Governments around the world have been plagued with how to meet the housing deficits with the escalating population and migration to urban areas.  Nigeria has not been immune to this problem, as the government continues to initiate different policies, regulations, and legislation to address the Country's housing needs.

Of particular importance is the National Housing Fund Act ("NHF" or "the Act") that was established through Decree No. 3 of 1992 (now an Act of the National Assembly).  The Act mandates Nigerian workers, commercial banks, insurance companies and the Federal Government to contribute to the National Housing Fund Scheme (the Scheme).  Particularly, Nigerian workers are mandated to contribute 2.5% of their basic salary to the Scheme.  The Act also appoints the Federal Mortgage Bank of Nigeria (FMBN) as the manager and the administrator of the Scheme.  The Scheme is to be used to facilitate fund mobilisation to provide affordable houses for Nigerians; ensure that loans are available to Nigerians to build, purchase or renovate residential houses; and provide low-cost mortgage financing to low-income workers. 

Despite the laudable intention of the Scheme, it has been fraught with different challenges; ranging from inadequate documentation of the contributors, low contribution of funds by Nigeria workers, banks, insurance companies and the Federal Government to the Scheme, and bureaucratic bottlenecks around disbursement of funds for mortgage projects.

This led to the Nigeria Employers' Consultative Association (NECA) and Nigeria Labour Congress (NLC) in the early 2000s to direct its members to stop participating and contributing to the Scheme.  However, this directive was later revisited in 2013, as the FMBN signed a Memorandum of Understanding and reached an agreement with NECA and NLC on participation in the Scheme.  The FMBN also committed to addressing all the issues noted by NECA and NLC on the implementation of the Scheme.

Following from above, the FMBN now issues accounts statements to employers and employees on their respective deductions and contributions to the Scheme.  In addition, employers can apply for compliance letters from the FMBN. These letters are typically needed during the contracting and bid submissions for large scale projects.

Employees that contribute to the Scheme are entitled to mortgage loan up to a maximum of ₦ 15 million to develop an owner-occupied residence, an income tax relief on the amounts contributed to the Scheme, an interest income at 4%1 on value contributed and a tax-free refund on all contributions, upon the fulfilment of certain criteria.  The mortgage loan currently attracts an interest expense of 6%2 of the principal amount which is also a tax-deductible from their income.

Given that the interest rate on the mortgage is significantly lower than the market rate and the loan tenor is typically on a long-term basis, employees can access affordable source financing to develop their houses in a relatively easy manner.

Participation in the scheme is quite beneficial to both the employer and employee in several aspects.  Generally, a vital piece of evidence of compliance with statutes is the issuance of compliance letters and certificates.  The FMBN now issues compliance clearance letters to employers that diligently discharge their obligations towards the scheme.  It will be quite sad to miss a unique opportunity to be awarded a largescale project because of a failure to submit an NHF compliance letter.  Really and truly, a stitch in time saves nine.

Compliance with the provisions of the Act ensures employers and employees are not exposed to penalties and liabilities that are associated with non-compliance with the Act.  The Act prescribes penalties ranging from ₦50,000 to a jail term of five years upon conviction. Beyond the penalties stated in the Act, companies with compliance issues usually attract negative media publicity that can erode their goodwill. 

However, the Scheme has encountered a few administrative limitations.  For instance, the financial status of contributors is not updated on a real-time basis.  There are instances of several years of unreconciled contribution backlogs with the FMBN.  Although we are aware that FMBN has continued to adopt digital platforms to improve its processes, the process is not yet seamless as contributors are still required to physically visit the FMBN to reconcile their contribution status.  Certainly, a seamless contribution and reconciliation process will encourage more voluntary participation in the Scheme, improve compliance and significantly reduce the rate of defaults.   It is, therefore, in the best interest of the FMBN to develop a functional and robust online/electronic portal that would accommodate the various needs of contributors. The portal's functionality should be akin to the internet bank platforms of commercial banks and should be capable of multiple functionalities, including download of contributions by an individual, evidence of remittance by employers and compliance clearance certificates.

There is no doubt that the NHF offers a lot of benefits to contributors.  However, this can only be achieved if the FMBN seamlessly integrates technology in its day-to-day operations.

Footnotes

1 Based on data obtained from the FMBN website, the interest income is at the rate of 2% of contribution contrary to 4% indicated in the NHF Act- https://fmbn.gov.ng/National%20Housing%20Fund/nhf.html#other-nhf

2 https://fmbn.gov.ng/National%20Housing%20Fund/nhf.html#other-nhf

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