Tuesday, November 10, 2009

mortgage financing in Tanzania, is it the right path to alleviate abject poverty?

Dear all,

Could you read and assess and if possible debate how property and land ownership could be used as collateral for mortgage financing in Tanzania and whether it is the right path to alleviate abject poverty.I wrote this article to establish other perspectives on development challenges.

The act, unit title act number 16 “The mortgage financing (special division provision )” act Number 17 of 2008 was enacted . Later this year,financial processes will start under the supervision of bank of Tanzania.

The act enables interested indigenous Tanzanians and others to acquire loans from banks and financial institutions for mortgage financing. This shows that we are entering or have entered into an era of property and credit markets.(credit cards?)

Could the property ownership be the answer to problems of a poor country like Tanzania? Are people really poor as they look? The problem here is not to have secured legal title to our homes and Land.

Without legal title to your home, you can not use tittle deeds as collateral to borrow money and if you can not borrow money then you can not raise capital you need to start up a business for example. Part of the problem for a poor country like Tanzania is bureaucratic nightmare to secure legal title to your property. It can take months sometimes years.scarcity of financial infrastructures,experience and skills and poor financial and enterpreneur knowledge among people eg APR,.etc

Most people use alternative ways for that purpose by lobbying the government and become freeholder ,some on leasehold(100 years?) where on lease term maturity ownership is attained. Find out more about our Land registry rules and policies.is it the time to overhaul the system?.Will Kenyans exploit advantages on this?

Now,to empasize in bringing finance life to our dead capital is key to providing the poor with prosperous future.However,there seem to be flaw on the theory that owning a property could ritually make it easier for people to borrow money. It is evidently seen that very few manage to get mortgages and seemed unfair at times.

Indeed,the reality is owning a property does not give you a financial security but that of your creditors/lenders. Real security comes from having regular stream of income example employment income,dividends,savings etc. So for this reason, it is probably not necessary for every entrepreneur in our country to take out mortgage on their homes.

Infact,property ownership may not be the key to wealth generation at all. People could borrow money with or without security. This led to a personification of an extraordinary new financial movement know as Microfinance.Have you heard of JK billions?these are somewhat concessional loans however,do they prepare them competatively?ie with commercial loans(30%APR from CRDB).

Nevertheless,Microfinance is regarded as economic magic bullet since one could assess transformation it brings to entrepreneurs of third world countries.

Most business and people could access loans provided by financial intermediaries although there are complaints on the credit approval systems,too long tedious process. The problem is differences in credit ratings and credit worthiness of people. The risk of non repayment(toxic debts?) of a loan among men is higher than women the study shows. No offence,sometimes microfinance is regarded to have female traits as lenders realise women promptness.

This is when most people say it is time to change a catch phrase that as safe as a house to as safe as housewives. Likewise, it could be a mistake to assume that microfinance as a magic bullet that just giving out loans will not necessarily consign poverty to a museum but betting everything on the house will not do that either.

All financial literacy may be rampant but some how people in the west were confined to a branch of economics which is Property market as they regarded as one way betting except that it was proven wrong. we saw and still see house prices fluctuating the world over, from London to New York to Tokyo.

Therefore, encouraging home ownership may well create political constituents for capitalism and may well distort capital market by persuading people to bet their houses. It is true that people need to borrow money let say to start up businesses,to finance their projects, buy expensive assets etc.it looks dangerous to lull them to stacking everything as far as risk free property is concerned. The key is to strike a balance between debt and income.

We were on the brink of financial meltdown which was started buy problems on housing market in the US. Someone could remember firms like Fannie Mae and Freddie Mac which eventually were recapitalised to avoid total property collapse.

Therefore, Tanzania on the verge of embarking into property market, should have every tool to avoid consequences .I know we are donor dependent country and west(IMF) has significant influence and the goverment finds it hard to account to its people as their independence is subjective due to overdependency.It is unlikely Tanzania will be prone to any crisis on its own except when her microeconomics policies are not integral with west.

(John) UK

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