SCOPING EXERCISE TO UNPACK THE POTENTIAL OF HOUSING MICROFINANCE IN TANZANIA At Habitat for Humanity

TERMS OF REFERENCE : RESEARCH COMPANY/CONSULTANT

SCOPING EXERCISE TO UNPACK THE POTENTIAL OF HOUSING MICROFINANCE IN TANZANIA

Summary: In August 17, 2022 Tanzania Mortgage Refinance Company (TMRC) signed a memorandum of understanding with Habitat for Humanity International (HFHI) to expand and strengthen the low-income housing finance sector in Tanzania. Focusing on Housing MicroFinance (HMF), the partnership aims to support lower-income Tanzanians and those working in the informal sector to more easily purchase, build or upgrade their homes..

1.0 Background

Through this partnership, HFHI and TMRC are seeking to engage a company/consultant to carry out transparent and objective research to unpack the potential of Housing Microfinance (HMF) in Tanzania.

We believe there is a tremendous potential in Tanzania’s housing finance market to reach low-income families and through TMRC who is a wholesale lender we are eager to build a case for Housing Microfinance (HMF) in the country and explore how financial institutions we will invest in can tap into this market through tailoured loan products.

Tanzania is one of the fastest growing economies in the world, although the HMF sector is still in its nascency hence, many families still struggle to access adequate and affordable housing. The Center for Affordable Finance in Africa estimates that Tanzania has a backlog of over 3 million homes, with demand growing by 200,000 homes annually. The high cost of formal financing options and limited affordable housing supply remain as key barriers. It is therefore critical that our efforts to expand the market are data-driven and informed by a strong understanding of low-income families’ housing needs across the country.

As noted by Hon Ridhiwani Kikwete, (MP) Deputy Minister of Lands, Housing and Human Settlement Development – URT during the MoU signing, “the Government is committing to address housing challenges especially to the low-income section of the population who have an even bigger challenge to access formal mortgage loans due to their low-income levels,” The Government has been undertaking a number of initiatives aimed at facilitating improved delivery of long term development finance. Development of mortgage market is among the elements of the long term development finance in respect of which implementation of policy and legislative measures are already underway within the framework of the Second Generation Financial Sector Reforms (SGFSR).

In March 2010, the Government signed an agreement with the International Development Association (IDA) for the Housing Finance Project (HFP), aiming at creating and developing a sustainable, market-based mortgage market through the provision of medium and long-term liquidity to mortgage lenders. To that effect, the HFP has three components namely: Development of the Mortgage Market, Development of Housing Microfinance and Expansion of Affordable Housing Supply

As part of the implementation of component one of the HFP, TMRC was established in 2010 and became operational in 2011, as a Mortgage Liquidity Facility (MLF), a secondary market financial institution offering long term loans to Primary Mortgage Lenders (PMLs) for the sole purpose of PMLs extending residential mortgages to their clients.

2.0 About Tanzania Mortgage Refinance Company Limited (TMRC)

Tanzania Mortgage Refinance Company Limited (TMRC) is a specialized private-sector financial institution that provides long-term funding to financial institutions for mortgage lending purposes. Since its inception, its objective has been to support financial institutions to do mortgage lending by refinancing Primary Mortgage Lenders’ (PMLs’) mortgage portfolios. This type of lending is also known as wholesale or secondary market lending. TMRC is neither taking deposits nor lending directly to individuals. It refinances mortgage loan portfolios rather than individuals mortgage loans and caters to banks rather than individual borrowers. TMRC membership is open to banks and non-banking institutions which have an interest in the development of the housing sector with 32 banks and financial institutions in its portolfio currently.

To date, TMRC has implemented this role fairly well with the outstanding loan book growing to TZS 145.2 billion in June 2022, out of the total market mortgage portfolio of TZS 510 billion, implying that TMRC financed 28% of the market portfolio. TMRC has also helped to extend mortgage tenor in the market from 5 – 7 years in 2011 to 15 – 25 years in 2022, growing its number of shareholders from 4 to 17 including international investors such as Shelter Afrique and International Finance Corporation (IFC). The overall mortgage market in Tanzania has grown from TZS 76 billion in 2011 to TZS 510 billion in June 2022.

TMRC with support from HFHI is now considering building a case for HMF in Tanzania and explore how the financial institutions can tap into this market through tailored loan products.

3.0 About Habitat for Humanity International

Driven by the vision that everyone needs a decent place to live, Habitat for Humanity began in 1976 as a grassroots effort and has since grown to become a leading global nonprofit housing organisation working in more than 70 countries, nine of them in Africa. Through financial support, volunteering or adding a voice to support affordable housing, everyone can help families achieve the strength, stability and self-reliance they need to build better lives for themselves.

4.0 About Habitat’s Terwilliger Center for Innovation in Shelter

The Terwilliger Center for Innovation in Shelter (TCIS), a unit of Habitat for Humanity International, works with housing market systems by supporting local firms and expanding innovative and client-responsive services, products and financing so that households can improve their shelter more effectively and efficiently. The ultimate goal of the Terwilliger Center’s market systems program is to make housing markets work more effectively for people in need of decent, affordable shelter, thereby improving the quality of life for low-income households.

5.0 Objective of the research

The main objectives of this research are to:

• • Conduct a market wide research to identify the needs and potential for HMF in Tanzania – Identify the current HMF situation in the Tanzanian market – Build a case for HMF potential in Tanzania – Benchmarking of other markets with matured HMF solutions – Identify peculiar terms for supporting HMF and HMF deviations from normal/traditional Housing Finance

Results from this research will help the HFHI and TMRC to;

• • Supporting TMRC in diversification of its offering to target the potential outside the traditional mortgage market – Identify potential financial providers who are willing to pilot with the roll out of HMF in Tanzania – Fund mobilization to support the diversification of TMRC operations and – Supporting with Technical Assistance for the roll out of HMF products by the potential financial providers

6.0 Scope of Work

The selected company/consultant must undertake at the minimum the following activities:

6.1 Market Analysis

• Diagnostic and Market Assessment: to conduct an analysis of the housing finance systems in Tanzania and explore the macroeconomic environment and its effect on access to HMF for the low-and middle-income households and to identify the size of the market which could benefit from the HMF solutions
• Demand side evaluation: Assess the HMF needs, preferences, capacities and potential of the target population. This may include;
  • Segmentation: segmentation of clients based on demographics/socio-economic characteristics and product feature preferences.
  • Assess Satisfaction: Assess the clients’ satisfaction levels with the existing housing microfinance product and other services offered by financial providers
  • Affordability: analyse the client’s affordability for availing housing microfinance/home improvement loans, which will primarily involve understanding overall income and expense pattern of low-income families
  • Challenges: identify the challenges faced by the demand side in accessing HMF solutions
• Supply side evaluation: Assess the supply side, needs availability and challenges. This may include;
  • Profiling: the development of profiles of who is providing HMF and the ones that can potentially offer HMF. This includes all types of financial intermediaries including; MFI’s, SACCOs, NGOs, commercial banks, FinTechs and housing finance companies who are active in the HMF space
  • Profiling of related Associations including TAMFI and their potential role in supporting this intervention
  • Competition analysis: Understand the competitive landscape for the financial institutions regarding housing microfinance solutions
  • Funding: identifying the sources of capital on which the lenders draw (define and quantify the various sources and conditions associated with each)
  • Offering: Identifying what types of HMF products (financial and non-financial available in the market and product terms and specifications (target market, type of loan, loan sizes, loan term, guarantees, interest rates etc)
  • Challenges: define the challenges being faced by financial institutions providing HMF solutions
  • Business plans: Understand their long-term plans for developing the housing microfinance portfolio.
  • Value proposition from Habitat: Understand these financial intermediaries’ specific needs and requirements to help them develop and scale HMF solutions. These requirements may have several forms, such as access to capital, access to risk guarantees, access to technical assistance for product development/refinement, knowledge sharing about best practices in the HMF industry, etc. The focus should be on understanding those requirements at a high level with further probing.
• Policy evaluation: An in-depth desk review of the existing policies, regulations, and government programs or subsidies in Tanzania for promoting affordable housing and housing finance, most importantly among low-and middle-income households. Considering to also talking to industry associations or consumer groups and housing advocacy groups to understand their perspectives on the research topic (informing both the supply and the demand lens).

6.2 Provide detailed recommendations on the below areas at a minimum

• Business case for HMF in Tanzania: Comment on the business case for HMF solutions and provide potential/opportunity size for HMF in Tanzania
• Potential partners: propose or suggest partners (financial providers) that TMRC can work to pilot HMF solutions in the market
• Structure or framework based on global benchmarking: Based on global benchmarking of similar models/markets provide recommendation(s) on the best HMF implementation framework/mechanism in Tanzania
• Stakeholders’ engagement: Propose how TMRC and other players can deepen their engagement with relevant governmental agencies in a structured and measurable manner towards tangible effect in stimulating the accelerated growth of affordable housing microfinance in Tanzania

6.3 Research Dissemination

Dissemination of research results to the market. This will be discussed and agreed upon with HFHI and TMRC during the inception reporting.

Note: Data Management: HFHI and TMRC will own the data collected and hence be able to utilize the data after the study/contract is complete

7.0 Deliverables and Milestones

7.1 Inception report (2 weeks after contract signing)

• Prepare an inception report detailing on how the company is planning to undergo the research. This should include deliverables, methodology, resources and work plan
• Proposed structure for the supply and demand side assessment
• Detailed work plan and proposed methodology (sample design and market survey instruments), to respond to the objectives of the research

7.2 Market Analysis Report (1 months after delivery of inception report)

• Diagnostic and Market Assessment: analysis of the housing finance systems in Tanzania and ethe macroeconomic environment and its effect on access to housing microfinance for the low-and middle-income households and to identify the size of the market which could benefit from the HMF solutions
• Demand side evaluation: providing housing microfinance needs, preferences, capacities and potential of the target population. This may include;
  • Segmentation: segmentation of clients based on demographics/socio-economic characteristics and product feature preferences.
  • Satisfaction Assessment: Define the clients’ satisfaction levels with the existing housing microfinance product and other services offered by financial providers
  • Affordability: description of the client’s affordability for availing housing microfinance/home improvement loans, which will primarily involve understanding overall income and expense pattern of low-income families
  • Challenges: identify the challenges faced by the demand side in accessing HMF solutions
• Supply side evaluation: providing the supply side, needs availability and challenges. This may include;
  • Profiling: identification of profiles of who is providing HMF
  • Competition analysis: Description of the competitive landscape for the financial institutions regarding housing microfinance solutions
  • Funding: providing investment/financing landscape and needs for financial intermediaries
  • Offering: Identifying what types of HMF products (financial and non-financial available in the market and product terms and specifications (target market, type of loan, loan sizes, loan term, guarantees, interest rates etc)
  • Challenges: defining the challenges being faced by financial institutions providing HMF solutions
• Policy evaluation: Clearly identifying gaps in the existing policies, regulations, and government programs in Tanzania for promoting affordable housing and housing finance, most importantly among low-and middle-income households.

​​​​​​​7.3 Draft report (2 weeks after delivery of market analysis report)

• A draft report detailing the needs and potential of HMF in Tanzania, a case for investment in housing microfinance in Tanzania, potential partners to pilot HMF solutions and recommendations on the mechanisms that TMRC can utilize to unlock the potential of HMF in Tanzania

​​​​​​​7.4 Final report (2 weeks after receiving comments on the draft report)

• Final report considering all the comments that would have been shared in the Draft report

Report Format:

• Market analysis and draft report should be delivered in PowerPoint format (soft copy only); and
• Final report should be in Microsoft Word digital format (hardcopy if requested)

8.0 Eligibility Criteria

The research company/consultant should:

• Have at least 3 experiences in conducting market systems research/studies, preferably in East Africa
• Assigned personnel should have the relevant qualification in the field of research, finance, and investments
• Consultants who have carried out similar assignment(s) in emerging markets will have an added advantage
• Experience working in housing finance specifically housing microfinance is an added advantage
• Understanding of the housing finance in the context of Africa
• Ability to achieve maximum scope of reach with limited resources
• Add experience in preferred methodology/ies once we have discussed

9.0 Research Methodology

Although we recommend the research company/consultant to provide the methodologies used to conduct the research, it is proposed to first conduct a macroeconomic environment and policy analysis of constraints and opportunities for housing microfinance in Tanzania, followed by stakeholders mapping and engagement with potential partners and benchmarking exercise, working with key stakeholders to assess potential market demand for affordable housing finance products and services and finally giving recommendations. The consultant should also highlight the methodology required for demand-side assessment – the demand side would need interviews with low-income families, which can be done through qualitative (FGDs and in-depth interviews), quantitative (surveys), or mixed methods.

10.0 Proposal Evaluation

Proposals will be assessed according to:

• Relevant, demonstrated competence of firm
• Demonstrated expertise of the company/key individuals
• Content, quality and cost of the proposal

Submitted proposals must include:

• A response to the ToR demonstrating familiarity with the subject matter, proposed methodology and key issues for consideration in the research
• A detailed work plan, demonstrating the feasibility of the proposal
• Statement of qualifications of the firm(s) as relevant to the research project
• Name and CV of staff members responsible for i) overseeing the work and ii) undertaking the research
• Fee proposal and costs estimates, indicating the basis of calculation of fees, including cost of travel if necessary
• Supporting documents for registered firms including at a minimum; company registrations and tax clearance certificate(s). ​​​​​​​

11.0 Working Arrangements

The Consultant will work on day to day activities closely with TMRC and HFHI in executing the assignment.