The Informal Sector and Mortgage Financing in Ghana

I Decardi-Nelson,Or Asamoah,Ka Nduro,B Solomon-Ayeh

doi:10.4314/gjds.v9i2.8

Abstract

The increasing cost of building materials coupled with other challenges hinder the ability and desire of people to own houses. Over the years, accessibility to mortgage financing has become more skewed towards the formal sector to the neglect of the informal sector based on perceived and real challenges with informal sector financing. These notwithstanding, the need for innovative mortgages for the informal sector cannot be overemphasised as more than 60% of employees within that sector cannot afford to own a decent accommodation. The Case Study Approach was employed to gather data from about 30% of construction artisans in Ashanti Region. The study revealed that 6 out of the 8 basic eligibility criteria were exclusion factors to the informal sector. These were the proof of address, proof of employment and income, ability to service the loans, the loan duration and the deposit. The paper recommends that there should be a financing mechanism that is flexible in terms of repayment. There should also be short term repetitive loans with some increment prior to first payment completion and flexible collateral that the borrower can afford. Finally, mortgage loans can be in the form of building materialsKEYWORDS: Informal Sector, Mortgage Financing, Accessibility, and Eligibility Criteria

Highlights

Ghana is experiencing high rates of urbanization, resulting in the increase of unplanned settlements especially in the urban and the peri-urban areas
The involvement of some financial institutions such as United Bank for Africa (UBA), Barclays Bank and Ghana Home Loans indicates that the housing deficit in the country as of 2010, estimated to be between 800,000 – 1,000,000, could be reduced
There are mostly found in the informal sector

Summary

Introduction

Ghana is experiencing high rates of urbanization, resulting in the increase of unplanned settlements especially in the urban and the peri-urban areas These unplanned settlements provide homes for both the poor and the middle-class, as affordable housing is non-existent. Studies into the development of housing in Africa suggest that the high income earners have enough resources to own houses while the middle class finance the construction of their own houses incrementally, often in unplanned and unapproved areas which lack certain basic amenities such as water, electricity and access roads (Trust, 1995). Home Finance Company renamed HFC bank, was the pioneering company to begin housing finance in Ghana in the 1980s Real estate companies such as Regimanuel Gray, Manet Cottage and Ayensu Real Estates Limited have constructed houses for sale with prices starting from $35,000 upwards. According to studies conducted by the Ghana Real Estates Developers Association (GREDA, 2000) 500,000 houses are needed annually

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