FMBN: Mitigating Nigeria’s Housing Crisis Through New Rental Assistance Loan

Nigeria’s housing deficit has been a longstanding challenge, with millions of citizens struggling to find affordable and decent shelter. But with the newly introduced Rental Assistance Loan, an initiative by the Federal Mortgage Bank of Nigeria (FMBN), this crisis could be significantly tempered, writes Emmanuel Addeh.

That Nigeria grapples with an enormous housing deficit, with quoted figures ranging from 20 million to 28 million housing units, is no longer news. This paints a picture of how dire the situation is, one that is further exacerbated by a combination of rapid population growth, urbanisation and widening economic disparities leading to a significant shortfall in housing supply.

Traditionally, the mortgage market in Nigeria has been somewhat skewed towards the salaried and formally employed population who fall in the minority of Nigeria’s economically-viable population.

According to the National Labour Force Statistics Report by the National Bureau of Statistics (NBS), 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 implication of this is that only a minuscule population of Nigerians are formal sector employees, who are more likely to easily access housing finance, leaving a vast majority of those in the informal sector without viable options for homeownership.

In response to this urgent need for a more inclusive and equitable housing finance ecosystem, the FMBN recently introduced a series of innovative products, in addition to its existing rich bouquet of products, which include the National Housing Fund (NHF) Scheme, the Individual Construction Loan, the Rent-to-Own Scheme, the Cooperative Housing Development Loan, and the newly introduced Diaspora Mortgage Scheme, amongst others.

Among the new offerings introduced by the Bank is the Rental Assistance Loan, a groundbreaking initiative aimed at providing financial relief to individuals and families struggling with high costs of rent. The Managing Director of FMBN, Shehu Osidi, made the announcement during the recently concluded 18th Africa International Housing Show (AIHS) 2024.

This was done  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 Loan Scheme

The reality of the housing ecosystem is that not everyone will become homeowners. A recent housing report found that at least 80 per cent of Nigerians lived in rented accommodation and spent 50 per cent of their income on house rent. Even for those who have the desire to become homeowners, a lot of assistance is required in the present in the form of rental payment, especially considering inflationary trends in the home rental segment.

The Rental Assistance Loan is a micro-housing loan product meticulously designed to alleviate the financial burden of rental payments for eligible Nigerians.

“This product 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, Mr Ahmed Dangiwa,” the bank said.

It added that this is drawn from President Bola Tinubu’s Renewed Hope Agenda for the housing sector. It recalled that while performing the groundbreaking for 3,112 housing units at Karsana, Abuja in February 2024, the president re-emphasised that every Nigerian deserves a decent and affordable shelter, 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.

The introduction of the rental assistance loan is part of a broader strategy by the Bank 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 on a home.

Moreover, the rental assistance loan aligns with FMBN’s broader mission of promoting financial inclusion and sustainable housing development. By offering accessible and affordable housing finance solutions, the bank is playing a pivotal role in driving economic growth, reducing poverty, and improving the overall quality of life of Nigerians.

“The ripple effects of this will be felt throughout the Nigerian economy. As more individuals secure affordable rental housing, the pressure on urban housing markets is expected to ease, leading to more stable and sustainable housing prices.

“ This, in turn, could make homeownership more attainable for a larger segment of the population, further contributing to the nation’s economic and social development,” the FMBN stated.

Eligibility

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 prerequisite 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 makes it possible for more Nigerians to benefit from the contributory pool.

Loan Limit Tailored to Financial Capacity

The rental assistance loan offers a maximum loan amount of N2,000,000, 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.

By tailoring the loan amount to the applicant’s financial situation, FMBN is helping to prevent over-indebtedness, especially considering the harsh economic times 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 other financial obligations without undue stress.

Accessibility

To enhance the accessibility of the rental assistance loan, FMBN is streamlining 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 decentralised 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.

Flexible Repayment Terms

The tenor for the rental assistance loan is set at 10 months, offering a short-term, flexible repayment period that aligns with typical rental agreements. This feature allows beneficiaries to manage their financial commitments effectively without the burden of long-term debt obligations and 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 interests 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.

Affordable Interest, Insurance Rates

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.

The processing fee for this innovative product is set at N24,000, a nominal amount designed to cover administrative costs. In line with FMBN’s customer-centricity pillar, the set processing fee is a small price to pay for the significant financial relief that the loan provides to beneficiaries.

Catalysing Financial Inclusion, Affordable Housing

Nigeria’s 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.

By tailoring the rental assistance loan to meet the specific needs of informal sector workers, FMBN is promoting financial inclusion and also empowering a critical segment of the population. This move is strategic because FMBN acknowledges the significant role the informal sector plays in the Nigerian economy.

By providing them with access to affordable housing finance, FMBN is helping to uplift a large and often overlooked segment of the population, contributing to broader economic growth and social stability.

In the broader context of Nigeria’s economic and social development, the FMBN’s commitment to innovation and inclusivity in housing finance represents a beacon of hope for a more equitable and prosperous nation. the emergence of the Rental Assistance Loan on Nigeria’s housing scene will undoubtedly play a critical role in bridging the housing gap and ensuring that many Nigerians have the opportunity to live in dignity and comfort.

Indeed, the FMBN rental assistance loan marks a significant milestone in Nigeria’s ongoing efforts to tackle its housing challenges. By providing a tailored solution for middle and low-income earners and informal sector workers, FMBN is addressing the immediate needs of those struggling with high rental costs while also laying the groundwork for a more inclusive and sustainable housing finance system.

This initiative is crucial in ensuring that all citizens have access to safe, decent, and affordable housing. With the right support and effective implementation, this innovative loan product has the potential to transform the lives of millions of Nigerians, paving the way for a brighter, more secure future.