Ghana Home Loans (GHL) Uses a Housing Finance Business Model Tailored to Ghana's Market

Ghana Home Loans identified a gap in the Ghanaian home loan market and created a housing finance solution that served the needs of the population. Through their business model innovations, Ghana Home Loans was able to bring access to home loans to low-income people and was able to offer more affordable interest rates. 

11.26.2015
 

Objectives

  • To reduce the housing gap by bringing Ghanaians access to housing loans
  • To cater a business model specifically designed for the context in Ghana to bring down interest rates and make housing finance affordable

Summary

The housing deficit in Ghana is estimated at more than 1 million homes and is growing by up to 70,000 units per year. Most of this demand is for low-income housing. At present, most Ghanaians cannot afford to buy homes without loans, but only four of Ghana’s 26 banks officially offer home loans as a product. Banks prefer to focus on short-term lending that can offer higher returns while consuming less capital.

Ghana Home Loans (GHL) was established in 2006 as a non-bank financial institution (NBFI) that specialized in home financing. Ghana Home Loans modeled its operations after South African Home Loans (SAHL), another very successful non-bank home loan provider. It’s status as a NBFI is significant because it required relatively low start-up capital and because being a bank in Ghana had little advantage because of the lack of long-term saving in Ghana.

GHL started by only providing loans for the purchase of completed properties, but had to adapt its model because most Ghanaians preferred to build their own homes. Now, GHL offers financing products to help home-owners complete projects that they have already started building, loans to building houses from scratch, loans to buy land, and home equity releases.

The lack of a mature financial market in Ghana meant that GHL had to secure long-term funds from foreign development finance institutions. These institutions only lend in US dollars, which means that GHL would be lending in US dollars to borrowers who were mostly earning in local cedi currency. In order to help customers mitigate cedi currency depreciation, GHL set up a scheme whereby they encourage customers to pay 10% more in local currency than is required by each monthly payment. This extra payment is held as a reserve in case the cedi depreciates. Lending in US dollars actually helps the borrower because the interest rates in US dollars is only 15% compared to the typical interest rate of 30% in local currency.  

Results

Since starting operations in 2006, GHL has disbursed more than $115 million to 1,600 households with a strong asset quality and a level of non-performing loans of less than 3%.