The central question which this case study aims to address is what is the role of a Mortgage Liquidity Facility (MLF) in housing finance in Africa? Traditionally, MLFs have been designed to provide funding and capital market access to primary mortgage lenders. MLFs either purchase loans on a full recourse basis from primary mortgage lenders or lend to them on an over-collateralized basis for mortgages pledged to the facility. MLFs are said to be generally more appropriate for emerging markets and can play a vital role in the establishment of a more developed secondary mortgage market, including securitization. Generally, MLFs are less complex than securitization. They involve lower levels of risk transfer (the risk of default remains with the bank/lender), and the bonds issued are not directly linked to the underlying mortgages2. As the market matures, MLFs have an important role to play in assisting the market to achieve a higher level of sophistication. They can also be used to promote mortgage securitization once the proper conditions are fulfilled. The two instruments can however co-exist, leaving users and investors free to choose between different combinations of features, risks and prices. MLFs are seen as ideally suited to the relatively early stages of market development.

Across Africa, practitioners are grappling with the challenge of creating an enabled housing finance environment. While these challenges may seem insurmountable, there is a growing track record of novel solutions and initiatives, pioneered by policymakers, financiers, developers and households themselves, suggesting that there are new opportunities for making the housing finance sector work for the poor in Africa. This case study is part of a broader series that CAHF has commissioned in order to support professional development and inform a broader research and dialogue process. The case studies vary, addressing themes as diverse as housing microfinance, mortgage liquidity facilities, cement block banking, home loan guarantees for the informally employed, and infrastructure financing, highlighting experiences from countries across the continent. We hope this series contributes to more precise and successful endeavors that realize the opportunities in this market.