2004 Finance Forum Access to Housing Finance in MENA

Common issues constraining access to HF in MENA Inefficient macro environment which encourages short term horizon Lack of access to LT funds by retail lenders (including capital market) Residual problems from a history of state dominated financial systems (i.e., preferential treatment of state housing banks, direct provision of housing with non- transparent, regressive subsidies) Inadequate legal and regulatory infrastructure to support housing finance (and the financial sector in general) Inefficient property registration systems Inability to enforce housing collateral for social/political reasons

Outstanding mortgage debt/GDP < 1% in many MENA Countries* Compared to …. Russia 0.3% Mexico 8.8 % South Africa 26% USA 50% Denmark 70% *Algeria, Kuwait, Egypt, Jordan, Saudi Arabia, WBG …

Reforms to improve access to LT Funds Algeria: Creation of a secondary mortgage institution (liquidity facility) to provide banks with LT refinancing in exchange for the collateralization of their refinanced mortgage loans. Egypt: Access of mortgage lenders to longer-term funding through market-based vehicles (e.g., a liquidity facility is being planned as one possible vehicle) and mortgage securities`. West Bank and Gaza: Creation of the Palestine Mortgage and Housing Corporation (PMHC) to expand market-based HF services and the Palestine Housing Finance Corporation (PHFC) – a liquidity/ refinancing facility providing long-term loans to retail lenders

Reforms to better manage credit risk Creation of mortgage insurance or guarantee products Algeria: SGCI established to provide banks with insurance, covering risks of death, full invalidity, temporary or permanent insolvency of the Borrower, and up to 90% of the outstanding debt. Morocco: Establishment of mortgage guarantee funds designed to give banks an incentive to reach low-income populations WBG: Palestine Mortgage Insurance Fund (PMIF) – provides mortgage credit risk insurance to retail lenders

Reforms to improve efficiency of subsidy programs Algeria: Creation of a direct demand, up-front subsidy mechanism Morocco: abandon of the main demand-side housing subsidy in the form of subsidized interest rates on mortgages Jordan:Government removed subsidized lending programs from the Housing Bank and removed their regulatory advantages over other banks. Set up a housing fund that grants directly beneficiaries an interest rate buy down

Reforms to improve the legal/judicial framework and property registration Algeria: legal reforms governing ownership, and mortgage rights, in particular, property rights, and in the different provisions governing mortgage law Egypt: new judicial processes related to enforcement of collateral and modernization of property registration system

The Jordanian experience Significant initiatives over the last decade have resulted in impressive growth in mortgage financing: Government removed subsidized lending programs from the Housing Bank and removed its regulatory advantages over other banks Established a liquidity facility – the Jordan Mortgage Refinance Company – to provide fixed-rate medium- term refinance loans to banks making mortgage loans Removed old legislation limiting the total amount of interest payable on a loan, which had limited maturities to approximately 7 years

The results in Jordan Market-rate mortgages increased 350 percent between 1997 and 2002, and now represent nearly 6 percent of GDP. Residential mortgages are about 8 percent of total bank lending. At least 10 banks compete to make residential mortgage loans, and adjustable rate mortgages are now regularly available for 20 year periods and for 80 percent of a home ’ s value. Catalytic effect of the Jordan Mortgage Refinance Company on the primary market (where the withdrawal of the State Housing Bank was quickly offset by newcomers), as well as on the bond market (little volumes, but yet the main issuer of fixed income paper over 2 years).