ABSTRACT

Purpose – The purpose of this paper is to identify and analyse the methods of
housing finance adopted by the low income and informal groups in Nigeria.
Design/methodology/approach – A survey of 300 households in selected areas
(low-income/informal) of Jos Metropolis, Nigeria, was carried out, concerning the
methods of housing finance used for building and home improvement.
Findings – The survey showed that 75 per cent of the households utilized
traditional methods of financing and 25 per cent using modern methods.
Research limitations/implications – Based on data collected from the survey, the
research serves as a basis for further research into traditional methods of housing
finance in developing countries.
Practical implications – The analysis of traditional financing methods highlights
the range and structure of the traditional methods of financing in operation in
informal and low income areas of Jos Metropolis, Nigeria. For example, informal
and customary/traditional methods (Esusu/Asusu, Age grade association, Men’s
Revolving Loan Association, Social club contribution among others), of financing
appear to be very effective housing finance methods.
Social implications – The paper shows that In the absence of formal institutional
financing methods, strengthening the community-based social network through
formalisation and empowerment for housing finance becomes vital.
Originality/value – It is argued that it is possible to utilise and formalise these
traditional methods of housing finance, in order to enhance access to finance for
housing development in low-income urban areas in developing countries.
Keywords Nigeria, Housing, Financing, Urban areas, Low pay,
Developing countries, Traditional methods

INTRODUCTION

Housing as a social and economic product has a positive impact on the economy of

any country. Developed countries such as the UK, parts of North America,

Germany and some Asian countries such as Japan, Korea, Singapore, have a well

organised and effective housing finance system (Okoroafor, 2007). It would be

desirable if the strategies from these developed countries can be adopted and

adapted towards improving the problems of housing finance in developing

countries. In Nigeria, housing finance systems are generally underdeveloped

despite having good policies. But poor methods of implementation have often led

to loss of funds by the government. This has made it difficult and prevents

innovations in the way housing is provided (Okoroafor, 2007; Wa’el et al., 2011)

in the country. In most countries there are programmes initiated to provide funding

to either private developers or government-linked companies. The emphasis is no

longer on low-income earners (Sukumar, 2001; Denis, 2011; Wa’el et al., 2011).

Financial institutions do not consider long-term lending for housing priority

because of the associated risks in non-integrated financial system. At the same time

government dominates the provision of middleclass housing which is often tied to

the term of their employment.

Furthermore, government programmes have often used interest rate subsidies on

fixed – rate long-term mortgages which have negative characteristics. There are

two main issues; first, by not calculating the effects of inflation the system is not

transparent in terms of the true cost. Second, the system encourages debt

accumulation (often leading to bad debts) rather than savings. In other words the

more one borrows, the higher the subsidy. Although most policies are urban

biased, not all urban areas have the necessary infrastructure services (Adenji, 2004;

Agbola et al., 2007). This is not so different in Okigwe Urban areas, Nigeria where

the emerging sprawling informal settlements have little or no adequate facilities,

utilities and urban services. Similarly, much of the low-income houses do not have

the necessary amenities such as proper sanitation, water and other utilities. As

much of such housing is developed in peripheral areas of Okigwe, the government

perceives them as informal settlements.

The provision of finance and facilities by lower middle class groups for

construction in developing countries is through informal methods (self-help)

(Mukhija, 2004; Denis, 2011; Wa’el et al., 2011). A much larger proportion of the

households than necessary have to finance housing from savings or build

incrementally and at a low standard because up front finance that would allow

them to purchase a higher quality home and to pay for it over a long period is not

affordable or inaccessible (Adegbie, 2003; Okoroafor, 2007; Denis, 2011; Wa’el et

al., 2011). Formal sources of finance are not accessible to 80-90 percent of

households in developing countries. Alternative sources of housing finance are

sought by individuals and groups to meet the need of their shelter. It has been

estimated that in Africa 70 percent of the urban population live in slums (informal

settlements) and with cities like Abuja in Nigeria, and others expecting very high

growth in the next decade. The proximity of Okigwe as well as its tourism and

favourable weather condition makes Okigwe to experience the urbanization rate

similar in scale to Abuja, the most rapidly urbanising area in Nigeria and Africa

(Parsa et al., 2010; UNDESA, 2010). Inhabitants of informal settlements form

informal groups and do things in informal way, to meet their legitimate needs,

considering the fact that by law every individual has a right to housing/shelter as

observed by UN-Habitat, 2009.

Research evidence suggests that much of the housing provision in developing

countries is through the informal sector. However, such housing is not recognized

formally through proper title and ownership (Durand-Lasserve, 2003; Parsa et al.,

2010; Alaghbari, 2010). This is further manifested in the resultant insecurity that

has been experienced by low-income earners and inhabitants of informal

settlements as financial institutions require title deeds as collateral for loans

(Payne, 2003 all in Parsa et al., 2010; Wa’el et al., 2011). Parsa et al. (2010)

further argued that though the inhabitants and people living in informal settlements

own properties, these properties are termed “dead capital” as they are not

recognized and do not have formal property rights which can be used as collateral

to raise cash, thus these people remain poor due to the lack of formal ownership

title. Hence, housing finance becomes a major barrier to the poor-low-moderate

income earners even as they spend above 30 percent of their meager income on

housing (Finkel, 2005; Agbola et al., 2007; Denis, 2011). Housing has not been

adequately provided in most urban centers in Nigeria let alone the rural areas. The

provision of housing at an affordable price for accommodation for individuals and

family of right size, type, and tenure with all appropriate internal and external
facilities in a suitable location is of great concern for individuals, organizations,

and the government.

Problem of affordable housing is a growing social and economic issue in

developed countries as well. According to the 2000 census, 22.3 million of the

households (21.1 percent) of American families have the problem of housing

affordability (Finkel, 2005; Denis, 2011). The Department of Housing and Urban

Development in the United States of America (USA) declared that any household

with less than 80 percent of regional median income can be considered as low

income. Therefore, housing affordability has been identified as a problem

affecting, a very large proportion of households in America. This can be explained

as the gap between the incomes of very poor and the minimum cost of a reasonable

adequate shelter. This scenario is not different in Nigeria. Okoroafor (2007)

explains housing problem as being both of qualitative and quantity, tied strongly to

finance that is not available for the low-income earners (Sukumar, 2001;

Okoroafor, 2007; Wa’el et al., 2011). Even on government sponsored housing

programmes, poor housing delivery delays access to housing for most families. For

those who manage to build their homes and business with informal financing

methods, they face additional problems and cannot fully benefit from their

investment. They remain poor because their properties in terms of land, houses,

buildings and small businesses have not been documented and cannot be accepted
as collateral. They lack the formal protection rights owning to poor policy

articulation (RBI, 2002; Agbola, 2004; Sjaastad and Cousins, 2008 in Parsa et al.,

2010; Wa’el et al., 2011).

In most settlements the percentages of the population living in substandard houses

or very poor housing condition are about 60-80 percent compared to 15-20 percent

living in acceptable standards of fair and good as obtainable in most developing

countries. This is so because housing is all about affordability and many of those

who live here do so on less than one dollar per day. Different research has

identified housing affordability and delivery as a major problem for most urban

migrants in cities in South Africa, during the last two decades (Crush, 1992; United

Nations 2005; Patricia, 2008). According to Trochim, 2006, this situation is not

only synonymous to urban dwellers but also pertains to rural dwellers; and housing

affordability could be severe at their end. Alaghbari (2010) and Denis (2011)

explained that the cost of construction is now very high, making it difficult for

anybody with regular income to save for a building. The society would now be

changing from the past ways of saving to other sources of housing finance. Given

this, if the inhabitants of low-income areas of Okigwe, Nigeria are to meet housing

needs within their domain, other alternative sources need to be adopted, as the

main problem of housing generally is the financing of the various phases of the

housing project. But if most developers do not appear to be borrowing from banks
and other formal institutions of finance, where is the money coming from? The

answer to this question and the methods adopted by the low income and informal

groups in the Okigwe Urban area is the focus of this paper. The paper provides a

general perspective of housing finance sources in Nigeria, looking at the failure,

reasons for failure and alternative modes of financing housing and urban

infrastructure in the low-income regions of Okigwe Urban areas.

1.2 STATEMENT OF THE PROBLEM

Housing has been universally recognized as one of the most essential necessities of

human life and is a major economic asset in every nation. Adequate housing

provides the foundation for stable communities and social inclusion (Oladapo,

2016). Gilbertson et al. (2018) have observed that there is a significant association

between housing conditions and physical and mental health of an individual.

People’s right to shelter is thus a basic one and the provision of decent housing to

all requiring them should be the hallmark of every civilized society and one of the

criteria for gauging development.

However, the provision of adequate housing in Nigeria and other developing

nations alike still remains one of the most intractable challenges facing human and

national development. Previous attempts by all stakeholders, including government

agencies, planners and developers to provide necessary recipe for solving the

housing problem have yielded little or no success.

1.3 AIMS AND OBJECTIVES

1.3.1 Aim

The aim of this paper is to identify and analyze the methods of housing finance

adopted by the low and medium income earners in Okigwe Urban area.

1.3.2 Objectives

The objective of this paper is to appraise the source of housing finance of low and

medium scale income earners in Okigwe Urban, Imo State, Nigeria by:

 Examining the role of financial institutions in financing housing in the study

area.

 Discusses the existing financial structures and the framework specified in

the New National Housing Policy

1.4 SCOPE OF THE STUDY

The paper examines evaluation of the existing structure and secondary data were

obtained from existing literature on books, journals and housing finance market.

The National Housing Policy provided a solid background needed for

understanding the operation of the market. The historical survey approach revealed

the reasons for failure of existing practice.

1.5 HYPOTHESIS:

A survey of 300 households in selected areas (low-income/informal) of Okigwe,

Imo State, Nigeria, was carried out, concerning the methods of housing finance

used for building and home improvement.

The survey showed that 75 per cent of the households utilized traditional methods

of financing and 25 per cent using modern methods.

1.6 LIMITATIONS OF THE STUDY

Based on data collected from the survey, the research serves as a basis for further

research into traditional methods of housing finance in developing countries.

The analysis of traditional financing methods highlights the range and structure of

the traditional methods of financing in operation in informal and low income areas

of Okigwe Urban, Imo State, Nigeria. For example, informal and

customary/traditional methods of financing appear to be very effective housing

finance methods.

In the absence of formal institutional financing methods, strengthening the

community-based social network through formalization and empowerment for

housing finance becomes vital.

 CHAPTER TWO

2.1 LITRATURE REVIEW

The housing situation in Nigeria is characterized by some inadequacies, which are

qualitative and quantitative in nature (Oladapo, 2006). While the quantitative

housing problem could be solved by increasing the number of existing stock, the

qualitative inadequacies are enormous and complex. Despite Federal Government

access to factors of housing production, the country could at best expect 4.2% of

the annual requirement from her. Substantial contribution is expected from other

public and private sectors.

Various studies have, at different times, revealed the problems of housing

production. Teufic and Ural (1978) Ogundele (1989) Agbola (1987) Okpala and

Onibokun (1986) recognized finance as part of housing problems but ranked land

and building materials higher. Their findings influenced government housing

policies and subsequent establishment of some relevant programmes and

institutions like the Site and Service Programme and the National Institute of Road

and Building Research. The drought of information and working knowledge of

housing finance operation is a major problem today.

In a tight money market, housing is the first area to suffer, since neither the builder

nor the consumer can readily obtain finance for housing. Actually, many builders

have difficulty obtaining capital for their projects even in normal times. Two of
these problems – the high interest rates that contribute to the high cost of housing

and the difficulty in obtaining capital for home construction. According to Onabule

(1996) 245 Primary Mortgage Institutions were established under the NHP within

1991-1996. Unfortunately, only 54 are now operating, mainly in South West part

of the country and Abuja. According to Abiodun (1999), National Housing Fund

collected about 4 billion naira from the Mandatory Saving Scheme. Out of N300

million loan approved by FMBN, only N100million was advanced.

2.2 Housing finance by Nigeria's financial institutions

The Nigerian housing finance system is made up of corporate financial

intermediaries, corporate construction intermediaries (Federal Housing Authority

and private estate developers), mixed corporate intermediaries (State Housing

Corporations), individuals, and government and its agencies (offering staff loans).

The corporate financial intermediaries include three groups of bank financial

institutions - the Federal Mortgage Bank of Nigeria (FMBN), commercial banks

and Merchant banks - and a group of non bank financial institutions (the insurance

companies).

In a broad sense, with respect to housing finance, these financial institutions are

supposed to perform two main economic functions, viz.: financing new homes and

facilitating the change of ownership of old homes through refinancing. In fact,

mobilizing financial resources for housing forms part of the overall endeavour of
increasing savings and improving allocation through financial intermediation.

Here, we shall examine in greater detail the role these financial institutions have

been playing in housing finance in Nigeria.

2.3 The Federal Mortgage Bank of Nigeria

The Federal Mortgage Bank of Nigeria (FMBN) which was set up vide Decree 7

on January 20,1977 absorbed the assets and liabilities of the Nigerian Building

Society (NBS) earlier set up in 1956. The NBS itself, the first mortgage banking

institution in Nigeria, was originally jointly owned bythethen Commonwealth

Development Corporation (CDC) which held 60% of the equity, the Federal

Government with 31 % and the ten Eastern Nigeria Government subscribing 9%.

In 1972, the Federal Government bought over the 60% equity holdings of CDC,

granted the society substantial loans at very low interest rate (3%) and directed it to

reduce interest charges on mortgage loans. Given the lopsided nature of the

society's mortgage loans, favouring only the upper and middle income earners, the

Federal Government in 1976 set up the S.O. Asabia Committee for the

transformation of the NBS. Thus following the Committee's report Decree 7 of

January 1977 set up the FMBN which commenced operation in July the same year.

In order to assist the Federal Government in achieving a significant increase in the

supply of housing units by granting more credit for housing, the Decree

establishing the FMBN conferred the following main functions on it:

(a) Provision of long-term credit facilities to mortgage institutions in Nigeria for

the purpose of building houses to be let out or sold at reasonable rates to the

public;

(b) Encouragement and promotion of the development of mortgage institutions at

state and national levels;

(c) Supervision and control of the activities of mortgage institutions in Nigeria;

(d) Provision of long-term credit facilities directly to Nigerian individuals wishing

to build houses to live in;

(e) Provision at competitive commercial rates of interest, credit facilities to

commercial property developers of offices and other specialized types of buildings.

To be able to perform these functions, the FMBN was conferred with the following

general powers:

(a)To accept term deposits and savings from mortgage institutions, trust funds, the

post office and private individuals;

(b)To promote the mobilization of savings from the public; c) To invest in

companies engaged in the manufacture or production of building

materials in the country with a view to stabilizing the cost of such materials;

(d)To furnish financial advance and provide or assist in the provision of

managerial, technical and administrative services for companies engaged in the

building materials industry or in building construction and development in the

country;

(e) To guarantee loans made from private investment sources for building

developments;

(f) To provide guarantees including those in respect of promissory notes and other

bills of exchange issued by licenced banks in the country and to discount such

notes or bills;

(g)To issue its own securities including debentures and bonds under Federal

Government guarantees and issue promissory notes and other bills of exchange for

the purpose of raising funds from financial institutions;

(h)To establish a sinking fund for the redemption of securities issued by it and

provide for contributions by it to the sinking fund;

(i) To carry out research aimed at improving housing patterns and standards in both

urban and rural areas of the country;

(j) To carry out research on mortgage finance activities and the building

construction industry in the country;

(k) In collaboration with reputable insurance companies, to organize and operate a

mortgage protection system designed to guarantee liquidity to mortgagors as well

as afford them the opportunity of having liberal premium terms.

The FMBN also performs agency functions in the execution of the Federal

Government Housing Programme as follows:

(a)World Bank - assisted Urban Development Programme,

(b)Federal Government Low Cost Housing Programme,

(c) Federal Government Staff Housing Loan Scheme, and

(d) Cost recovery agent for the Government's nation-wide housing projects

(Enuenwosu, 1984).

The initial authorized capital of the Bank was 20 million but this was increased to

N150 million in 1979, and this equity capital is held 60% by the Federal

Government and 40% by the Central Bank of Nigeria (CBN).

Other sources of funds are annual Federal Government budgetary allocations, soft

long term loans from the Federal Government, long-term loans from the CBN and

international financial institutions eg. the World Bank, savings from the public at

large (including individual savers, institutional and depositors) mortgage guarantee

and administration, debt guarantee, and loan repayments. Indeed four types of

savings schemes are operated: popular savings scheme, target savings scheme,

term savings scheme and children savings scheme. The Bank also has enabling

powers to offer negotiable certificates of deposit in the money market, and

mortgage bonds in the capital market.

At the end of September 1988, total asset/liabilities of the Bank totalled N753.9

million with the major sources of investible funds being the increase of N141.4

million in deposit liabilities and the draw-down of N166.7 million in cash balance.

Other sources of funds included increases in capital plus reserves (N14.1 million)

and loans from other institutions (N51.0 million). The funds were utilized to raise

the levels of mortgage loans to customers by N438.4 million and fixed assets by

N5.7 million. Savings outstanding with the Bank totalled N180.4 million at the end

of December 1988 out of which popular savings accounted for N117.7 million (or

65.3%) while the balance was accounted for by other deposit types (Central Bank

of Nigeria, 1988).

The FMBN operates three types of mortgage loans: commercial loans, economic

loans, and social loans. Commercial loans are for the development of property for

sale, rent or for business and are granted at the ruling market interest rate (fixed by

the CBN before the deregulation of interest rates from August 1, 1987). The Bank

grants 80% of the amount while the borrower's personal stake is a minimum of

20%. The type of development covered include estate development, office

development, hotels, etc. while repayment period ranges between 7-10 years.

Economic loans are for mixed property development, that is, where the property is

partly residential (owner-occupier) and partly for letting. The amount of loan is

above the maximum for owner-occupier borrowers (hitherto N65.000 but later
raised to N 100,000); the interest charges are higher than for owner-occupier

borrowers. The Bank grants a maximum of 85% of the amount involved while the

borrower's personal stake is 15%. Repayment period hitherto was 15 years but

raised to 20 years from 1988 (unless the borrower specifically requests for a

shorter repayment period) - also applicable to social loans. Social loans are meant

for owner-occupier or residential accomodation and attracted a "concessionary" or

"subsidy" interest rate (determined within the CBN credit guidelines). The

maximum amount lent hitherto was 90% of the total amount while the borrower's

personal stake is not less than 10%.

The data in Tables 1 and 2 summarize the FMBN's lending rates and mortgage

operations respectively since it started business in July 1977 up to September 1987.

An analysis of the loans disbursed by FMBN over the years indicates a

concentration on retail loans, not less than 80% since inception till date. Wholesale

lending, that is, loans to housing corporations and estate developers constitute less

than 20% and amounted to N38,314,152 out of the total N386,946,717.2 granted

between 1977 and 1987. The reasons for these include lack of adequate funds, lack

of secondary intermediaries, confusion in the relationship between institutions in

the housing finance system and lack of co-ordination, political environment and

managerial history (Osamwonyi and Megbolugbe, 1987).

Inability of the FMBN to meet housing finance in Nigeria can clearly be seen if

one looks at loan applications vis-a-vis loan disbursements. Table 3 presents data

on FMBN loan applications for the period 1981 to 1986.

In 1981, for example, while total loan application was N722,034,432, FMBN could

only disburse N75,307,484 leaving a yawning gap of N646,726,948. In 1986, a

similar picture prevailed as in other years: out of a total loan application of

N79,429,446 only N 10,690,854.72 was disbursed leaving another huge gap of

N68,738,591.28. This goes to confirm that mortgage loan demand in Nigeria is

largely unmet due partly to inadequate funds at the disposal of the mortgage

finance institution and this problem has worsened due to decreasing Government

allocations and assistance in the face of decreasing Government revenue due to

nose-diving oil prices hence the FMBN has been slated for partial privatization as

part of the Structural Adjustment Programme. 2.2 Commercial and Merchant

Banks.

The Central Bank of Nigeria uses its monetary policy circulars to channel part of

loanable funds from commercial and merchant banks to the needy sectors of the

economy of which housing is one. Thus, the involvement of commercial and

merchant banks is guided by the CBN guidelines.

Until 1987, housing was included in the preferred sector and these banks were

required to lend an annually specified percentage of their total advances (6% by

1986), default was penalized by allocating the shortfall to the FMBN for on-

lending.

Comparatively, it is clear that the merchant banks have played a lesser role in

housing finance than the commercial banks. These institutions' lending to housing

is more on commercial terms and for shorter periods. Loans to housing are

available to corporate and non-corporate individuals. These banks find it difficult

to grant long-term mortgage loans with predominantly short-term deposits. That is,

the major problem faced by these banks in granting housing loans derives from the

constraint imposed by the maturity structure of their deposits. Before the interest

rates deregulation in 1987 the participation of commercial and merchant banks in

providing housing finance was also severely limited by the problem of differential

interest rates for the housing sector as compared with such sectors as commerce

and industry. Since the long-term nature of mortgage loan does not make it

relatively attractive to commercial banks in particular, the non-inclusion of housing

in the preferred sector from the 1987 fiscal year has contributed in dampening the

banks' degree of participation.

It has also been observed that from 1979 to 1983, the credit operation of

commercial and merchant banks to the housing sector fell below institutional

requirement. Thus, the CBN loan arising from shortfall on sectoral lending by

commercial and merchant banks were as follows: 1979, N3.9 million; 1980, N6.5
million; 1981, N6.7 million; 1982, N3.7 million; and 1983, N9.4 million (Oduoza,

1987).

There is, therefore, much room for these banks, particularly merchant banks with

greater long-term funds, to increase loan allocations to the housing sector in

Nigeria.

2.4 Insurance Companies

Since, unlike commercial banks, insurance companies' funds are of the long-term

nature they should be more effective in granting housing loans. Unfortunately,

however, the CBN credit guidelines do not require insurance companies to invest a

certain minimum percentage of their funds on the housing sector. Contrariwise,

existing regulations do in fact place effective restrictions of the proportion of funds

that can flow into the housing sector. For instance, section 18 of the Insurance

Decree No. 8 of 1976 provides that an insurance company shall not invest more

than 10% of its non-life investible funds in real property; and not more than 25%

of its life insurance investible funds in real property.

It is in keeping with the above legal provisions that insurance companies lend to in

dividuals and corporate bodies for housing construction, in addition to staff

housing loans (like other financial institutions). It is again clearly evident that

mortgage loans from insurance companies in Nigeria are meagre particularly when

one considers their relatively long-term sources of finance.

There is no gain-saying the fact that the removal of statutory provisions would

make huge funds available from insurance companies to mortgagors.

 CHAPTER THREE

3.1 Methodology

The paper utilises the qualitative based evidence from 300 semi-structured

interviews with heads of households in low-income residential areas in Okigwe

area, Imo State, Nigeria in 2008. The residents were randomly selected from five

settlements. These settlements represent areas with low-income inhabitants from

the entire population of the Okigwe Urban, Imo State. Clustering sampling

technique was used to determine the sample size and the number of questionnaires

to be administered in each of the settlements. The units sampled were chosen in

clusters, close to each other drawn from low-income informal settlements. The

households mostly lived in the same streets and the questionnaires were

administered to household heads in each settlement where members were

identified. This was necessitated by the fact that adequate data about population for

each settlement is not available from the general census of 2006. Although the

2006 census provides data for Okigwe area the breakdown of data is based on local

government boundaries and does not provide anything on neighbourhood level.

Thus, the paper relies on familiarity of the researchers with the selected areas and

their knowledge of socio-economic and demographic characteristics of the local

population. The questionnaires were designed and administered to provide detailed

experiences of the inhabitants towards accessing different sources of funding for

housing provision which include; formal and informal methods of housing finance

in the low-income areas and to obtain information about the most accessible means

of securing funding for the provision of the housing amenities such as kitchen,

showers and toilets, etc. Interviews were conducted with the local residents as well

as informal money lenders and operators of the informal and traditional methods of

housing finance. Detailed analysis of the interview evidence is provided in later

parts of this paper.

3.2 Formal methods of housing finance

Numerous studies have been carried out on formal and informal/traditional sources

of housing finance in both developed and developing countries (Ferguson and

Smets, 2009; Okoroafor, 2007; Stein and Castillo, 2005). These have identified and

examined the most commonly used methods of housing finance describing the

processes involved by focusing on the different methods of housing finance in

different countries in Latin America, Africa and other developing countries. The

methods adopted for housing finance have always been important factors in

modern housing provision (Denis, 2011; Wa’el et al., 2011). Researchers, policy

makers and development practitioners have neglected the relative policy

significance of the affordability and availability of finance for housing provision.

The concept of housing has shifted from being a social sector to an economic

sector, and access to finance and the development supported by financial

institutions has become one of the most discussed and central issues in housing

policy for developing countries (Keivani and Werna, 2001; Mukhija, 2004; Parsa

et al., 2010).

In spite of the growing and accepted emphasis of finance, relatively little is known

about how builders and developers finance the construction of new housing. We do

know, however, that very few developers have access to formal finance as

observed by Okoroafor (2007) and Alaghbari (2010). Most of the literature on

formal finance in developing countries has focused on the demand side: mortgage

finance for housing consumers. Housing policies would have been a conventional

tool to bridge the gap between the cost of housing and affordability for consumers,

if not for its emphasizing on finance and for short-termed (Denis, 2011). Okoroafor

(2007), had argued that a much larger proportion of households than necessary

have to finance housing from savings or build incrementally and at a low standard

because upfront finance that would allow them to purchase a higher quality home

and pay for it over a longer period is not affordable or accessible.

Now the main emphasis in housing policy is to limit, or abandon subsidies,

develop market-oriented, mortgage finance systems and focus on private property

rights as securable collateral for mortgage lending (Payne, 2003 all in Parsa et al.,

2010; Denis, 2011; Wa’el et al., 2011). Although Scholars have emphasised on

formal housing and finance they have been critical about mortgage finance (Datta
and Jones, 2001). They, however, do not typically discuss the need for

development finance either, but promote the idea of incremental housing

consolidation that the informal source of finance provides which is not usually

accounted for and hence neglected. They stress that housing policy should focus on

access to land, and the provision of financial support, to allow for gradual housing

improvements over a period of time. They do not discuss funding sources for the

informal land developers and illegal land sub-dividers. The residents are the

producers as well as the consumers of housing. Small amounts of credit for the

short-term and backed by non-conventional collateral is more appropriate and

occasionally obtained (Payne, 2003 all in Parsa et al., 2010). But for more

moderate and middle-income groups they may not be interested in this methods of

housing finance, hence they would always resort to the best alternatives.

The modern methods of housing finance include; Federal Mortgage Bank of

Nigeria, Universal Banks, Specialized Development Banks, Insurance Companies,

Pension Funds, Corporate Bodies, Developers/contractors Financed and National

Housing Fund amongst others in Nigeria (Okoroafor, 2007). Prior to the colonial

period, many methods of housing finance were adopted in different parts of the

country. Amongst these are Otanzu and Amuro, age grade association, village

development scheme, and town unions of people living outside their place of birth.

Other are men’s revolving loan association, loans from traditional money lenders,
married women association, social club contributions and Ikigwu and Umulolo,

where members contribute in kind by providing labour on members’ site until the

circle is completed (Tibaijuka, 2006 in Olusegun, 2007; Okoroafor, 2007). While

in other parts of the world these different methods of informal sources of finance

are considered, they may have similar names and would be used accordingly.

Many studies suggest that low/moderate-income households join a wide variety of

sources to build their homes (Ferguson and Smets, 2009; Denis, 2011; Wa’el et al.,

2011).

All of these methods have been successful in the provision of finance for housing

and its delivery in the traditional setting. But with the complexity in economic

activities, these methods fade away and are to be replaced by modern methods

(Okoroafor, 2007). Some of the negative impacts that low-income groups suffer

include poverty network (Gwen, 2010), because they exist and relate to other

likeminded community or more, than with people who live in socioeconomically

mixed or affluent neighborhoods as stated by Atkinson and Kintrea (2001).

Network poverty simply means a personal network including merely or mostly

resource-poor people lacking ties to resources such as knowledge, wealth, skills,

power and information. Embeddedness in resource-rich networks provides people

with access to resources that they do not have themselves and through accessing

these resources people may be able to create opportunities to improve their

socioeconomic position (Raymond, 2009). Informal housing finance encompasses

individual and group savings, windfalls, fabrication of their own building materials

by households, sweat equity, small loans from neighbours, moneylenders or

pawnbrokers, barter arrangements and community self-help, and remittances from

family living abroad (Smets, 2024 cited in Ferguson and Smets, 2019),