Addressing the Housing Finance Gap in Tunisia

By: Josie McVitty, AHI Associate


Tunisia has undergone major social and political upheaval in the past two years since the Revolution in January 2011 set off the Arab Spring in the rest of the region. Significant unrest remains, as protests and strikes continue and Tunisians fight to claim their rights to fundamental civil liberties and socio-economic equality. There is a lot of pressure for the government and institutions to respond to the demands of the population, who are becoming impatient as poor living conditions and unemployment remain.


Housing is a critical building block toward a strong society and restored stability, particularly during a period of transition. There are many social benefits associated with increased housing production, finance, and home-ownership, including job creation, improving the asset base, and providing formal sector homeowners a legal stake in their community. Lastly, having a long term financing mechanism for housing is essential for any urban development strategy, which enables government to focus on upgrading of collective public services and infrastructure.  


Home ownership is of particularly high importance in Tunisia where the population has one of the highest home ownership rates in the world, up to 80 percent. Most of this housing is realized by self-construction. However, a major bottleneck slowing the speed and quality of construction remains, lack of access to finance. Households, without the possibility to take loans for housing construction and improvement must build incrementally as they collect savings or remittances from extended family. This process takes place over extended periods, meaning that many households live in unsanitary conditions, and must suffer a long time until they can improve the quality of their housing enough to make it habitable. As the price of land, and construction materials increase, and housing supply from the formal market becomes inaccessible – with price rises of 8 percent per annum averaged over the past 20 years – enabling access to finance to base of the pyramid becomes an even more important issue.


Tunisia has a long history of progressive housing policies and innovative programs. Since 1977, they have developed a program for government subsidized finance for housing, known as FOPROLOS, for salaried workers. However, the loan ceilings have not been increasing with housing prices and an applicant must be formally employed, so it excludes the majority of the most vulnerable and needy groups, which are precisely those that most need assistance.


The demand for housing microfinance to fill this gap is clear. In 2008, the largest microfinance institution in Tunisia, ENDA-Interarabe launched a new product called “Eddar” specifically for housing improvements, responding to the continued demands of their clients. Most loans are given from US$321 to US$1000, usually over a period of 12 – 18 months, and most clients take out subsequent housing improvement loans to complete a series of projects. At the end of 2009, the Eddar loan made up 6% of their total loan portfolio, with 3452 active clients, $2 million outstanding, average housing loans were for $900 and 15 months duration. Enda aims to increase the number of loans toward housing improvement to 13 percent of their total loan portfolio in 2012. Yet, this is still only a drop in the bucket.


With 800,000 to 1 million unserviced microfinance customers, as estimated by a 2011 European Union study, there is clearly extensive financial exclusion and untapped market. At the same time, there is the possibility of more financial competition to ENDA on the horizon. The restrictive Microfinance Law from 1999 was revised in November 2011 and is currently awaiting enforcement of the Decree. This will lift the interest rate cap (of 5 percent), which has previously made it financially infeasible for other microfinance institutions to operate in Tunisia. There are many established MFIs that are preparing to start operations in Tunisia, and the EU is offering grant funding to insure the start-up period of new MFI entrants. Once operational, these MFIs could too decide to offer housing improvement loans as part of their product base. The rapid growth of the MFI sector, and availability of housing microfinance, experienced in Morocco, could prove an example of what awaits Tunisia.


Another approach to encourage downstream lending can be drawn from Morocco, where partnerships between banks and the government makes lending more accessible through the Fogarim program. Fogirim is a mortgage guarantee fund for households with small and irregular income. Launched in 2004, outstanding guarantees amount to 11 billion dirham (US$1.3b) as of 2011, with 1200 new beneficiaries each month, and a total of 80,000 beneficiaries up to now. Key features of Fogirim are to guarantee 70% of a loan that a bank makes to a household with informal income. The loan must require low monthly payments of less than 1500 dirham (US$176) and have a fixed interest rate. Risk premiums were also introduced in 2009. The average housing loan offered on the programme in 2011 was at a fixed interest rate of 6.1% with a LTV ratio of 75%, average duration 21 years and repayments of 1150 dirham per month (US$130). These benefits are accessible to people who earn a monthly income up to US$566 per month, even from informal sources.


With one third of the Tunisian population restricted from any form of formal housing finance, either due to their lack of formal employment, access to formal land title, or low incomes, more innovative mechanisms for households to finance their dwelling needs to be introduced. As this article explores, there are examples of microfinance and government incentives that have elsewhere proven to be effective. It is just a matter of an entity taking the initiative to target this market, and investing into the economic and social value that is there waiting to be supported. The demand and opportunity is clear.


Incremental self-construction in Tunisia’s quartiers populaires

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