Thursday, May 17, 2018

Democratisation of finance for economic empowerment


By Moremi Marwa

In my last week’s I argued for the fundamental idea that ownership of land, home, stocks, bonds and other kind of property ownership is key to the process of creating a market-oriented society, for inclusiveness and for the socio-economic equality which then contribute to the prospects of a good/better society. This links to the necessity of finance in economic empowerment. In this article I detail the role of land reforms and homeownership in the democratization of finance and wealth.

Land Reform – as it is, agriculture still constitute the bulk of our national output and employment and may continue to have a front role in years to come, if we must borrow from the knowledge and advise of Professor Joseph Stiglitz (Nobel Laurent Professor, Columbia University and former chief economist of the World Bank) which he specifically encouraged us to pursue, when he was in the country recently. Policies to disperse ownership of capital must be concentrated on land. In the world history, land reforms (and there have been many land reforms in many countries, especially in the nineteenth and twentieth centuries), while sometimes imposed harshly, but usually represent the real social progress, and helped many economies in their growth path. So, whether in Brazil, or Canada, or Ethiopia, or Namibia, or Syria, or Taiwan, or Zimbabwe, or Russia, or South Korea, or China, you mention them, even the United States of America – a good part of the sense of equality and a common good feeling that exists in America today probably owes its origin at least in part to their democratisation of wealth via land reforms.

These land reforms, while sometimes imposed harshly for some countries, but they usually represent real social and economic progress in a society, helping the economic growth – especially in the aspects of easy access to finance and financial services, financing of business enterprises, lessening of income inequality, the approach to agriculture and agricultural enterprises, in the creation and generation of wealth within a society, in the increase in the proportion of homeownership, etc. To achieve these attributes of a good society, emanating from land reforms – a good land policy should have provisions on equitable allocation of land.

Homeownership – this is yet another important aspect of democratization of finance, or rather using finance for economic empowerment and creating a good society. Again, going by world history -- as societies and economies become more urbanized, governments have embarked on policies that enable large home-owning population as opposed to the development of huge corporations that operate rental properties for the public. This has been the case in the United Kingdom with their concept of “property-owning democracy” in the 1930s, the “home building programs” of 1950s and the “program of selling council houses to renter inhabitants” in 1980s. Similar examples has been in the United States especially under President F.D. Roosevelt’s New Deal where the Federal Housing Administration was created in order to provide for government insurance of new mortgages and creating the “Fannie Mae” to buy mortgages from their originators to support the housing market. So, has been the case with China, with its communist ideology, that later came into the ownership society concept, and in the late 1990s China created a Housing Provident Fund aiming at making home-ownership and affordable housing a priority and a compulsory saving plan.

The idea of encouraging homeownership pops up almost everywhere now, why? Because it promotes the ideals of independence and personal responsibility where families are encouraged to make sacrifices to acquire or build a home in which they are responsible and accountable for, including the use of houses for accessibility to finance and financial services and for supporting other aspects of human wellbeing such as entrepreneurship, business management, etc. Homeownership helps to create a market-oriented psychology that encourages other kind of ownerships and encourages a feeling of participation and equality in society. Thus, a general degree of government support to individual homeownership to many people in a society contributes to the ideals economic empowerment and a better society.

Before I exit here let me link this up with the other idea I have written on in several of my previous articles – that is linking the idea of homeownership, its financing and investments via the Real Estate Investment Trust (REITs). REITs can be one of the tools that could be considered to actualize the goal of providing homeownership and accessible to housing in our country. REITs serves three fold purpose as it relates to this – it provides accessible to housing, while providing an investment platform for retail/individual investors who wants to have an investment stake in the housing/real estate sector. REITs also has the benefit to housing or property developers as it enables them access larger pools of funds that would otherwise be inaccessible while providing a platform for implementation of financial inclusion, economic empowerment and homeownership policies – as means to providing alternative to loans and equity financing, it helps developers against the risk of repayments for loans and/or shareholding dilution in case of equity financing. REITs as a new alternative to construction finance, give access to diversified investment platform by retail and institutional investors while enabling source of financing the homeownership policy and programs. We will continue next week.