The Ghana roof loans scheme

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I TED NATIONS

CONOMIC*

and SOCIAL

COUNCIL

Distr, LIMITED

E/CN.14/HOU/68 11 May 1970

Original: ENGLISH

SCONOMIC COMMISSION FOR AFRICA East African Sub-regional Meeting

on Specific Aspects of Housing Finance 29 June to 4 July 1970

TJffi GHANA ROOF LOANS SCHEME TABLE OF CONTENTS

Int roduct ion-- — _ - — _ _ Differences and difficulties ----

Recent Experiences ---

The need for a fresh start ---- Housing finance in Ghana --- The roof loan programme --- Advantages claimed for the programme -

The implementation of tfao roof loan programme Village housing societies --- Inspection of the house --- Itoe working of the roof loan scheme - - Lessons and conclusions ---

Paragraphs

1

2 - 7 8 9-10 11 - 16 17 - 19

20 21 22 - 23

24 25 - 27 28 - 32

M7O-996

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THE GHANA ROOF LOAN .SCHEME-'

Introduction

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1. The purpose of this paper is to illustrate the advantages of developing in Africa new systems of housing finance,

especially designed to meet the particular needs of African

countries.

Differences and Difficulties

2. The housing finance methods of Northern Europe and North

America were development in predominantly middle-class urban

societies. They are designed to channel middle-class savings into

the housing market and to meet middler-class needs of housing

finance.

3. In African cities, low-income and no-income groups are

preponderant among those in need of housing. Middle-class baaed

institutions touch only a small part of the problem.

4. Many of the newcomers to cities think of themselves as temporary urbanities. They expect to return to their native village when they have saved enough, or at the end of their _ working life. They prefer, therefore, to invest their savings in their own village rather than in the city. Customs of this

kind are in a process of change, but they are still strong enough

to affect the pattern of saving and the demand for home ownership or rental accommodation in cities.

5. With few exceptions, land for urban expansions is held under

traditional systems of land tenure and is therefore not negoti able. In Europe or USA, a building plot with a clear negotiable

title is normally available as security for housing finance. In

Africa, this is the exception rather than the norm.

6; To be effective on a national scale, an African system of housing finance would have to involve much, larger numbers of

depositors.and. borrowers than a comparable system in the west.

7. Added to these difficulties are differences in saving habits,

incomplete registers of births and deaths and problems of termi

nology and identification..

1/ Prepared by Dr. O.H. Koenigsberger, Head, Department of

Tropical Studies, Architectural Association, London. The views expressed in this paper are not necessarily those of the

secretariat of the* Commission.

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Recent Experieno&e.

8. Building Societies, Sayings and Loan Associations and

Co-operative Ventures that were imported from the west have made little headway. Some have flourished among limited groups of middle-olass clients. None have succeeded in financing the buLk of their operations through th$ collection of deposits, none have made a noticeable impact on the overall housing problem.

The need for a fresh start :

9* It would be wrong to conclude from the foregoing that there is no need for housing finance institutions, or that there are no sayings that might be invested in housing, or that housing finance institutions are unworkable in Africa. All one can and should conclude is^ that the well-tried and successful' western formulae must "be adjusted and adapted to African needs and oonditions.

10. The following account of a project that was specially designed for African conditions, is intended to illustrate this

points- ' _

Housing finance in Ghana

11. In 1954, the Government of Ghana had a housing programme

consisting of three parts:-,

(a) A rental housing progr-arame for low—income groups;

: (b) A hire-purchase programme of publicly^-built housing;

(0) A housing loan programme devoted primarily to higher

cost housing. - . .

.12. Programmes (a) and (b) were limited by shortage of investment capital, but were successful a's far as they went. Programme (c) was restricted to a small group of comparatively wealthy borrowers.

13* The Housing Loans Ordinance which controlled the' loan programme required t,hat-

(1) The applicant intended to reside in the house. This

excluded the possibility of mass production- "by con tractors for resale to potential borrowers.

(2) The; applicant did not have a previous loan. O&is, too

prevented mass construction and resale.

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(3) The applicant had to have.a clear title to his land

or a lease for not less than 60 years. This rule, combined'with the scarcity of marketable titles, limited the land available for security.

■ (4) There had to he a contractor for every house. This had

the effect of restricting lending to expensive houses and of eliminating the owner who built a house with his own hands or in slow stages through a small 'Builder.

These restrictions held the number of applicants down to

a mere trickle.

14. Following a report by Charles Garratt-Holden^the Government

of Ghana proposed, in November 1954, to earmark just under £2 million sterling for investment in a government controlled and

managed building and loan society.

15* Before proceeding with this project, the Government of Ghana consulted the first United Nations Housing Mission and was advised against the coramrtment of all its resources to the proposed

building and loan- society. The:UN Mission argued t£at this

proposal, would duplicate the -existing loan programme, cater to the needs of the same limited clientele, discourage private initiative

in the building society field, and yet fail to reach a substantial

.number of would-be home owners and investors.

ttf. The UN Mission suggested that the grant of £2 million be

split and used for two programmes:

.. £890,000 was to be invested in a mortgage bank intended to

enoourage private initiative in the field of housing finance.

The remaining £1,130,000 was to be used to start a new .f .venture intended to reach a lower income level. This new

,, venture was called "the roof loan programme". : The, roof loan

r ■

17" J?10 P^grfff1"* is best described ty quoting from" the report of

the UN Mission^ ...

17-1."Among all thesa programmes (i.e. those quoted' in paragraph 11(aj, (b)T and (c) supra-), there is nwnefor the predominant

portion of the population, i.e., those who live in solf-built housing. f These families include not only those in small cement block houses, but the dwellers in swish, swish-crete,

1/ At that time Secretary of the Building Societies Association,

London. '

2/ United Nations, Report No. TAA/GOC/1 dated 26 April 1956.

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wattle-and^daub arid thatch. l"hey represent the country's largest building resource and economically the most

important. These people supply thei'r own labour, use local materials and a minimum of imported materials. They are also the lowest income families for whom Government aid is most justified.

17»2 The roof, the Mission found, is the main aspect of the

housing problem in the Gold Coast, Whether of iron sheeting^

aluminium, asbestos, thatch, tile or shingles, the problem of qualityf durability or finance persists. If the roof problem can be solved in the Gold Coast, a major part of the housing problem would be eased.

17.3.Hie- Mission therefore suggests the us© of the £1,10Cf,000

fund reserved for the Building and Loan Society as a revolv?- ing Loan Fund for a Roof Loan Programme.i The advantages of such a programme are that*

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(a) it directs part of the Government's financing efforts

towards the lower income families;

(b) it relies primarily on self help and. encourages-it;

(c) it emphasizes local materials in the wall structural (d) i+ enables.the building of large quantities of kousiag;

(e) it holds down the loan on a new house to an absolute

minimum;

(f) it enabies the Government to influence the nh^iee of

materials for roofs.and to. evolve a programme of mass

, purchase- . ;;. . ■

17..4*There are many other advantages - it might ease, the per plexing problem of the r"unfinishe«i house" and- eron bring into being the *unstarted house", represented by the vast stooks of sterilized building blooks punctuating city

streets. Loans on the roof would be represented "by th« last section of the building, which jrould enable 'the lending agency to be selective in its loans and' reduce the danger of defaults in completion. The loan would be made only when, after inspection, the roofless building was found t© have a good foundation and a solid wall' structure.. t. ■

1T-5«Tne roof loans would be in varying amounts depending on whether the roof is of clay tile, asbes*os, aluminium, wood shingles, corrugated iron sheets, thatch or other materials*

The largest loan would be made on the roof with the longest life expectancy, e.g., clay tile or asbestos^, but differen tials would be aet up to encourage production of local

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materials such as clay tiles, a recommendation for the development of which will "be contained in the Mission's final Report.

17.6.The term "Hoof Loan Scheme" is used here more for the purpose of identification than for comprehensive description.

Loans for the roof might well include some additional advances for dorrs and windows and for finishes. .For a small two-room cottage of about 260 sq.ft^ plinth area, the cost would run roughly as follows:-

Cost of Hoof

Ost of doors and windows Cost of lime wash

TOTAL COST

representing about one-quarter to one third of the value of the whole building".

18. The United Nations mission recommended that a central dis

pensing agency be set up for roof loans. It did not go into details whether this should be a government department, a board or a corporation, but it emphasized the desirability of making it independent of political pressures.

19- In the absence;of negotiable land as security for the roof

loan, the UN mission suggested that loans should be .made dependent

on the agreement of the local community, which should advertise '

its intention to support a loan application and invite objections from persons claiming to have an 'interest in the land. If no objection was raised, the whole building should be, treated as

security to the extent of the loan and collection costs. Upon default, the central agency would have to foreclose on the

building (not the land) and extract rent for the building,'

sufficient to enable repayment of the loan with interest and charges. Failure to pay the fixed: rent wculd authorise eviction

and sale of the building for the outstanding amount of the loan.

Advantages claimed for the programme

20. The following advantages were claimed for the proposal of the

Uw missions-

(a) By restricting loans to a part of a house, it would bo

possible to give many small loans instead of a few

large ones. The benefits that could be derived from the

available government funds were to be spread over the

largest possible number of projents.

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(b) It would overcome the restrictions of... the African land

tenure system by using the house as security rather - than the land on which it stood. The lengthy and tiresome search for titles which had delayed and frustrated most previous attempts of popularising housing loans would be eliminated.

(c) The whole house would be used as security for a loan

covering only a part of it. An added advantage would

be the replacement of paper securities by the realities

of briokand mortars, the walls of the house had to be

in existence before a loan for the roof could be given.

(d) Savings in kind such as stores of bricks, cement

blocks, stabilized earth walls, etc., could be used for

the benefit of house production.

(e) Local communities would be involved in the question of

housing finance. Understanding of housing matters

and a sense of responsibility would be among the

results.

(f) The Roof Loan Programme would be tailormade for* local

conditions and would not depend on the import of foreign capital, foreign concepts and foreign insti

tutions.

The Implementation of the Boof Loan Programme

21. The Government of Ghana accepted the recommendation's of the UN .Housing Mission and entrusted its newly-formed Ministry of Housing wxth the execution of the project. The Ministry decided

to restrict the revolving fund initially to £300,000 and to try out the project in rural areas rather than in the oities of

Ghana. The extension of the programme to urban areas was to follow after xt had proved successful in villages. The rural housing branch of the Ministry was entrusted with the detailed supervision of the programme and the Department of Community Development and Mass Education was mobilized to assist in its

execution*

Village Housing Societies

22. Ohe United Nations Housing Mission had suggested, the

ment of local authorities in the programme. The Ministry of .-

Housing went further and invi^a villages in all parts of the

oouitry to form "village housing societies". These societies had

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to consist of at least 20 members, including 5 of the seniormost heads of households.. Each village society was entitled to

propose every year 5 of its members for roof loans. The loans were made in kind after the "building had been inspected and certified as of sufficient quality and durability to justify investment in the roof. Tho loans were interest free and had to be repaid in four annual instalments at.harvest time, beginning on* year after the making of the loan and completion of the roof, 23. The village housing society was held responsible for th»

punctual repayment of th* loans. If a member of a society fell into arrears with his repayments, his society was warned an4| if it did riot sue&eed in making him pay up, the society was black listed and excluded from the right of preposing further loans uatil its member »r members had paid his or their debts. In other words, the society undertook a corporate responsibility for the "

security of the loan. This was intended as an additional security to the mortgaging of the buildiug.

Inspection of the House

24- Whilst preparation for the issue of the first loans was in progress, the Department of Community development and Mass Education trained a aumber of inspectors to cheek applications for roof loans. It was the duty of these inspectors to visit applicants to see whether.foundations, walls, doors and windows, etc., were of a sufficiently high standard to justify the issue of a roof loaa. Well-built earth walls were acceptable uader this project as long as the inspector felt confident that they would last five years until the loan was repaid. If the sub structure was accepted, the inspector gave the applicant a voucher for the number of roofing sheets, purlins and hardware needed. The applicant c©uld collect these materials from the nearest store or government dftpot. No money would change hands until the beginning of the .repayment period.

Olfeft Working of the Hoof Loan Schema

25- The roof loan project was in operation for approximately six

years. It proved popular. The number of loans was limited merely by the size of the revolving fund, but not by lack of applications from village housing societies.

26* After five years the number of bad debts was reported to be

less than .6 of 1^. This was claimed t» b« due mainly to the

influence of the village housing societies, which did not wish their names to be blacklisted-

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27- In spite of its evidsn-fc success in rural areas, the proje was never extended to cities ae had'been envisaged originally*

It was eventually closed down^or reasons of internal politios unconnected with its economic duoceWs or failure,

:". ■ . f :■ •

Lessons and Conclusions ' .

28. The foregoing account of the'Ghana Roof ioan.gcheme is in-

1 tended to illustrate the r^int n*ade in the "beginning: African needs for housing finance _ cannot be. .m^t entirely by; the import of "institutions and capital from §broad- ..Both are deeded, but

■'neither Is likoly to satisfy more tfean a small fraction of the

;:deman.J.: ■ _ / '... ;■ " L* "' V - , ,/Jg^. ; i\ ;. , ;

29« The Ghana^Roof Loan Scheme isjtiot quoted as a .pattern to be

accepted and oopied elsewhere. It is-quoted as an oxamplo of a successful attempt to find a specific solution for .specifio local conditions. It demonstrates the importance, not only of a thorou

thorough knowledge of" the social traditions of a country, but also

of respect for traditions, that are sometimes more powerful . /

instruments of aooial administration than imported institutions.-/

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0) It is possible to devise a system of housing finance

* for genuinely low-inpome housing; , : .

R(2) It'is possible to extend such a project to self-help

Guilders within the not—completely-monetary economy of & village; v._ ,. . s

(3>) It is possible to' operate .sucjj a scheme.on the basis of

a devolving fund without"substantial losses*

(4) It ia soss.,iiue to circumvent -che land tenure rroblem

by substituting guarantees of local groups (village housing ^s<>oioties) «for land as/collatteralf

(5) It is possible to utilise existing traditions of saving W kind (..such as colleoMrig cem9i?t blocks and other

-.-..■ forms of instalment building^ to increase pfoduction of

houses with a minimum "of government investment;

„ (6) It, is possible to administer a housing finance project

w^bth jthe help of existing government institutions and looal voluntary associations (village housing sooieties) without building up an expensive new bureaucracy,

1/ Conference document No. E/CN.I4/HOU/2I contains a most valuable

study of such traditions in some East African countries.

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31.- The Ghana oxperiment must be considered inconclusive in the

following aspeota:. .■■■*.. ...

(1) The total effect of the project on the Ghana hpusing - situation during the period of its operation is not known. How many loans were given per annum? How many- houses were completed? How much was the increase in

the figures for completions of houses compared with previous years?

(2) The nverhoads of the project are not known. How much of the time of the Permanent Secretary of the Ministry of Housing, of the Director of Rural Housing, of the Director of Community Development and Mass Education and of their subordinates was spent on the roof loan project? What was the cost of the inspectorate and other administrative arrangements?

(3) The Ghana jxpe?im«nt did not leave room for the

participation of private capital other than that of the applicants for loans themselves- It did not contain an element of profit which might have made it possible i:o increase the revolving fund through the participation of private investors.

(4) The Ghana experiment did not generate savings other than those in kind represented by the investment the

applicant had to make before he was given a roof loan.

(5) The Ghana experiment did not provide an indication

whether it would be possible to financo an institution for low-income housing loans, wholly or in part, from

a collection of middle-class savings (deposits).

(6) The Ghana experiment was inconclusive about tho

possibility of securing the repayment of loans through,

voluntary associations (neighbourhood housing societies)

also under urban conditions,

32* Some of these aspects did not form past of the Ghana project,

•th«re are inconclusive "because the relevant records are un published. A detailed survey of tho history and rosults of

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the Ghana Roof Loan Scheme by an independent agenoyi/ would go a

long way towa*4# filling the gaps in our knowledge and would invaltiafele tc'tho policy makere;in Ohana itself and in other

Afrioan countriea*

XJ There are many praoMenta for such surveys. For instance, the

Ford Foundation sponsored roviews ef the Indian 5-year ?lans

which were carried out at the request of~ the Oo-wftrwoent" of

India by experts not involved in the preparation or implenentatioa

of the plans*