January 25, 2005, Accra, Ghana—The International
Finance Corporation, the private sector arm of the World Bank Group, has
launched a two-year technical assistance project with a view toward sparking
new residential mortgage lending in Ghana. The Swiss State Secretariat
for Economic Affairs (seco) has provided initial support.
IFC and four of Ghana’s major financial institutions – HFC Bank (Ghana),
Ecobank Ghana, Fidelity Discount House, and the Social Security & National
Insurance Trust – have signed a memorandum of understanding that calls
for long-term local currency mortgage funding under uniform guidelines
and practices, based on international standards. The framework will
apply to all investors and lenders participating in the funding initiative.
The memorandum calls for a comprehensive market analysis of growth factors
for mortgage lending in Ghana. Funded by a $125,000 grant from seco,
the study will allow participants to assess opportunities in the local
mortgage business and provide a basis for market development. As a further
step, the memorandum recommends the establishment of a mortgage funding
trust, into which institutional investors would channel long-term loans
that banks could use to finance mortgages. A home construction funding
corporation is proposed as an additional tool to help finance infrastructure
measures in large-scale housing projects. IFC will consider providing partial
credit guarantees to the trust and the corporation.
The memorandum builds on Ghana’s recent economic
stabilization and reduced interest rates, which have improved the climate
for mortgage lending. In the past, Ghana’s mortgage market was hampered
by high inflation and high interest rates. Sources of long-term investment
funds, which are important keys to sustainable mortgage lending, had dried
up, and the mortgage business focused primarily on foreign currency denominated
loans for property investments by Ghanaians living overseas and the very
small number of locals who could afford such transactions.
Ghana’s Acting Deputy Minister of Finance, Dr. Akoto Osei sees this development
as “truly one of the most creative and innovative ways to bridge significant
gaps in the financial market and move all significant players in the same
IFC Director for Sub-Saharan Africa Richard
Ranken, noted, “This groundbreaking project has the potential to expand
Ghana’s housing finance market significantly. It also reflects IFC’s
revamped strategy in Africa, which seeks to align technical assistance
with investments. In this case, technical assistance will be provided both
before and after the investments in order to support the entry of lenders
into residential mortgage finance."
Jyrki Koskelo, IFC director for Global Financial Markets, welcomed the
initiative: “If successful, it could help break the deadlock in Ghana’s
mortgage market. Ultimately, the real challenge will be to broaden participation
and include a wider array of banks and institutional investors.”
The mission of IFC (www.ifc.org)
is to promote sustainable private sector investment in emerging markets,
helping to reduce poverty and improve people’s lives. IFC finances private
sector investments in transition and developing countries, mobilizes capital
in the international financial markets, helps clients improve social and
environmental sustainability, and provides technical assistance and advice
to governments and businesses. From its founding in 1956 through FY04,
IFC has committed more than $44 billion of its own funds and arranged $23
billion in syndications for 3,143 companies in 140 developing countries.
IFC’s worldwide committed portfolio as of FY04 was $17.9 billion for its
own account and $5.5 billion held for participants in loan syndications.