CAIRO: Minister of Investment Mahmoud Mohieldin confirmed yesterday that the Egyptian Company for Mortgage Refinancing (EMRC), due to start its financing operations this year, will be receiving an LE 214 million loan from the World Bank.
The EMRC, jointly established by the Central Bank and 24 private and public financial institutions, will, according to the Ministry, leverage capital of LE 1 billion and serve as the industry’s first liquidity facility.
EMRC, established last June with an initial capital of LE 200 million, will refinance loan portfolios for banks and mortgage finance companies at below-market interest rates to keep liquidity in the system.
“Egyptian banks are relatively short-term lenders. They can’t afford to offer mortgages of more than seven to ten years in maturity, said Mohamed Rady, consumer relationship manager at the Mortgage Finance Authority.
“People seeking to buy housing units need longer-term mortgages to have enough time to reimburse. You’re buying an apartment. It’s not the same as buying a car, he added. “Shorter-term mortgages place an enormous financial burden on individuals and families that purchase homes.
By providing financiers themselves with access to long-term financing, lenders will be able to lengthen their terms of mortgages, in turn lowering monthly payments for homeowners and thus attracting more buyers into the system.
“When you lengthen the mortgage term, you lower the perceived risk for lenders; which implies cheaper rates for consumers, Rady explained.
The Central Bank is the key strategic shareholder in the company with a 20 percent stake. The balance is held by domestic and foreign banks and specialized mortgage companies, all of which are either currently involved or plan to participate in the mortgage finance market.
“What we bankers want is a mortgage finance system that enables us to give better and longer-term mortgages to people. So far, we don’t have a real benchmark for long-term funding, said Fathi El Sebai Mansour, chairman of the Housing Development Bank, adding that the EMRC will finally establish a solid mortgage finance system with its long-term funding.
One of the latest shareholders is the International Finance Corporation (IFC), the private sector lending arm of the World Bank, which joined EMRC as an equity partner on May 14.
IFC’s investment in EMRC consists of an equity investment of around LE 20 million for ten percent shareholding as well as a Partial Credit Guarantee Facility of approximately LE 15.6 million equivalent for credit enhancement of EMRC’s future bond issuance. IFC will also provide advisory services, capacity building and technical assistance to EMRC in a wide range of operational areas.
“We are now involved in helping the EMRC issue long-term mortgages and undertake capital instruments in money lending, said Michael Essex, IFC Director for the Middle East and North Africa region.
IFC is involved in secondary mortgage and liquidity across the region, particularly in Jordan, Oman, Saudi Arabia, and Lebanon. It is also active in South-East Asia, Pakistan and Mexico.
Besides providing secured loans to banks and mortgage companies, the EMRC is expected to issue long-term bonds to the public in order to support its activities and expand its lending beyond its initial capital.
“EMRC will boost the mortgage finance industry and, consequently, the whole real-estate sector, Rady pointed out. “When consumers are offered longer-term mortgages at lower interest rates, demand for mortgages will increase, which means that more people will buy housing units and that will, in turn, encourage investors to construct more buildings and houses.
