Nigeria’s housing deficit, estimated at 28 million units, has long been a pressing concern. The situation is exacerbated by rapid population growth, urbanisation, and economic disparities, leading to a significant shortfall in housing supply. To tackle these challenges in what could best be described as a new lifeline, the Federal Mortgage Bank of Nigeria (FMBN) has introduced the Rental Assistance Loan, designed to alleviate the burden of high rental costs for individuals and families. Sunday Ehigiator reports
Traditionally, housing finance has been inaccessible to most Nigerians, particularly those in the informal sector for the longest of Nigeria’s existence.
The allocation of housing finance in Nigeria has been heavily skewed towards the salaried and formally employed population who fall in the minority of Nigeria’s working population.
According to the National Bureau of Statistics’ (NBS) National Labour Force Statistics Report, Nigeria’s informal employment rate, which is the share of employed persons in the informal sector and informal employment, was 92.7 per cent in Q2 2023.
The informal sector, which includes traders, artisans, and small business owners, constitutes a large portion of the economy. However, due to the unpredictable nature of their incomes, these individuals often face significant challenges in accessing formal credit facilities.
The implication of this is that only minuscule populations of Nigerians are formal sector employees and could originally access housing finance, leaving a vast majority of those in the informal sector without viable options for homeownership or even affordable rental housing.
As a result, they are forced to rely on informal and often exploitative sources of credit, which can lead to debt traps and financial instability.
A New Lifeline
In response to this pressing need for affordable housing finance, the Federal Mortgage Bank of Nigeria (FMBN) has introduced the Rental Assistance Loan, a groundbreaking initiative designed to provide financial relief to individuals and families struggling with high rental costs. This innovative loan product is part of FMBN’s broader strategy to address the housing affordability crisis in Nigeria.
The Managing Director of FMBN, Shehu Usman Osidi, made the announcement during the recently concluded 18th Africa International Housing Show (AIHS) 2024, in a presentation which outlined the strategic efforts being made by the Bank’s new Executive Management Team to transform the Bank to optimally deliver on its mandate of mortgage provision for affordable housing solutions.
Understanding the Rental Assistance Loan
The Rental Assistance Loan is a micro-housing loan product meticulously designed to alleviate the financial burden of rental payments for eligible Nigerians. The loan is tailored to meet the specific needs of middle and low-income earners, as well as informal sector workers, who have historically been excluded from formal housing finance.
It is a testament to FMBN’s commitment to ensuring that all Nigerians, regardless of their income level or employment status, have access to safe and affordable housing.
This commitment, which draws inspiration from the Bank’s mandate of providing mortgages for affordable housing delivery to low- and middle-income earners, resonates with the vision of the Minister of Housing and Urban Development, Arc. Ahmed Musa Dangiwa, and drawn from President Bola Ahmed Tinubu’s Renewed Hope Agenda for the housing sector.
It would be recalled that while performing the groundbreaking for 3112 housing units at Karsana, Abuja in February, 2024, President Tinubu re-asserted that every Nigerian deserves decent and affordable accommodation, reaffirming his commitment to making this happen.
The innovative Rental Assistance Loan has been thoughtfully crafted to ensure accessibility, affordability and flexibility, making it a viable solution for many who have found it challenging to secure housing finance through other traditional financial arrangements.
Eligibility
According to Osidi, one of the key requirements for qualifying for the Rental Assistance Loan is that applicants must be contributors to the National Housing Fund (NHF) Scheme.
“This pre-requisite ensures that beneficiaries are actively engaged in a system that promotes long-term financial planning for housing. By making contributions to the NHF, applicants demonstrate their commitment to securing their housing future, which is a critical aspect of financial discipline.
“Unlike traditional loans that may require a substantial lump sum payment, the FMBN Rental Assistance Loan mandates consistent contributions to the NHF for a minimum of six months. This approach not only encourages financial discipline but also broadens the loan’s accessibility to a larger demographic.”
Means-tailored-loans
The Rental Assistance Loan offers a maximum loan amount of N2 million which is subject to the beneficiary’s affordability. This cap is strategically set to ensure that the loan remains within a manageable range for applicants, aligning with their income levels and financial capacity.
According to Osidi, “By tailoring the loan amount to the applicant’s financial situation, FMBN is helping to prevent over-indebtedness, especially considering the prevailing hardship in the country, thereby promoting long-term financial stability.
“Another essential feature of this loan is that the amount borrowed is designed to not exceed one-third of the applicant’s annual gross pay or confirmed income. This prudent measure ensures that the loan repayments do not become a financial strain, allowing beneficiaries to meet their other financial obligations without undue stress.
Accessibility
To further enhance the accessibility of the Rental Assistance Loan, Osidi said the bank has streamlined the application process to allow prospective beneficiaries to apply directly through the FMBN portal or at branch offices located near the property they intend to rent.
“This decentralized application process is particularly beneficial for those living in remote or underserved areas, where access to financial services can be limited.
“For informal sector workers, there is an additional requirement of membership in a cooperative society. This prerequisite not only fosters a sense of community among beneficiaries but also provides a support system that is essential for managing loan obligations.”
Loan Tenor’s Flexibility
The loan tenor for the Rental Assistance Loan is set at 10 months, offering a short-term, flexible repayment period that aligns with typical rental agreements.
According to Osidi, “This feature allows beneficiaries to manage their financial commitments effectively without the burden of long-term debt obligations and the ability to adjust their payments according to their financial situations.
“One of the most significant advantages of the Rental Assistance Loan is the option for early liquidation without penalties. This means that beneficiaries have the flexibility to repay the loan ahead of schedule if their financial situation improves, without incurring any additional costs.
“This feature is particularly beneficial for those who may experience a sudden increase in income or who wish to avoid paying long-term interest on the loan.
“Also, loan repayments can be made through the Treasury Single Account (TSA) or, for informal sector workers, through their cooperative societies. This dual-channel repayment option provides flexibility and convenience, catering to the diverse needs of beneficiaries across different sectors.”
Insurance and Interest rate
Osidi said, “The Rental Assistance Loan carries a recommended interest rate of 9 per cent, with 1 per cent of this amount allocated as an upfront insurance cover.
“The remaining 8 per cent is recognised as the Bank’s income on the product. The inclusion of an insurance component offers a vital safety net for beneficiaries. However, in the event of damage to the rented property as a result of natural disaster, the landlord is responsible for repairs.”
FMBN’s Efforts at Affordable Housing
The introduction of the Rental Assistance Loan is part of a broader strategy by FMBN to address the housing affordability crisis in Nigeria.
By offering micro-housing loans, the Bank is providing a practical solution to the immediate needs of medium and low-income earners, many of whom struggle to save for homeownership due to the high costs of rent.
The initiative is expected to have a ripple effect across the housing sector, by reducing the financial burden on renters, thereby enabling individuals to allocate more of their income towards savings or other essential expenses.
Over time, this would lead to an increase in homeownership rates, as more Nigerians are able to accumulate the necessary capital for a down payment in the quest to own a roof over their heads.
As the bank continues to innovate and push the boundaries of housing finance, it is clear that the Rental Assistance Loan is just the beginning of a new era in affordable housing in Nigeria.
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By offering micro-housing loans, the bank is providing a practical solution to the immediate needs of medium and low-income earners, many of whom struggle to save for homeownership due to the high costs of rent. The initiative is expected to have a ripple effect across the housing sector, by reducing the financial burden on renters, thereby enabling individuals to allocate more of their income towards savings or other essential expenses