Banking November 2013

Briefing The Mortgage Refinance Company The Tanzania Mortgage Refinance Company (TMRC) is a financial institution owned by Tanzanian commercial and supported by the Government of Tanzanian and the World Group, aimed at providing liquidity to commercial banks to strengthen their residential property mortgage-backed lending, with the ultimate aim of stimulating the mortgage finance market in Tanzania and making mortgage more available and affordable to individuals. This update looks at the development of TMRC to date and the products offered to Tanzanian banks.

Current financing and structure Current products TMRC started in 2010 with five TMRC is a mortgage liquidity facility, original shareholder and is providing two types of financing currently owned by 11 banks: CRDB which can be accessed by its Bank Plc, Limited, shareholding institutions: refinancing Tanzania Investment Bank, Exim and prefinancing facilities for the Bank (Tanzania) Limited, National banks’ underlying mortgage-backed Microfinance Bank Limited, Dar es residential portfolios. Salaam Community Bank Limited, Refinancing product NIC Bank, BancABC, National Bank of Commerce, the Peoples Bank of Through the refinancing facility, Zanzibar Limited and Bank of Africa TMRC will refinance qualifying Tanzania. Membership is open to any mortgage portfolios of its member institution licensed banks, thereby providing matched by the , with a funding to the banks at a more minimum equity subscription of TSH reasonable cost and for a longer 500 million, and only shareholders are term than may have previously been permitted to access TMRC’s products. available in the market, allowing To date, TMRC’s equity contributions them to expand their mortgage stand at over TSH13 billion, with products with the intention that they issued loans of over TSH 16 billion. should pass on the pricing benefits to their customers. The company is also currently financed by a line of credit from the Criteria for the banks’ underlying loan World Bank, accessed via the Bank of portfolios to qualify for refinancing Tanzania. include the following: –– each loan is local currency and the borrower is a natural person (not a company); –– the loan is fully disbursed and Prefinancing product for the purchase, refinance, The refinancing product has been construction or renovation of available since 2011, with the first residential property; facility drawn in November 2011. –– the loan payments are up to date However, many Tanzanian banks at the point of refinance and have do not yet have sufficient portfolios been performing for a minimum of which meet the qualification criteria 6 months; and therefore they are not yet ready –– the loan is secured by a first to access the refinancing product. ranking mortgage with 25% over- Indeed initially only four of TMRC’s collateralisation; and members were able to qualify. –– the mortgaged property is insured. Hence TMRC has now developed a new prefinancing product, aimed Against such a qualifying loan at helping banks to develop new portfolio, TMRC will offer a residential mortgage-backed finance refinancing loan facility on the same portfolios. terms to each qualifying shareholding institution. The term is 3-5 years, Essentially the prefinancing facility is with an option to roll over at the end similar to the refinancing facility, but, of the term and the interest rate is rather than requiring the qualifying calculated on a fixed formula based portfolio to be in place up front, it on the 182 day T-bill rate, plus a risk grants a three year period over which premium and maturity spread and the portfolio must be established. As margin, but less a discount which security during the establishment makes the product commercially period, the bank may provide 105% viable for local banks. The current collateralisation of T-bills which it interest rate is in the region of 10% may be holding in any case for capital per annum. adequacy purposes. The size of the facility will depend on This product has proved popular and the qualifying underlying portfolio should provide a catalytic effect in and the amount of paid in equity terms of prompting banks to bring of the member bank (capped at 20 in new residential mortgage finance times the bank’s equity investment in products. TMRC). Future financing TMRC will then take a debenture Looking forward, TMRC hopes to over the underlying portfolio of expand its membership to encompass the bank (which is itself also 25% more of the Tanzanian banks, over collateralised). The portfolio is particularly given the availability of regularly updated as the underlying the prefinancing facility. In addition, loans amortise (or cease to qualify for membership and equity investment any reason, such as default), in order is set to be opened up to non-bank to ensure full coverage. Thus TMRC is financial institutions with an interest not impacted by individual underlying in the property sector. This would defaults, providing that the bank can allow institutions such as the African provide alternative qualifying loans to Development Bank, Shelter or the fall within the debenture. National Housing Corporation to TMRC will closely monitor the become members. performance of the underlying In addition, the company aims to portfolio, but will not be involved in issue corporate bonds during 2014 the management of the underlying (which could be accessed by non- loans, nor will it directly input into financial institution investors), the rate setting for the underlying although details of these are yet to be loans. released. Impact on the market of mortgages to Tanzanian retail The key question for TMRC from customers. The uptake on the an individual’s perspective is what prefinancing facility would certainly impact is it having on the Tanzanian suggest that it is making headway mortgage market? As set out above, in encouraging the increase of such there is no compulsion for banks products on the market. to pass on any preferential rates, received on their TMRC funding, to borrowers, and TMRC does not specifically monitor its members’ pricing. As yet then, there is little evidence of a fall in interest rates, and Tanzanian shilling mortgage rates remain high, in the region of 18 - 20% across the market. Perhaps, rather than focusing on prices, a better question is whether the TMRC has improved the availability

Further information If you would like further information on any issue raised in this update please contact: Peter Kasanda Legal Director, E: [email protected] T: + 255 767 850 056 Teresa Hettich Senior Associate, Dar es Salaam E: [email protected] T: + 255 767 850 052 Clyde & Co Tanzania 11th Floor, Golden Jubilee Towers Ohio Street, PO Box 80512 Dar es Salaam, Tanzania T: +255 (0) 767 302 200 F: +255 (0) 222 103 004 Further advice should be taken before relying on the contents of this summary.

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