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OPEN UNIVERSITY OF TANZANIA FACULTY OF BUSINESS MANAGEMENT FINANCE CLASS 1 ASSIGNMENT

SPECIALISED INSTITUTION

GROUP MEMBERS NAME REG; NAME REG; NAME REG; FREDRICK S RUOJA HD/B/154/T11 UMMU SAID HD/B/165/T11 RAYMOND SWAY

NATURE OF SPECIALISED INSTITUTIONS Introduction Companies raise long-term and medium-term finance by issuing shares and debentures. Specialized financial institutions are also an important source of such finance. DEFINITION; SFIs are institutions set up mainly by the government for providing medium and long-term financial assistance to industries. As these institutions provide Developmental finance, that is, finance for investment in fixed assets, they are also known as development banks or 'development financial institutions.

HISTORY OF SPECIALISED INSTITUTIONS IN TANZANIA TANZANIA HOUSING POLICY 1964 Independence Initially aim was for universal housing provision and slum eradication 1967 All banks nationalised 1973 Encourage selfconstruction Set up Tanzanian Housing Bank Provides land and cheap credit Between 1973 and 1995 14,000 mortgages issued 1991 financial liberalisation

1995 Tanzanian Housing Bank collapses Legacy is a lack of confidence in banks and mortgages Today acute shortage of housing, 70% of Dar Es Salaam residents live in unplanned housing. At that time THB had provided around 14,000 mortgages

TANZANIA MORTGAGE REFINANCE COMPANY LIMITED (TMRC) Tanzania Mortgage Refinance Company Limited (TMRC) is a mortgage liquidity facility (MLF) created as a private sector institution owned by the banks with sole purpose of supporting banks to do mortgage lending by refinancing banks mortgage portfolios A low risk institution acting as an intermediary between capital markets and Primary mortgage lenders .

What will TMRC offer? Initially will offer lenders refinance loans for 1,2,3 or 5 years in maturity If collateral still eligible loans can be rolled over Initial rates will be slightly below market, but rising during project to reach market rates Builtin incentive mechanism for TMRC to go early to bond

CURRENT TREND 70% of Dar Es Salaam residents live in unplanned housing. A few banks provides mortgage products to a limited number of clients These banks have limited capacity to engage in mortgages due to funding constraints The constraints are mainly due to lack of long term funding as banks deposits are short term while mortgage products are long term This apparent funding mismatch limits the ability of banks to actively engage in mortgage financing Mortgage debt/GDP $ GDP/Head TANZANIA NIGERIA UGANDA SENEGAL GHANA NAMIBIA 0.30% 0.50% 1.00% 2.00% 3.90% 392 944 382 941 749

20.00% 3,502

SOUTH AFRICA 34.00% 6,185 CURRENT TREND CONTINUE..... To resolve those issues and encourage home ownership, the Government of Tanzania has established a Housing Finance Project (HFP) with the support of the World bank to spearhead the reintroduction of mortgages in Tanzania The project aims among other things, enabling the recreation of mortgages in the country by emending land laws, introducing Mortgage Finance Act 2008 and supporting creation of Mortgage Liquidity Facility. Tanzania mortgage refinance company (TMRC) is a result of the Housing Finance Project. The establishment of TMRC is set to bridge the funding mismatch which is apparent if banks were to offer mortgages To resolve those issues and encourage home ownership, the Government of Tanzania has established a Housing Finance Project (HFP) with the support of the World bank to spearhead the reintroduction of mortgages in Tanzania

The project aims among other things, enabling the recreation of mortgages in the country by emending land laws, introducing Mortgage Finance Act 2008 and supporting creation of Mortgage Liquidity Facility. Tanzania mortgage refinance company (TMRC) is a result of the Housing Finance Project. The establishment of TMRC is set to bridge the funding mismatch which is apparent if banks were to offer mortgages

ROLE PLAYED Provision of secure long term funding at attractive rates to member banks to continue lending to their client Lowering the cost of funds, which can lead to a lowering of mortgage rates, thereby improving affordability and extending the range of potential borrowers Facilitating member banks to extend the mortgage maturity to be in line with normal mortgage products Contribute to the growth of Tanzanian capital markets through the issuance of TMRC bonds to source funds for long term lending to member banks Assist in the standardization of mortgage practice in Tanzania through specialized training to member banks on the origination of mortgages Facilitating the entry of new mortgage lenders in the market due to the existence of MLF which guarantee the funding of mortgage portfolios subscription to the issue of shares and debentures, they have been important players in the capital market. These

operations have a favorable impact on the ability of industrial concerns to raise funds from capital market. These institutions have improved the allocation of funds to industry and thus, have aided in better use of the available resources for the economic development of the country. SFIs have been a source of technical and managerial advice to the industry. They have also helped in identification, evaluation and execution of new investment projects. These institutions have been helpful in the establishment of concerns which required extraordinarily large amounts of finance for their projects with a long gestation period.

ACHIEVEMENTS Mortgage Market Development Standardization of loan documents New mortgage law enacted Mortgage Regulations implemented max Payment to Income of 40% Mortgage Awareness and Financial Literacy work ongoing Consumer protection measures to be strengthened

CHALLENGES Lack of enough developers

Delays from member banks to launch mortgage products High cost of transfer & Compliance Under developed debt market Absence of legal aspects of securitization Absence of mortgage products in the market after THB collapse. Unfriendly land laws Lack of long term funding by banks to facilitate the provision of mortgage products As a result, Tanzania is one of the countries with the lowest mortgage/GDP

WAY FORWARD Issuance of TMRC bonds In 2012. Encouraging establishment of mortgage information databank Stimulating establishment of mortgage finance institutions Stimulating establishment of mortgage insurance Products

Encouraging banks to offer fixed rate mortgage products. Full securitization/ establishment of FULL secondary mortgage market.

CONCLUSION Although mortgage finance in Tanzania is still in the initial stages of growth compared to other countries that is has a lowest mortgage/GDP ratio in Africa. But in developed countries like America the mortgage financing has been developed e.g. as in 1994 to 2004 there was from 4 trillion USD to trillion USD outstanding primary mortgage USD 10.127 Tanzania National Housing cooperation (NHC) recently Introduced a scheme where it will build houses and sell them to the borrowers who through NHC and agreed banks will borrow money to pay for the houses in agreed time frame .

Reference: 1.www.ofheo.gov 2.Financial markets and institutions by Antony Saunders 3.www.dse.tz 4.www.cmsa.tz 5 .Recent development in housing finance sept 2011 ,Addis Ababa edition www.tmrc.co.tz 6.Financial sector assessment of Tanzania Aug 2003 7.challenges and ways forward of Tanzania financial sector .pdf