions are welcome and that was bound to explode and so on. Regulators did not pick this up, experts
should be addressed to:
The Editor failed to predict it, few that sensed it failed to speak up perhaps because nobody
ShelterNet would believe them. But the fact is that families became homeless as they lost
P.O. Box 41479 their houses and savings. Confidence, the bedrock of the financial system, was
00100 Nairobi, Kenya lost; jobs were lost, and the economy nosedived. Reactions though initially slow
have been furious, varied and public sector driven. The governments are now
The articles in this publication strongly back in the saddle of economic management and calling the shots: bailing
may be reproduced without prior out banks, the auto industry, Wall Street, forcing companies into bankruptcy,
permission but acknowledgement will sacking CEOs. Who said the days of big government were long gone?
(The views expressed here are not
necessarily those of Shelter Afrique) Continued on Pg. 2
Continued from Pg. 1
These are difficult times though. The real issues however
are how Africa has been affected and how it is dealing with
believe that in order to ensure that current economic crisis
does not cause damage to Africa’s housing sector, efforts Perspectives of the U.S Subprime Mortgage
Crisis and the Financial Contagion: Lessons
the situation. Some feel that because of the low level of should be continued to keep inflation low, promote savings
Africa’s share of global trade and capital flows, the impact and capital markets development, to accelerate financial
of the subprime, and economic crisis has not been as serious sector and land reforms and to ensure continued economic
as we had feared. Others have a different view: the capital
markets in most countries are down, commodity prices for
growth, amongst other things.
and Implications for Mortgage and Financial
Africa’s major exports have dropped significantly, Diaspora
remittances have dried up and economic growth has slowed.
At Shelter Afrique, we would continue to provide the
leadership needed to mobilise resources for Africa’s housing Markets development in Africa
If these are not serious signs of problems, what else would sector. In this regard and in keeping with our strategic plan,
be? our partners have shown strong support and confidence in
Shelter Afrique. Over the past one year, we have mobilised By Professor Jay Sa-Aadu - Professor of Finance and Real Estate, Henry B. Tippie
The housing sector has not been spared, albeit not by way USD 70 million in new funds from our partners and the College of Business, University of Iowa, USA
of subprime mortgages given that most banks in Africa play capital markets for housing development. This will help
more on the conservative side in their mortgage lending us to extend more financing to small and medium sized
activities. However the general economic downturn means developers and to expand to other markets and countries.
that demand-side variables have been negatively impacted. This is a good sign of a market that is bound to grow, which Introduction capital markets development in Africa. It concludes by
Developers and banks in Africa have however done excellently will help to improve the housing and living conditions of emphasizing the need for African economies to engage in
well in keeping the housing market afloat through supply of our people. he global financial crisis triggered by the collapse of financial innovations, but backed by strong primary markets
homes and credit. Their confidence in the market has helped the U.S. market for subprime mortgages and mortgage and associated infrastructure, efficient risk transfer and
to keep the emerging housing market growing. Governments backed securities linked to them has had major impacts sound risk management mechanisms.
in Africa have however not done much like their counterparts on world economies. The crisis has degenerated into a
in the developed countries to help the housing sector. We banking, credit crunch, liquidity and market-to-market
Innovations and transformations in global
assets crisis with severe effects. Losses linked to U.S.
subprime mortgages are estimated to reach US$400 billion. financial markets
The crisis has created instability in global financial markets,
exposing the weakness in the global financial architecture, Fundamental changes have occurred in the structure of
which suggests a need to rethink financial regulation in a financial architecture and financial intermediation over
broader context. the past several decades, that include securitization and
the globalization of financial markets. The changes have
This paper discusses factors that led to the global created opportunities for capital markets to play a larger
mortgage and financial crisis in general, focusing on; the role in the market, and for capital market-based and
transformations in global financial infrastructure and banking-based solutions of credit risk problems, as opposed
architecture that are changing the manner in which capital to insurance based solutions. Consequently, both firms and
is raised, the subprime mortgage collapse in the U.S and its households can borrow from capital markets directly or
origins, the catalytic role of securitization in the debacle and indirectly. In addition, credit rating agencies and third party
the ensuing financial contagion. While stressing the need guarantees are also playing a larger role in capital markets
for stability in mortgage and financial markets, the paper development as facilitators of the securitization process
draws important lessons and implications for mortgage and and other structured finance products. This evolution has
Loan Signing with Simbamanyo Estate, Uganda.
A completed Sebel Invest Housing project in Dakar, Senegal. Continued on Pg. 4
Continued from Pg. 3 Continued from Pg. 4
Perspectives of the U.S Subprime Mortgage Crisis and the Financial particularly among private label MBS,
CMOS, and CDOS. The broader context
Contagion: Lessons and Implications for Mortgage and Financial Markets of these innovations is financial
development in Africa innovation or structured finance. The
principal form of structured finance
brought about important changes in the way in which the full amount of interest due, and the unpaid interest is is capital market-based risk transfer
capital markets policies and practices interact. What used added to outstanding loan amount. Piggyback mortgages technique of asset based securitization,
to be a straight forward relationship between a lender and are second mortgages that borrowers use to make a down which is the most significant innovation
a borrower has become a complex series of transactions payment on another mortgage, in effect resulting in 100% in financial markets in recent
and relationships among numerous parties, especially in the financing, and as such avoiding private mortgage insurance decades. Asset securitization is the
U.S. (PMI). In addition, some mortgages have limited or no transformation of homogeneous cash
documentation of borrower’s income and assets. The main flow producing illiquid assets including
The way in which various institutions such as commercial feature of these types of mortgages is that they allow for mortgages, consumer loans, leases,
banks, investment banks, insurance companies, pension enhanced loan affordability, but they also increase the trade receivables, remittances, non-
funds, etc contribute to the efficient functioning of global likelihood of loan default. Although these mortgages carry performing assets etc into securities
financial markets in the raising of capital has also changed. higher interest rates to compensate for greater credit risk, that are tradable in capital markets.
Some of the changes led to negative consequences such as in many instances they were actually underpriced.
adverse selection and moral hazards, which have resulted The structural changes in the financial architecture of SEIMAD 3 : Housing Project and related infrastructure services in The creation of new financial instruments
from unwitting market behaviors and predatory behavior mortgage markets that contributed to the emergence of three cities in Toamasina, Madagascar . with more transparent combination of
induced by excessive deregulation. This has helped create subprime mortgages include; risk and return profiles allowed for
new products at the primary level such as subprime the transfer of risk by various institutions, companies and
Origins of the subprime mortgage crisis households to capital market investors. However, the credit
mortgages. a. Relaxed underwriting standards that allowed borrowers
who previously would not have qualified for loans to quality and the cash flow of the resulting asset backed
There are four main factors that contributed to the U.S
Subprime mortgages and their origin be approved, securities (ABS) are based solely on the credit quality of
subprime mortgage crisis;
b. Automated valuation that distorted house values and the underlying primitive asset and any necessary internal
a) Global excess liquidity,
Subprime mortgages are loosely defined as mortgages reduced the ability of lenders to estimate default risk and external credit enhancements and liquidity support.
b) Low interest rates,
extended to borrowers with blemished credit history or and, Globally, securitized assets now exceed US$15 trillion,
c) Twin growth and stability, and
elevated credit risk, such as relatively low credit scores, c. risk-based pricing. The changes injected substantial much of it associated with securitization of residential
d) Housing asset price bubble. In particular, low interest
higher debt-to-income ratios, a weak or minimal credit liquidity in the housing sector in particular, and and commercial mortgages of all types including subprime
rates translated to low yields on assets that led to exuberant
history, and negative, little, or no equity in the property being the mortgage finance industry. Subprime mortgage mortgages. The key motivations for using this innovation
chase for high yielding assets by investors. Low interest
financed. Subprime mortgages include hybrid adjustable lending grew significantly from only $35 billion in are cheaper and more reliable source of long term capital
rates also translated to high mortgage affordability, which
rate mortgages (ARMS) which provide fixed subsidized 1994 to $625 billion in 2006, while home ownership for housing finance, and other long term investments.
fueled demand for housing, and in turn led to creating of
interest rates for the first two or three years, known as increased from 64% by 1995, to 70% by 2004. Most
more exotic ABS such as CDO, which were mainly backed by
“teaser rates”, whose interest rate re-price to market and of these subprime mortgages were repackaged into There are many benefits associated with financial innovation,
become adjustable semiannually. In addition, there are mortgage backed securities (MBS), collateralized among them the efficient transfer of asset risk to those best
Option ARMs, interest only and piggyback mortgages mortgage obligations (CMOs) and collateralized debt able to bear them, broader access to capital, severance of
The increase in housing demand led to sharp increases in
issued to subprime borrows. Option ARMs are negatively obligation (CDOs) and sold to capital market investors. the rigid link between income and expenditure, and reduced
the U.S house prices which turned out to be unsustainable.
amortizing mortgages that allow borrowers to pay less than cost of capital. Nevertheless, financial innovation has also
According to the S&P Case-Shillier index for instance, U.S
Continued on Pg. 5 led to a high degree of correlation between financial assets,
house prices rose by 124% between 1997 and 2006. In the
which are raising the spectacle of the market “contagion”
U.K., house prices rose by 194%, in Spain by 180%, and
effect. A contagion is a financial market phenomenon that
in Ireland by an incredible 253%. In addition, the period
results in high cross-country transmission of shocks or much
between 1997 and 2006 was characterised by prosperity
higher correlation in asset returns during financial crises
and confidence around the world engendered by alignment
than at other times, which more often afflict emerging
of growth and stability. This led to increased willingness
to borrow with the expectation that asset prices would
continue to rise. But lending to riskier borrowers soon led
to mortgage delinquency, defaults and foreclosure, which Some lessons from the real world of
escalated as house prices started to decline starting in subprime mortgages and mortgage
SCI Clare de Lune
– Construction of a
2006. The deterioration of the mortgage collateral and backed securities linked to them
rising default risk soon spread to national and global
complex, Residence financial markets. The bubble started bursting in the second The contribution of the subprime mortgage market, financial
Djamil, Dakar, half of 2006, and has since led to unprecedented collapse innovation and securitization to the current mortgage and
Senegal. of financial markets the world over. financial crisis aids us to draw some important lessons some
of which include;
The role of securitization in subprime
mortgage crisis 1. Primary markets are fundamental to origination of
mortgages, and must therefore operate under the
A major catalyst behind the rise in subprime mortgages right kind of incentives to mitigate perverse behavior
was the unprecedented growth in securitization markets, to ensure high credit mortgages. Developing primary
Continued on Pg. 8
Managing Risks in Housing Finance Institutions: The case of Finance
Building Society of Zambia
By Mrs. Chaturvedi, Deputy CEO, Finance Building Society Zambia
isk is inherent in all financial transactions that are expected to generate a return. It generally results from a lack variances between foreign and local currency exchange liquidity crunch may arise when a country’s monetary
of certainty regarding future outcomes . For housing finance institutions, the need to measure and control risk is rates. Specifically, the Society mitigates the effect authorities impose controls on their currency through open
essential, being that they deal with the core business of lending. Risk management is the process of identifying the of depreciation of the local currency against foreign market operations or through policies that inhibit certain
level of risk that an entity wants to incur, measuring the level of risk that an entity currently has, taking actions that bring currency by adopting the following strategies; transactions e.g. externalization limits. To minimize this risk,
the level of risk to the desired level, and monitoring new actual level of risk so that it continues to be aligned with the i. Board approved foreign currencies FBS engages in forward purchases, debt swap agreements or
desired risk. Foreign currency borrowing and advances are in foreign on-lending a portion of the foreign currency loan in foreign
currencies approved by the Board, which is the United currency to ensure that the necessary foreign currency
At the minimum, a risk management process should on a daily basis to discuss treasury and risk management States Dollar (USD). In addition, foreign currency loan required for servicing of the external debt obligation is
therefore involve the following activities; matters, which are chaired by the Chief Executive Officer advances are only approved for borrowers earning income recovered by way of mortgage loan repayments.
or his deputy. But at the front line of risk management in the approved foreign currency.
a. setting policies and procedures, are rigorous loan appraisal techniques, which strictly ensure ii. Lending in foreign currency Credit risk
b. Defining risk tolerance, that loans do not exceed 80% loan-to-cost ratio. FBS has Although lending the whole amount of the loan in
c. Identifying the risks, in addition identified three main possible sources of risks foreign currency minimizes exchange rate risk, this There are five main strategies that FBS employs to minimize
d. Measuring the risks and lastly, that include: nonetheless reduces profitability because higher margins on the risk of delinquency or default which include.
e. Adjusting the level of risks. a) Financial risk, are achieved from lending in local currency. A balance
b) Liquidity risk, and is struck between mitigating the risk and maintaining a. Ensuring that the borrower is left with sufficient
Risk management should be a continuous process and c)Credit risk. profitability by lending a portion of the funds in foreign disposable income to meet other needs after meeting
may require altering any of these activities to reflect new currency and the balance in local currency. Because the loan obligation. Accordingly, FBS assesses the
policies, preferences, and information . These are discussed in this section together with measures majority of Zambians earn in local currency, the strategy Installment to Income Ratio (IIR) and Fixed Obligation
put in place for control and risk mitigation. also ensures broader coverage of the population, and to Income Ratio (FOIR) at 35%, so that 65% is available
that lending benefits the Zambian economy. to the borrower to meet other needs.
Benefits of managing risk Financial Risk iii. Lending in local currency (Kwacha)Several measures b. Requiring physical inspection of the property, and a
have been put in place in this regard. First, FBS search at the Ministry of Lands and the Councils to
For financial institutions, there are many potential benefits This comprises risks pertaining to changes in interest rates, maintains a foreign currency account with a minimum ensure that the title is clean and clear.
of managing risk efficiently which include; and fluctuations in exchange rates that cause variances balance equal to its annual loan obligation. Secondly, c. Disbursement of construction loan in installments
between foreign and local currency during the fiscal year. an Exchange Rate Stabilisation Fund (ERSF) has been according to progress report to make sure that loan
1. Reduced probability of a company falling into established, designed to ensure funds are set aside to funds are only utilized for the purposes for which they
bankruptcy, and therefore lowering the expected value a) Interest rate risk meet the financial obligations falling due in relation to were granted.
of the bankruptcy costs and consequently, increasing There are two components of interest rate risk that FBS the foreign currency loan. The ERSF assumes the FBS d. Requiring a compulsory Mortgage Protection Policy for
the value of a company. has identified and for which mitigation measures have long-term cost of borrowing in local currency to be a borrowers to ensure that in case of death and permanent
2. It enhances a company’s debt capacity and lowers the been set. The first pertains to the interest payable by rate to be fixed by management, given the prevailing disability, the loan is repaid by the insurance company.
cost of debt, which gives the companies considerable FBS on funds borrowed from foreign lenders, in which money market conditions. The undisbursed funds in the e. Mandatory insurance to cover fire and natural
flexibility for future financing needs, case FBS ensures that rates payable are adjustable to a ERSF earn interest at a rate of return not less than the calamities
3. A company can avoid getting into situations in which it mutually acceptable international index such as LIBOR prevailing interest rate on a 91 Day Treasury Bills. The
has no incentive to undertake profitable projects or within a ceiling rate. In addition, foreign currency income is also used to mitigate the foreign exchange Conclusions
4. By practicing risk management, companies can stabilize transactions are limited to long term borrowing and exposure risk.
their cash flows, ensuring that adequate funds are repayment is based on agreed terms. This means that FBS is actively making its own efforts to ensure prudential
available for investment the payment liability is well known in advance, and that Lastly, FBS has set a “Management Action Trigger”, management of its resources, both foreign and domestic.
5. Risk management practices help a firm operating in heavily the Society’s risk management policy ensures how that which is the decision point which defines managements The Society is also attempting to broaden its product
regulated industries like the financial services industry liability is to be met. tolerance towards market risk losses. This is quantified portfolio so as to reduce the risks of its operations. In
to avoid regulatory fines and costly restrictions. on the basis of when the ERSF goes into deficit as a addition, it is also making efforts towards reducing the cost
The other component is to do with the risk pertaining result of the exchange loss. At this point, management of funds and to broaden the resource base so as to obtain
to interest payable on the mortgage advances by the makes a decision as to whether to continue with the
The approach to risk management by loan or to opt for prepayment.
the flexibility that is needed when pricing the various
Finance Building Society borrowers of FBS. In this regard, the Society maintains loans. Lastly, the Society is building an IT infrastructure to
adjustable rate mortgages (ARM) that are reviewed support its present and future operations.
In Zambia, the Central bank has adopted vigorous every six months, taking consideration of any major
changes in the money market. Liquidity Risk These efforts contribute towards minimizing the risk of
approaches to monitor the management of risk by financial
institutions. At Finance Building Society (FBS) which is one lending and in effect, ensuring a sustainable lending
b) Exchange rate risk This refers to FBS’s potential inability to obtain the required environment that is necessarily in alleviating the housing
of Zambia’s housing finance institutions, risk management
Generally, FBS mitigates the risk that arises from the foreign currency to meet a debt servicing obligation. A deficit in Zambia.
is taken as a top management priority. Meetings are held
Continued from Pg. 5 Continued from Pg. 8
market institutions is a key priority for Africa. The need for stability in mortgage and
2. Ultimately, the cash flows from the financial products financial markets
traded on capital markets such as MBS and CDOs can
only be as good as the cash flows from the underlying Global financial markets that are resilient to shocks are
assets. It requires that sound banking and other fundamentally important to emerging economies of Africa
associated business operations be put in place. because these markets are becoming increasingly integrated
3. Securitization should be kept simple, to avoid concealment into global economies both in terms of trade and capital
of the real risk of the new securities created, and as such flows. Well functioning financial markets facilitate access
hinder prudent investment. to product and capital markets which are instrumental in
4. The separation of the ultimate lender and the originator stimulating economic growth, and in long term financing
of the underlying asset which is characteristic of of housing. When financial crisis such as those triggered
securitization may lead to a more relaxed credit analysis by the recent subprime mortgage market collapse occur,
by the originator. emerging markets including countries in Africa are usually
5. The securitization process creates systematic dependence the ones that bear the severest consequences. Nevertheless,
through numerous counterparty links along the value African economies must seek to tap into and attract the
chain. Diffused responsibility of the various parties enormous pool of capital available for instance from the
involved along the value chain may lead to failure to growing volume of hedge funds and sovereign wealth funds
deliver due to warped incentives. that have experienced substantial growth in the recent
6. As is evident from the current turbulence in the past. To increase access to mortgage finance, mortgage
financial markets, the prospect of contagion emanating and capital markets in Africa must foster and encourage the
from securitization can destabilize the global financial development of new financial instruments based on sound
system. principles of credit risk underwriting.
7. Rating and rating agencies signal to the market the
quality of financial assets, and as such influence the Should Africa capital markets
prices investors are willing to pay for financial assets.
Incorrect information from rating agencies can lead to
embrace securitization to develop new
mis-pricing of assets. instruments?
Bahari Beach Housing Estate, Dar-es-salaam, Tanzania.
8. Securitization can paradoxically lead to credit squeeze,
for instance when spreads become compressed and In spite of the rather grim account of the contribution of
investors take on more risk in search for high yields, and securitization to the current mortgage and financial crises,
borrowers on one side, and the vast global capital markets economies need to address the following key issues.
when rising defaults eventually lead to credit squeeze. there are many potential benefits of securitization that
that were previously nonexistent. These relationships have
9. Economic fundamentals form the basis for value financial markets in Africa need to explore. Securitization has
broadened access to credit for individuals and businesses d. The legal system must uphold the sanctity of property
formation for financial assets, hence the need to pay for instance created beneficial relations between individual
at reasonable terms. They have helped develop and deepen rights, and eliminate the gaps and impediments that
attention to the asset side of the balance sheet. markets, added market liquidity and helped transfer risk to hinder the development of mortgage and bond markets
Continued on Pg. 9
a much broader base, mitigated the agency costs of market e. Developing confidence and integrity in the mortgage
impediments and frictions on liquidity, and have helped capital markets through strong standards for investor
reduce market inefficiencies which has contributed to protection, protection and enforcement of creditor
lowering of the cost of capital. rights, adoption of best practices, safety and soundness
of the financial system.
The benefits of more robust financial markets can help f. Effective underwriting of credit risk thorough auditing
emerging economies and Africa to address some of the of assets and their income-earning potential, and most
major issues that these countries are facing, including; of all enhancing financial transparency and integrity
the issue of how to raise and direct capital flow to g. Facilitating development of bond markets by ensuring
where it can boost growth and stability, how to create prudent regulation that will permit establishment of
the necessary environment to attract financing for structured finance and investment vehicles, streamlining
long-term and riskier projects, how best to design the registration procedures, and efficient transfer of assets
financial architecture to facilitate alternative financial and property rights.
Apartments by intermediation for raising capital and, strategies for h. Prudent but not excessive regulation and supervisory
GCC Gombe, directing some banking activities more towards capital activities must stay abreast with new developments and
Kinsasha market-based solutions. These are key concerns for financial innovations.
African economies which lead to the question of whether i. Raising governance and transparency standards to
securitization and other structured instruments can help create confidence that is critical to the stability of well-
develop mortgage and local bond markets in Africa. functioning mortgage and capital markets.
j. Establishing appropriate yield curve across the maturity
What Africa needs to do now spectrum to provide for pricing benchmarks preferably
through government securities or other relatively risk
Undoubtedly, Africa needs to develop efficient and more free issuers.
complete mortgage and capital markets in order to make k. Clear and transparent bankruptcy codes and liberalized
mortgage financing more accessible to funding housing and simplified tax regimes
and other real estate. As a prerequisite though, African l. Developing all the necessary institutions that are part of
Continued on Pg. 10
Continued from Pg. 9
Experimental Reimbursable Seeding
the financial infrastructure and architecture.
m. Developing meaningful sovereign and company credit
disclosure and high monitoring costs that prevent them
from direct access to capital markets. Possible alternatives Operations (ERSO): Providing Housing Finance
rating. for diversifying sources of funds exist with the emergence
of collateralized loan obligations (CLOs) and asset backed to the Poor through Conventional Housing Finance
The role of securitization and structured commercial paper (ABCP), which have enough flexibility in
finance in capital markets development in terms of design and underlying asset type. They also possess
appropriate disclosure requirements to mitigate existing
emerging markets market challenges for financing SMEs. To mitigate against
the small size of SMEs which could pose as a hurdle in
Long term financing for housing and accessing such options, large numbers of small firms could
RSO is an initiative aimed at financing of low-income housing especially in urban areas, through conventional housing
finance institutions. The initiative was launched during the 22nd Session of the UN-HABITAT Governing Council
infrastructure be pooled together in a structured deal which concomitantly
(GC22) held between 30th March and 3rd April 2009 in Nairobi. In addition to encouraging pro-poor investments
also serves to diversify the asset risk of the transaction.
in housing, the initiative takes place against the backdrop of increasing urbanisation, with urban population estimated at
Excessive reliance on deposit taking as a major source of
approximately 3.3 billion, out of which about 1.0 billion live in slums and squatter settlements. During the launch, it was
capital for banks means that banks are less than perfect Integrating African capital markets into acknowledged that the way in which this problem is addressed will determine the future of cities in developing countries.
source of financing for long-term assets such as housing global capital markets The concern is becoming even more serious in view of the current mortgage and financial crisis affecting majority of world
and infrastructure. Securitization and structured finance
economies, and that poses an additional threat to human settlements in developing countries.
provides an opportunity for long term finance for housing At the domestic level, the process of securitization integrates
and infrastructure at more competitive and reasonable prices. the various segments of markets by loosening or mitigating During the GC22 Meeting, six ERSO agreements were signed by Mrs. Anna Tibaijuka, Executive Director of UN-HABITAT
The resulting new tradable instruments are particularly regulatory rigidities and other market imperfections to allow with project partners from Argentina, Bangladesh, Kenya, Nepal, Tanzania and Uganda with the aim of providing funds for
suited for pension funds and insurance companies with efficient transfer of risk to those best able to bear them. affordable housing and infrastructure. Initial funding is provided by Spain, the Kingdom of Bahrain and the Rockefeller
long term liabilities that are denominated in local currency. In turn, the cost of capital should move toward its lowest Foundation
These institutions can therefore match the duration of these equilibrium. In this context, the integration of capital
liabilities with long term local currency investments such as markets becomes an important condition precedent for The loans are provided to local financial institutions for on-lending to end users mainly the urban poor, for house building,
MBS and CMOs. transparency, effective transmission of monetary policy to improvements and infrastructure upgrading. Some of these include:
real economy, and an efficient allocation of capital to most
Inclusive and flexible capital markets profitable investment opportunities. These are necessary
and desirable attributes that Africa mortgage and capital Partnering with local financial institutions
Financial assets arising from the innovation of securitization markets are critically in need of if they are to become “the
such as MBS and CMBS have broadened access to capital next investment frontier”. a. Kenya - ERSO seed capital loans are to be provided to provide credit and technical assistance to low-income
markets, and severed the rigid link between income and Housing Finance Kenya, which has predominated the families to purchase and rehabilitate a dilapidated
expenditures or consumption. They have the potential to middle and high income market segments providing building to create decent apartment units with basic
Conclusions construction and mortgage loans. ERSO seed capital amenities.
help create more flexible and inclusive financial markets
in emerging economies of Africa, which may render them will now enable HFC to move down market, to lend for e. Dhaka - the Association of the Realization of Basic
Financial innovation in general, and securitization in
more “complete”, with regard to the potential and ability construction of about 100 houses near Athi River and Needs (ARBAN) is training and assisting the Cooperative
particular has taken root in many of the developing
to create value. for mortgages to members of housing cooperatives. of Slum Dwellers to set up a savings programme which
countries, and as discussed, it portends many benefits at the
b. Tanzania – The loan is being used in supporting has enabled them to purchase land for construction
household, company, national, regional and international
Securitization of future flows as instruments level. As global capital markets become more integrated and
Azania Bank to loan to Mwanza City Council for the of housing. ERSO’s seed capital amounting to US$
implementation of a comprehensive resettlement 214,286 will be utilized to construct 40 flats for 240
for accelerating economic development capital has become more mobile, businesses and investors
plan using participatory urban planning processes. slum dwellers.
have a choice where to invest and where to raise capital.
The programme will benefit over 600 low-income
Securitization of future flows such as petroleum exports, Africa must not remain behind in this global search for
individuals. Also, the DFCU Bank is being helped to set The ERSO initiative highlights the need to address housing
oil and gas royalties, export receivables, etc, especially financial opportunities. Rather, Africa should act with
up a loan facility of approximately US$ 1.5 million for problems especially for the poor from all levels. Formal
for resource rich countries can be adopted to accelerate hindsight of the causes of current crisis, to move with
local developers and low-income households belonging financial institutions need to rethink lending to the lower
economic growth, and to generate more capital for medium time and create dynamic and flexible systems in which a
to the Kasoli Housing Association. income segments of the society, who according to the UN
term financing of the housing sector. This is particularly major disruption does not create substantial uncertainty. In
c. Nepal - Habitat for Humanity International will be Habitat are increasingly being proven to be creditworthy.
appealing to emerging economies since it mitigates both particular, there is need to give priority to the developemnt
partnering with 11 local NGOs and microfinance This is in line with more recent efforts by microfinance
currency and political risk. As such, it facilitates government of more inclusive and flexible debt markets characterised by
institutions in Nepal to implement the “Save and Build” institutions which are increasingly becoming involved in
controlled entities and commercial entities to pierce the carefully designed regulations, and efficient risk transfer and
programme. This will involve building of decent housing lending to the poor, and have proved that lending to the
typically low sovereign rating ceiling to raise capital in a sound risk management mechanisms with all the necessary
for slum dwellers in 8 urban slums, and will benefit over poor can in fact be profitable, and they exhibit lower default
manner that is not possible under conventional means. and sufficient financial shock absorbers.
1,760 families comprising 6,700 individuals. incidences than previously assumed.
d. Buenos Aires - Habitat for Humanity International will
Access to capital markets for small and But at the global level, there is need to ensure clarity and
medium enterprises (SMEs) stability of the incentives offered to reward those who play
the game right, and more importantly, to punish those who
SMEs, which form the back-bone of majority of the play the game the wrong way.
emerging markets economies have mainly been dependent
on bank loans and private equity due mainly to weak public
• More than 75% of Africans cannot currently access mortgage, often because
they do not have legal tenancy or ownership of a plot of land.
• Sub-Saharan Africa has the second largest slum population in the world after
South-central Asia, which has 262 million.
• Africa is the only continent on earth that stretches from the northern Book Review
temperate to southern temperate zones.
• Namibia is the only country in the world to specifically address conservation
and protection of natural resources in its constitution.
Namibia Country Profile
Location of the Namibia is situated on Africa’s south-western coast and has Angola to the north,
Country Botswana and Zimbabwe to the east and South Africa to the south as neighbours.
The Atlantic Ocean forms the western border of the country
Reviewed by Macharia Kihuro
Area Land 824,268 km2
Capital Windhoek Century of the City- No Time to Lose” publication is 6.7B, with 9.2B as the projection for 2050. This definitely
a product of Rockefeller Foundation’s month-long poses some challenges as well as enough opportunities.
Population 2.3 million (2008) colloquium dubbed, Global Urban Summit in Bellagio,
Italy in July 2007 to identify and strategize on the challenges Issues concerning water, sanitation, climate change and
Languages English (Official), German (Official), Afrikaans(Official), Oshiwambo, Otjiherero, faced by rapidly urbanizing 21st century global cities. urban health have been succinctly articulated in chapters
Damara, Nama, Tswana and Rukavango 2, 3 and 4. As people from rural areas flock to the urban
An array of remarkable participants with immense interest centres in masses, urban infrastructure cannot cope with
Climate The hottest months fall between November and February, when average in urbanization drawn from diverse spheres of the global the intense pressure unless adequately up graded.
temperatures range from 20 to 36 degrees Celsius. In the colder months, May to economy conglomerated, not only to identify the ills that
August, minimum temperatures vary from 3 – 6 º C in the morning, often rising bedevil our cities, but also explore decent and sustainable Chapter 6 delves into the depths of the U.S Strategy on
to 18 - 22 º C by midday. ways to address them. urbanization for the next half century up to 2050. It starts
by acknowledging that although the U.S population has
Currency Namibian Dollar (N$) which is on par and linked to the South African Rand, also
The various contributors in the book are unanimous- towns surged to in excess of 300 million, there hasn’t been a
legal tender in Namibia. Namibian dollar per USD : 9.1675 (April 2009)
and cities are in constant flux. They are hives of industry coherent plan for where and how it will house, educate
and crucibles of social, cultural and political change. or otherwise prepare for the 120million demographers are
Head of state H.E. President Hifikepunye Pohamba
anticipating by 2050.
Legislative Three-tier government consisting of the Executive, the Legislature and the The long-standing distinction between central cities and
Judiciary. Executive power is exercised by the government. Legislative power suburbs has become less and less succinct. Outlying centres The book has lived to the promise of this summit and
s vested in both the government and the bicameral Parliament, the National big enough to be called “edge cities” have emerged as well the final chapters have been dedicated for the summit’s
Assembly and the National Council. The judiciary is independent of the executive as sprawling slums especially in the developing world. highlights and the look towards the future. Chapter 9 tackles
and the legislature. The capital, Windhoek, serves as the seat of the central The publication specifically takes exceptional issue with the the, “Building Evidence to sustain an urban future” while
government. fast-expanding slums in the growing cities of Asia, Africa the last chapter ably addresses the policies and approaches
and Latin America forcing many people to live in deplorable world cities may adopt to enhance urban opportunities.
Economy Namibia’s economy consists primarily of mining and manufacturing which and dehumanizing conditions.
represent 8% of the GDP. The economy is closely tied to South Africa due to In a nutshell, the book, “Century of the city” is an
their shared history. Namibia is the fourth largest exporter of non-fuel minerals This book provides a remarkable density of diversity. It impassioned call for action. Vibrant with images and
in Africa and the world’s fifth largest producer of uranium. provides a coherent, comprehensive guide that seeks to littered with sidebars, Century of the City is magazine-
shape perspectives about cities’ planning and offers critical readable but book-intelligent. The focus is on taking
GDP (PPP ) $11.23billion (2008 est.) new approaches to solving 21st Century urban challenges. multidisciplinary approaches to the issues faced by cities,
from the underserved slums of Kibera in Kenya to the most
GDP - per capita $5,400 per person (2008 est.) Chapter 1 aptly covers the myriad of challenges and bustling economic powerhouses of the new China. Readers
opportunities as far as city planning and urbanization are will come away convinced that even the most inefficient
Average annual growth rate 3.3% (2008)
concerned. It has indicated that the throughout the 20th cities are incredibly important to the livelihood of both
century, all cities all over the world grew in population, local citizens and global citizens, and that making them
GDP – composition by sector Agriculture: 10.4%, industry: 36.2%, services: 53.4% (2008 est.)
from 250m to 2.8 Billion. Overall global population rose better is truly an international imperative.
from 2.2B inhabitants in 1950 to most recent estimates of
Population below poverty line 34.9% (2005 est.)
Life expectancy at Birth 51.24 years (2009 est.)
New Staff F F
KPA Bandari Project,
n line with the objectives of the 2007-2011 Business Plan, a new organisational structure was approved
in 2008. As a result, the Shelter Afrique family has grown over the six months starting January 2009.
Shelter Net wishes to extend a warm welcome to the following new staff and wish them an enjoyable stay Mr. Marcus Gaitta Nairobi Kenya
at Shelter-Afrique. HELTER-AFRIQUE approved a loan of KShs.
Mr. Gaitta, a Kenyan national joined as Assistant
175,000,000 (US$ 2,500,000) in October 2007 to
Officer Human Resources in the Corporate Affairs
finance the construction of 135Nos. 4-bedroom
&Secretariat Department effective 9th February
maisonettes and related infrastructure services in the South
2009. He holds a Bachelor of Arts degree in Sociology/
Mr. Samson Kimathi Murithi C neighbourhood of Nairobi. Kenya Ports Authority Pension
Managing Director Business Studies from Kenyatta University, and a
Higher Diploma in H.R from the Institute of Human
Scheme and South Development Company Limited will
Mr. Murithi, a Kenyan national joined as make equity contributions amounting to KShs. 78,500,000
Resource Management Kenya. He was previously
Mr. Alassane Ba Assistant Officer Investment and Special
working for Oldonyo Laro Estates Ltd.
(US$ 1,121,429) and KShs. 79,875,000 (US$ 1,141,071)
Products in the Operations Department effective respectively. Buyers’ deposits and the contractor’s
The year 2008 ended with the departure of the 14th January 2009.He holds a Bachelors degree contribution will be used to cover the remaining financing
former Managing Director Mr. Birama Sidibe. in Accounting and Finance from Moi University gap to the tune of Kshs. 425,971,916 (US$6,085,313) or
Mr. Sidibe, a national of Mali, joined Shelter and an MBA in Finance from the University of Dr. Jacques Djofack and KShs.57,500,000 (US$ 821,429) respectively.
Afrique in July 2006 and served the organisation Nairobi. He was previously working for Industrial
diligently for two and a half years. His dynamic Promotions Services (EA), part of the Aga Khan Dr. Djofack , a national of Cameroon joined as The project involves the development of affordable and
and hardworking nature will be greatly missed. Development Network (East & Central Africa) as Team Leader Risk Management in the newly high quality maisonettes for outright sale to the public.
Shelter Afrique takes this opportunity to wish Group Financial Analyst. established Risk Management & Compliance The project will provide decent residential units to alleviate
him every success in his future endeavours. Department effective 27th February 2009. He the acute housing shortage in Nairobi. It is also expected
holds a PhD in public works from Ecole Nationale that the project will enhance public-private partnership
The new Managing Director, Mr. Alassane Ba, a des Ponts Chaussées, Paris, France, and an MBA through competitive procurement processes and create
national of Mauritania will join Shelter Afrique in management and finance from John Molson value through the development of vacant parcels of land.
effective 1st July 2009. He holds a degree in Business School, Concordia University, Canada. He
Management from the Université of Paris I Mrs. Jocelyne Ninteretse was previously working as Senior Manager Finances The project site is made up of three parcels of land adjacent
Sorbonne, and a Master’s degree in Economics & IT for Société Générale Corporate & Investment to each other with a total area of 10 acres, in South C
from the University of Dakar, Sénégal. Mr. Ba Mrs. Ninteretse, a national of Burundi joined Banking in Paris, France. estate, off Mombasa Road, about 8km from the Nairobi
currently holds the position of Chief, Division as Assistant Officer Loan Administration in the CBD.
of Industries and Services at the African Financial Control & Management Department
Development Bank. Shelter Net extends a warm effective 15th January 2009. She holds a Each unit will measure 170 Sqm and sit on a plot measuring
welcome to Mr. Ba and wishes him an enjoyable Bachelor in Business Administration degree from Mr. Joseph Kihuro about 204 Sq. M. with boundary wall and a gate. Ground
stay in Shelter Afrique. Africa Nazarene University, Nairobi, Kenya. She coverage is about 45% which allows for green areas and
was previously working for American Friends Mr. Macharia, a Kenyan national joined as Assistant gardens at the front and sides of the building. Landscaping
Service Committee as Administrative and Finance Officer Risk Management in the newly established comprising tree planting and green lawns will be provided.
Officer. Risk Management & Compliance Department
effective 4th March 2009. He holds a B.com Degree Project implementation commenced in October 2006 and is
In Accounting from the University of Nairobi and progressing satisfactorily.
CPA (K). He was previously working with Fina Bank
Mr. Isaac Nyamora as a Corporate Risk Analyst.
Mr. Nyamora, a Kenyan National joined as
Assistant Officer, Project Portfolio Management
Mr. George Karanja Njiraine
in the Business Development & Operations
Mr. Karanja, a Kenyan national joined as Mrs.Daniella Gateretse
Department effective 12th January 2009. He
Assistant Officer Treasury in the Financial
holds a BSc in Mechanical & Manufacturing
Control & Management Department effective Mrs. Gateretse, a national of Burundi joined
Engineering from the University of Nairobi and
2nd February 2009. He holds a BSc in as Senior Administrative Assistant in Business
was previously working with H Young & Co as
International Business Administration (IBA) Development & Operations Department effective
with Accounting major from the United States 27th April 2009.She holds a HND in Marketing
International University (USIU), Nairobi and Economics/Communication from Niels Brock
CPA(K). He was previously working for Family College, Denmark. She was previously working
Bank Ltd. for AFRACA as a Relationship Officer / Assistant
Bandari Estate by KPA Pension Scheme, South
C, Nairobi, Kenya.
When large numbers of people live in despicable housing
conditions while a handful of people live in comfort and luxury,
this amounts to some kind of violence.” Mahatma Gandhi
Every child in Africa is born with a financial burden which a
lifetime’s work cannot repay – the debt is a new form of slavery, as
vicious as the slave trade.” All Africa Conference of Churches
Housing is a process and if you help people make the first step
they will be on their way to acquire a house.” Aruna Paul speaking
at the GC22 Meeting on behalf of Habitat for Humanity
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