CAIRO: Egypt’s Commercial International Bank (CIB) announced Monday it received a $250 million (LE 1.3 billion) loan from the US government to expand low- and middle-income mortgage lending in Egypt.
CIB said it would allocate 80 percent of the loan – $200 million (more than LE 1 billion) – to other Egyptian public lenders, including Housing and Development Bank and Egyptian Real Estate Bank, to help originate long-term mortgages to low-income homebuyers.
The remaining 20 percent of the loan ($50 million) will be extended directly to CIB’s mortgage finance portfolio that caters to middle-income homebuyers.
“This loan aims to pump in enough liquidity to Egyptian banks to finance long-term mortgages, said Hisham Ezz El-Arab, chairman and managing director of the CIB, explaining that mortgages will be 15-20 years long.”Low income loans will finance housing units with values of LE 110,000, while middle-income loans will finance units with values between LE 500,000 to LE 550,000, he added without revealing amount of interest rates paid on these financial schemes.
The $250 million loan is financed by the Overseas Private Investment Corporation (OPIC) – an agency of the US government. Established in 1971, OPIC helps US businesses invest overseas, fosters economic development in emerging markets, and complements the private sector in managing risks associated with foreign direct investment.
“In the US, homeownership is called the American dream. Being here today, it’s a universal dream that touches an individual’s life directly.and is a source of personal dignity, said Robert Mosbacher, OPIC’s president and CEO.
“A 15-20 year long mortgage product will provide shelter.as well as improve quality of the financial sector by making them better lenders not only to higher-income groups but also to low- and middle- income groups, he added.
He pointed out that OPIC has so far poured in $177 billion worth of investments that helped developing countries generate over $13 billion in host-government revenues. “We aggressively pursue mortgage lending because second only to putting food on the table is housing or shelter, he added.Besides CIB’s mortgage lending agreement, OPIC has invested $300 million in several projects in Egypt and $2 billion in projects across the Middle East.
Mosbacher cited the government’s recent reforms to boost mortgage lending in Egypt, the Arab world’s most populous country. Amending property laws, including reducing fees for registering property and clarifying foreclosure laws, as well as establishing the Mortgage Finance Authority (MFA) that oversees lending, have encouraged more mortgage finance companies and several banks to venture into the Egyptian market.
“Egypt has taken serious steps to improve the legal framework for mortgage lending. .Because of reforms implemented here in Egypt, now is the time for mortgage finance, Mosbacher said. “There is strong unmet demand for mortgage lending here in Egypt, and we want to help the government address that gap.
According to government officials, Egypt’s mortgage finance is growing at roughly 32 percent per year. “Total size of mortgage finance in Egypt now stands at LE 2.6 billion [up from LE 16 million in 2005], said Osama Saleh, chairman of the MFA.
Despite ongoing growth, total size of Egypt’s mortgage finance industry constitutes only around 8 percent of GDP. Experts estimate the industry would double in size to more than LE 4 billion by the end of the current fiscal year.
“Why are we venturing into Egypt’s mortgage finance? One: because it is profitable. Two: because it is good for social stability. The higher the number of individuals who own property, the more social stability they have, CIB’s Ezz Al-Arab said.
“The household debt to GDP ratio in Egypt is less than 10 percent. The opportunity here is enormous to grow the wealth of the market, he added.
As stipulated by OPIC’s eligibility criteria, Egypt’s CIB qualified for the loan because American ownership in the bank stands at some 30 percent stake. “In order for OPIC to be eligible to work, there has to be enough American ownership of the partnership, Mosbacher clarified.
In 2006, Ripplewood Holdings, a US private equity firm, led a consortium in purchasing a substantial interest in CIB. The New-York based firm sponsored Monday’s deal.
The deal was signed in the presence of US Ambassador to Egypt Margaret Scobey, who stated the deal gives a different type of service to low- and middle-income Egyptians, who long couldn’t access the mortgage finance market.
“It signifies a new direction for US-Egypt economic relations, Scobey said.