Tanzania

Tan

Overview 

Tanzania is a growing economy, straddling the East African and Southern African economic development communities.  The country has experienced impressive growth rates over the past decade.  After a brief dip due to the global downturn in 2010, Tanzania recovered with GDP growth at 6.4% in 2012, and forecast for 6.9% in 2013 and 7% in 2014.  The main driver has been performance in the services sector, but investments in the natural gas sector are also significant.  The construction sector also performed well, comprising 8.8% of GDP in 2011, mainly driven by increases in residential and non-residential buildings, roads and bridges, and land improvement activities.  It is anticipated to grow by 9.8% in 2013 and 9.6% in 2014.  Finance, real estate and business services comprised 11.4%.  The construction sector is projected to grow to 9.8% in 2013. Tanzania has suffered high inflation rates over the past few years, with inflation of 16.1% in 2012.  According to African Economic Outlook, inflation is expected to ease to single digits in 2013 (8.4%) and 2014 (6.9%).

These positive economic indicators and reforms, as well as

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Overview 

Tanzania is a growing economy, straddling the East African and Southern African economic development communities.  The country has experienced impressive growth rates over the past decade.  After a brief dip due to the global downturn in 2010, Tanzania recovered with GDP growth at 6.4% in 2012, and forecast for 6.9% in 2013 and 7% in 2014.  The main driver has been performance in the services sector, but investments in the natural gas sector are also significant.  The construction sector also performed well, comprising 8.8% of GDP in 2011, mainly driven by increases in residential and non-residential buildings, roads and bridges, and land improvement activities.  It is anticipated to grow by 9.8% in 2013 and 9.6% in 2014.  Finance, real estate and business services comprised 11.4%.  The construction sector is projected to grow to 9.8% in 2013. Tanzania has suffered high inflation rates over the past few years, with inflation of 16.1% in 2012.  According to African Economic Outlook, inflation is expected to ease to single digits in 2013 (8.4%) and 2014 (6.9%).

These positive economic indicators and reforms, as well as stable political leadership, have resulted in substantial multilateral and donor support for the country’s development agenda. Some of this support is specifically targeted at developing the housing finance sector. 

Access to finance

After two decades of economic liberalisation, Tanzania has 45 commercial banks and many other private financial institutions. This has resulted in an expansion of credit to the private sector, which in 2012 came to 17% of GDP.  The private banking sector is sound and profitable, with capital adequacy ratios above regulatory standards.  Nevertheless, an indication of a shallow financial system is the gross domestic savings rate, which was estimated at 20% of the country’s GDP in 2010.   Access to credit is low by comparable standards across the continent and worldwide. Some 23 MFIs report to the Mix Market, an online source of microfinance performance data and analysis.  In 2013, these lenders had a gross loan portfolio of US$963.1 million and 352 624 active borrowers.  Almost 528 866 depositors had saved a total of US$154 million in the MFIs.  The largest microlender in Tanzania is the National Microfinance Bank, with a gross loan portfolio of US$833 million.

In 2012, the World Bank launched the Global Financial Inclusion (Global Findex) Database to explore levels of financial inclusion around the world.  According to Findex, 14.2% of rural and 40.6% of urban Tanzanians over 15 years of age have an account with a formal financial institution. While 43.6% of Tanzanians over the age of 25 report that they have saved in the past year, this appears to be mainly informal: only 13.3% have saved at a financial institution and 9.7% through a savings club.  Credit is not widely used.  Only 8.1% said they had a loan from a financial institution in the past year.  Very few Tanzanians – only 6.7% of the top 60% of income earners and 1% of the bottom 40% of income earners – report having an outstanding loan to purchase a home.  Loans for home construction are slightly more prevalent, however, with 10.8% of the top 60% of income earners and 3.1% of the bottom 40% of income earners having home construction loans currently outstanding.  A study commissioned by the Bank of Tanzania found that 41% of Tanzanians who borrow microloans planned to use these for housing construction or improvements.

Mortgage lending began in 1972 with the establishment of the state-owned Tanzania Housing Bank.  By the time the bank collapsed in 1995, it had provided about 14 000 mortgages – the extent of Tanzania’s mortgage industry.  The Mortgage Finance Act of 2008, developed with the support of the World Bank, led to the establishment of the Tanzania Mortgage Refinance Company (TMRC) in early 2010.  The TMRC is a mortgage liquidity facility created as a private sector institution owned by the banks with the sole purpose of supporting banks to do mortgage lending by refinancing banks’ mortgage portfolios – similar to the Egyptian Mortgage Refinance Company.  Licensed by the Bank of Tanzania as a non-deposit taking financial institution for the purpose of conducting its business, the TMRC will also be licensed by the Capital Markets and Securities Authority for the purpose of bond issuance.  In August 2013, the TMRC issued terms of reference for consultancy services in this regard.

The TMRC offers important opportunities for growth in Tanzania’s mortgage sector: it serves as a secure source of long-term funding at attractive rates, while ensuring sound lending habits and best practice among the banks.  Initially, the TMRC will use a World Bank loan to refinance the portfolio of member banks.  Once this is exhausted, the TMRC will raise funds from the capital markets by issuing bonds, acting as an efficient way of connecting long-term investors with the institutions generating long-term assets.  Over time, it is hoped that the TMRC will lead to the establishment of specialised housing finance companies in the private sector.

The TMRC has 11 shareholding banks, all of which plan to offer mortgages: Azania Bank, Bank of Africa Tanzania, National Bank of Commerce, CRDB Bank, Exim Bank, National Microfinance Bank, BancABC, NIC Bank Tanzania, DCB Commercial Bank, Tanzania Investment Bank and The People’s Bank of Zanzibar. The TMRC initially made slow progress due to a lack of readily available mortgage portfolios in the market.  A low disbursement rate and very limited movement against the project indicators contributed to the need to restructure the project, which was finalised in May 2013.  This has allowed the TMRC to pre-finance as well as refinance mortgage portfolios from participating mortgage lenders.  According to the World Bank, 636 mortgages and one lender had been refinanced by the TMRC by 12 October 2012, towards a March 2015 target of 3 470 loans and 10 lenders.  Mortgage debt to GDP had increased to 0.32% by June 2013, towards a March 2015 target ratio of 1%.  By October 2012, 3 600 housing units had been approved for construction, up from the baseline of 3 000 in March 2010, and towards the March 2015 target of 7 500. As of July 2013, the TMRC had pre-financed TZS 7.75 billion (US$4.8 million) and refinanced TZS 4.2 billion (US$2.6 million).

Still, member banks are enthusiastic.  Bank of Africa’s partnership with the TMRC enabled that bank to develop and offer a mortgage product for the first time.  Since the launch of the product in October 2011, TZS 3 billion has been disbursed, and Bank of Africa expects to quadruple its home finance loans for residential properties by the end of 2013.

Given affordability levels, the microfinance sector is especially important in addressing housing supply in Tanzania.  Tanzania’s microfinance sector is growing steadily, and the formation of a Tanzanian Housing Microfinance Working Group is highlighting the opportunities and challenges of this product in the housing space.  Other lenders offering housing microfinance are Victoria SACCO, WAT SACCO and Dar es Salaam Community Bank.  Between April 2011 and September 2012, WAT SACCO issued 821 land and incremental housing loans.  WAT is a beneficiary of support from Rooftops Canada and the Community Led Infrastructure Financing Facility (CLIFF), which committed US$4 million to its work.  The funding is expected to impact on 1 200 families. Another player is Habitat for Humanity with the Makazi Bora home improvement loan targeting urban and peri-urban household with incomes of US$1 to US$5 a day, at interest rates of 2.5% per month.  By June 2011, Makazi Bora had issued 848 loans at an average loan size of US$542. The portfolio at risk (30 days) was 5.76%, and 1.8% of loans had been written off.  The Presidential Trust Fund is a microfinance institution established by the Office of the President, with 19 branches, 23 000 clients and a loan portfolio of US$3.3 million. It is intended to operate commercially.

Commercial MFIs are also entering the space.  Akiba Commercial Bank piloted a home improvement loan in May 2012, with loan amounts ranging from TZS 2 million (US$1 269) to TZS 50 million (US$31 745), repayable over 24 months at an incentivised interest rate of 19%, compared to 20% to 22% for regular business loans.  The largest microlending bank in the country, National Microfinance Bank, has no housing microloan product, but recognises that up to 40% of the consumer loans it grants are used for housing purposes.  Similarly, Entrepreneurs Financial Centre, an MFI that has been operating for a year, estimates that 25% of its loans are used for housing purposes.

In 2011, the Tanzanian government announced a plan to establish a Housing Microfinance Fund (HMFF) with a US$3 million contribution from the World Bank. Progress has been slow; according to the World Bank, by October 2012, 1 090 housing microfinance loans had been approved, towards a March 2015 target of 8 000; seven microlenders were providing housing microloans, towards a March 2015 target of 12; and the HMFF had extended no loans, though it has a target for 2 500 loans extended by March 2015.   A study for the Bank of Tanzania found that the current supply of housing microfinance, by 2012, was limited, hardly exceeding TZS 2 billion (US$1.2 million).  However, the study also found a potential demand for housing microfinance of over US$400 million, and proposed that the financial industry could aim to fill 5% to 10% of the gap in the next five years.

In 2010, the Bank of Tanzania issued regulations for a credit reference bureau within the framework of the Bank of Tanzania Act of 2006.  The intention is to have a state-owned, central databank that is managed by the Bank of Tanzania, from which licensed private credit bureaux can access data.  Banks and other regulated financial institutions must report to the register, while reporting by non-bank financial institutions is voluntary.  While the Bank of Tanzania invited applications for credit reference bureau licences from the private sector in 2011, in 2013 there are still no public or private credit registries operating in the country.  Consequently Tanzania scores 129th globally in terms of ease of getting credit, out of 185 countries in the World Bank’s Doing Business indicators for 2013. 

Affordability 

According to FinScope Tanzania 2009, 53% of all adults in Tanzania earn less than TZS 50 000 (about US$30) a month.  Only 9% of urban adults are employed in the formal sector, and another 22% earn their incomes from running their own business (not farm related).  Some 41% of all urban adults in Tanzania rely on two or more sources of income.  The Household Budget Survey of 2007 suggested that 33% of Tanzanians were living below the poverty line, and 37.6% in rural areas.  Only 3% of the labour force in Tanzania is covered by a formal social security system.  A National Social Protection Framework has been in development, but the process has been stalled since 2011.  In 2011, the Gini coefficient rose to 0.36.

Mortgage financing institutions offer loan terms that range from five to 15 years, with an interest rate of between 18% and 22%. The TMRC intervention has had a positive impact on interest rates. TMRC member banks can currently borrow from the TMRC at 11.5%, and are therefore able to on-lend to their customers at lower mortgage interest rates than those prevailing in the market.  In 2013, it was announced that a new Public Servant Housing Scheme will offer soft loans, at between 10% and 13%, over 25 years, to civil servants who wish to buy or build their own homes.  The intervention includes a plan to deliver 50 000 units in the first five years of the scheme.

The average mortgage size is between TZS50 million (US$31 000) and TZS350 million (US$215 000), and so most clients are high income earners. One bank requires a deposit of three instalment payments, a savings account with the bank and a title deed indicating remaining leasehold of not less than 12 years.  In another bank, to qualify for a typical mortgage product, a salary of TZS800 000 (US$525) a month is needed.  Yet more than 70% of Tanzanians have incomes of less than US$150 a month, and so are unable to access mortgage finance.  Even the National Housing Corporation, with a two-bedroom unit selling for TZS 46.98 million, is accessible only to higher and middle income earners.

A number of NGOs cater for the lower income market segments, but their reach is insufficient to meet the scale of demand.

Housing supply 

Tanzania has an estimated housing backlog of three million units, and access to services is extremely limited.  Only 16% of the population (3.6% in rural areas) have access to electricity.  African Economic Outlook estimates that addressing the infrastructure backlogs in Tanzania (electricity, roads and ports) will cost US$2.4 billion per year over the next decade.

Most Tanzanians self-build rather than rely on formal housing suppliers. Even this, however, has been hampered by a shortage of serviced land. Between 1990 and 2001, a mere 5% of applications for plots received were allocated. To address this challenge, the government implemented a 20 000 residential plot programme, which was rolled out first in Dar es Salaam and later in Mwanza and Mbeya. The programme seeks to parcel out, survey and allocate plots to individuals.  Anecdotal evidence suggests that building on the plots has been slower than expected because of limited infrastructure (which will only be provided when there is a certain number of people), lack of finance and the remoteness of the plots. There is limited formal housing delivery.

The National Housing Corporation (NHC), originally established under an Act of Parliament in 1962, was given a new strategic direction in 2010, and early in 2011 announced that it would raise its budget ten-fold, from US$23 million to US$230 million in the 2011/12 financial year, so that it could dramatically increase the scale of delivery.  To achieve such rapid scale, the NHC is investigating various technology solutions.  New housing development will complement urban renewals and slum clearance initiatives, and are likely to contribute to the development of new satellite cities.  The NHC is working within a five-year strategic plan until 2015, with the overall vision of becoming a leading real estate development and management firm in Tanzania.  As part of this vision, the NHC plans to build a minimum of 15 000 housing units (including 5 000 affordable houses) for both sale (70%) and rental (30%), assuming the role of a master developer.  The NHC has raised a US$14.5 million loan from Shelter Afrique for this purpose. For the financial year ending June 2012, the NHC realised a net profit of TZS 144 billion, down from the previous year’s profit of TZS 202 billion.  Its rental portfolio performed better than the sale of houses.  Assets increased to TZS 2 068 billion from TZS 1 758 billion in the previous year, in part due to the appreciation of investment properties and the acquisition of new properties to a value of TZS 99 billion.

The NHC is building a land bank for the acquisition of property across Tanzania to support its development plans.  During the 2011/12 financial year it started to implement seven projects consisting of 737 housing units that are located in various areas of the country. These will be completed in 2012/13.  A further 38 residential projects comprising 4 140 housing units, and 14 commercial projects, are in various stages of development.  Past and current projects include multiple five-storey walk-ups, one project of semi-detached houses and one high-rise project. In September 2012, the NHC announced a development in Arusha in northern Tanzania, which was expected for completion by January 2013.  Some 100 apartments of 60m2 each were offered for sale at TZS 82 million (about US$50 000). Plans for a development in Kilimanjaro are also under way.  To support the participation of banks in the housing delivery programme, the NHC has signed agreements with 12 banks according to which the banks agree to finance homebuyers and the NHC agrees to buy back properties from defaulting borrowers.  The NHC signed an agreement with insurance company MGen Tanzania to support this undertaking.

To finance these projects, the government has allowed the NHC to borrow TZS 300 billion (US$190.5 million). So far, the NHC has entered into agreements with eight local banks for loans amounting to TZS 165.4 billion, and has already drawn down TZS 68.5 billion to finance the ongoing projects.  Further, to promote housing development more aggressively, the NHC has developed an investment policy for partnerships with private players.  Three models are available: (i) a ‘land as equity contribution’ model in ventures involving the development of prime commercial and residential rental properties; (ii) a ‘land and finance’ contribution model in ventures involving the development of prime commercial and mixed-use rental properties; and (iii) a ‘revenue sharing’ model in ventures involving the development of residential properties for sale.  To June 2012, the NHC had a total of 181 joint venture projects under way, of which 54 were completed, 60 were under construction and 67 had been stalled.

In terms of its rental stock, the NHC has sought to increase its rentals to 60% of market rates, up from the average of 30% of market rates that NHC tenants were charged in the past.  The NHC’s stock comprises 2 389 buildings which have 17 111 rental units valued at US$1.1 billion. These properties are mainly in prime areas of major urban centres.  The goal is to reach an average of 85% of the market rate by June 2015. The NHC has succeeded in increasing its annual rent collections from 85% to almost 100% in 2012.

NGOs in Tanzania also support poor people’s efforts to gain access to housing. The Centre for Community Initiatives (CCI) supports the Tanzania Federation of the Urban Poor, a network of slum dwellers who are members of SDI.  UK-based NGO Homeless International has supported the work of CCI since 2007, mobilising 7 000 federation members in six cities piloting water supply rehabilitation and toilet construction projects in Dodoma and Arusha, piloting a resettlement project for 500 families in Dar es Salaam and negotiating for upgrading in another.

Property markets 

Lenders argue that an inadequate supply of mortgageable units makes it difficult for a vibrant property market to exist.  Recent offerings by the NHC have been sold out within days of becoming available.  The demand for new, affordable housing is considerable. A more fundamental problem, however, is the lack of land titles.  Data from the Bank of Tanzania suggests that 75% of land is not surveyed in Dar es Salaam.

At 134th out of 185 economies on the World Bank’s 2013 Doing Business indicators, Tanzania ranks poorly in terms of ease of doing business.  It ranks 137th in terms of ease of registering property, up from 140th in 2012. It takes eight procedures and 68 days to register a property, at a cost of 4.4% of the property value – almost three times longer than the time it takes in Organisation for Economic Co-operation and Development (OECD) countries, but comparable in terms of cost.

The foreclosure process in Tanzania needs reform.  All foreclosures require court action, and there is a reported cautiousness by banks to lend because of difficulties with this process. These include long delays because of the backlog of cases in the courts as well confusion over which courts hold jurisdiction, allowing for forum shopping by litigants.  One bank has indicated that as a result, mortgage lending is more like ‘relationship banking’, in which the lender relies on its knowledge of the client rather than on the collateral value of the property being financed.

Policy and regulation 

The Tanzanian government has been working hard to put the necessary policies and laws in place to enable a vibrant housing market.  That said, many real challenges remain.

Reforms to property law, including the Mortgage Financing (Special Provisions) Act of 2008, which repeals certain sections of the Land Act, are an effort to ease the use of land as collateral. The ICF is also supporting a programme to modernise the judiciary. Prudential norms were created for microfinance institutions in April 2005, intended to increase wholesale funding to MFIs and ensure their financial viability. Broader finance reform has also been initiated by the Bank of Tanzania through the Banking and Financial Institutions Act, the Bank of Tanzania Act and Companies Ordinance.  In 2012, the Bank of Tanzania established a National Financial Inclusion Working Group to develop a Financial Inclusion Policy and oversee its implementation.

Opportunities 

The housing market in Tanzania provides enormous potential for growth, enhanced by the recent Housing Finance Project of the Bank of Tanzania and the various regulatory and policy reforms being implemented. The relatively healthy economic growth and good political management of the country provide an adequate platform for this. The World Bank’s focus on expanding housing finance markets suggests important opportunities for growth in the future. Beyond mortgage finance, there are real opportunities for growth in the housing microfinance sector, which is also receiving policy attention and funding support.  High levels of self-build coupled with a vibrant microfinance industry with good links to the formal banking sector, and experimentation with housing, mean that housing microfinance has enormous potential to contribute towards housing the majority of the population.

 

Sources

AfDB, OECD, UNDP and UNECA (2012). African Economic Outlook 2012.

Bade, R. (2011). The Emergence and Work of the Tanzania Mortgage Refinance Company.  Presentation to the African Union for Housing Finance Annual Conference. September 2011.

Bank of Tanzania (2012). Annual Report.

Demirguc-Kunt, A. and Klapper, L. (2012). Measuring Financial Inclusion: The Global Findex. World Bank Policy Research WP 6025.

Doce, E. (2012). Housing Microfinance in Tanzania. Presentation to the AUHF Conference, October.

Heymans, M. (unpublished, 2011). Credit Bureau Activity in SADC Countries. Report commissioned by the FinMark Trust.

Melzer, I. (2011). An Access Frontier for Housing Finance in Tanzania.  Prepared for the FinMark Trust and presented to the AUHF Conference.

Mutero, J. (2010). Access to Housing Finance in Africa: Exploring the Issues (No. 10) Tanzania. Report commissioned by the FinMark Trust.

National Audit Office (2013). Report of the Controller and Auditor General on the Financial Statements of the National Housing Corporation for the year ended 30 June 2012.

WAT Human Settlements Trust and Rooftops Canada (undated). Impact of Housing Microfinance Programs in Tanzania: Three Case Studies from Kupongezana Upatu Group.

World Bank (2012). Doing Business 2013 Report:  Tanzania.

World Bank (2012). Implementation Status and Results, Tanzania – Housing Finance Project (P117242), Public Disclosure Copy.

 Websites 

www.allafrica.com

www.africaneconomicoutlook.org

www.finscope.co.za

www.mfw4a.org

www.mixmarket.org

www.nhctz.com

www.thecitizen.co.tz

www.unhabitat.org

www.worldbank.org

 

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