Finance is key in any business as it provides the function to achieve three benefits: business support service, lowest costs and effective control of the environment. Finance is the lifeblood and nerve centre of any business. This is because finance is required to create and promote a business, gain assets, develop products, run market surveys, advertise and so on.
Just like any other business, finance is key to the business of real estate.
With regard to house financing in Tanzania, Tanzania Mortgage Refinance Company (TMRC) has played a benefactor role acting as a catalyst for the development of mortgage market through refinancing banks’ mortgage portfolios thus facilitating access to housing by the Tanzanian population while contributing to the development of capital markets. TMRC is a private financial institution established in 2010.
Tanzania Works had the privilege of interviewing Mr Oscar Mgaya, TMRC CEO. The excerpts…
Q: Tanzania Works (TW): What is TMRC?
Oscar Mgaya (OM): TMRC is a Mortgage Liquidity Facility (MLF). TMRC’s role is to act as a catalyst for the development of mortgage market through refinancing banks’ mortgage portfolios. TMRC is a specialised financial institution that provides long-term funding to financial institutions for purposes of mortgage lending.
TMRC is a private sector institution owned by banks as well as other institutions with a stake in the mortgage market. TMRC has the objective of supporting financial institutions to do mortgage lending by refinancing their mortgage portfolios. This type of lending is also known as wholesale or secondary market lending.
Currently, TMRC offers refinancing and pre-finance loans to banks and other Primary Mortgage Lenders (PML).
TW: When was it started?
OM: TMRC was established on 10th January 2010 as a limited liability company to facilitate the implementation of component one of the Tanzania Housing Finance Project (HFP). The Board of directors was constituted in February 2010 and CEO was appointed on 15th November 2010.
TMRC was licensed as a non-deposit taking financial institution in June 2011 and completed recruitment of staff and was ready to commence operations by November 2011.
TW: What was the motivation towards establishing TMRC?
OM: After the collapse of Tanzania Housing Bank (THB) in 1993, it was followed by nearly two decades of absence of mortgage finance. In the early 2000’s a few banks started to venture into mortgage finance but it became difficult because of lack of long term funding to do mortgage lending.
To address this market gap, the Government signed a $40 million Credit Agreement with the International Development Association (IDA) for the Housing Finance Project (HFP) in March 2010 and mandated the Bank of Tanzania (BOT) to be an implementing entity.
Originally, the HFP was a five-year project with expected closing date of March 31, 2015 but was extended for two years to 31st March 2017. Further, in March 2015, the Government signed a three-year, $60.0 million Credit Agreement - to 31st March 2018 - with the International Development Association (IDA) for the HFP Additional Financing (HFP-AF), mainly with the view to enhance the scope of the original project.
TW: Where does TMRC source its funds?
OM: Currently, the main source of funding has been borrowing from the Government through the IDA line of credit from the World Bank. However, September 2017 TMRC issued its first pilot private placement bond.
TW: How do you evaluate the real estate sector in Tanzania?
OM: My long view of the real estate sector in Tanzania is still very positive. It is a young market with a very promising future especially as Tanzania becomes more industrialised and moving to a middle income country.
TW: What factors are at play in terms of driving this growth?
OM: Existence of a mortgage financing system, development of the capital markets, low interest rates environment and increased Foreign Direct Investments (FDI’s) are the key factors that can drive growth in this sector.
TW: In an interview you did last year with Tanzania Invest, you highlighted that some of the issues that undermine the Tanzania housing sector were; titling - the process is slow -, high interest rates and lack of affordable housing. Since then, has the government set any policies to address these issues?
OM:A lot has been done by the government and other stakeholders to address these issues but one cannot expect that these issues can be resolved easily and quickly. Here are some of the on-going sectoral initiatives:
a) Implementation of the Integrated Land Management Information System (ILMIS)
b) Development of a Country Housing Policy
c) Establishment of a Real Estate Regulatory Agency
d) Further development of the capital markets
TW: How do you see housing finance evolving in Tanzania?
OM: Total outstanding mortgage debt grew from Sh77.5 billion in 2011 to Sh448.90 billion as at September 2017.
TW: How successful has TMRC been in supporting mortgage lending in Tanzania?
OM:Mortgage loans tenors have increased from 5 to 10 years in 2010 to 15 to 25 years to date.
1. The number of banks offering mortgage loans has increased from three in 2010 to 31 banks by 30 September 2017.
2. Mortgage loans interest rates have decreased from between 24 percent and 22 percent in 2010 to between 19 percent and 16 percent to date.
TW: Why should one invest in housing sector in Tanzania?
OM: The demand for housing is still very high especially on affordable housing. The total mortgage debt outstanding in Tanzania is still less than one percent of the GDP. This clearly shows that there is a significant upside in the housing sector.
TW: How does TMRC indirectly benefit individuals that choose to take mortgage from bank/financial institutions that are being funded by TMRC?
OM: Individuals that choose to take mortgage from bank/financial institutions that are being funded by TMRC will enjoy mortgage loans with longer tenors and competitive interest rates.
TW: How has TMRC evolved since its establishment and what is your strategy for the future?
OM: 1. Increased its product offering to include pre-finance loans
2. Expanded its customer base by now lending to all banks and financial institutions licensed by BOT
1. Diversifying source of funding to include corporate bond issuance as well as talking to other Development Financial Institutions (DFI’s)
TW: After receiving a bond guarantee from AFDB what have you achieved since?
OM:Receiving a bond guarantee from AfDB was great accomplishment and vote of confidence in TMRC. However, we have not used the guarantee because we were able to issue the pilot private placement bond without a guarantee.
TW:Where do you see the most interesting investment opportunities in real estate in Tanzania?
OM:In large scale affordable housing because the demand is very big and growing everyday
TW: In your Company FAQs, you have stated that you're planning to launch an IPO in 2018. Has the process started? Should we still be expecting this in 2018?
OM: We have postponed the IPO to possibly 2019 or beyond and have decided to focus more on corporate bond issuance
TW: How are Tanzanians taking advantage of this sector?
OM: Home ownership is increasing in Tanzania and much younger people are becoming homeowners as opposed to the generations before us where they became homeowners close to retirement if they are lucky because of building incrementally over a long period of time.