Vital support for banks new to mortgage finance
HOUSING LOANS

SGCI offers credit risk insurance to overcome the reluctance of banks to make long-term loans

Until 1999, housing finance in Algeria was monopolized by the Caisse Nationale d’Epargne et de Prevoyance (CNEP), a savings bank that still enjoys the lion’s share of the relatively undeveloped mortgage market. As part of the financial reforms agreed between the government, the IMF and other international institutions, the sector has since been opened up, with several different banks getting involved.
Because of the banks’ inexperience in this field, and the risks involved, some sort of support system was necessary to give them the confidence to go ahead.

Accordingly, two new institutions were set up – a mortgaging refinancing company, SRH, which provides banks with long-term refinancing, in exchange for the collateral of their refinanced mortgage loans, and a housing loan guarantee company, SGCI, which offers mortgage credit risk insurance and other facilities.
“From that moment on, the banks no longer had any reason or excuse not to offer housing finance products,” says SGCI’s CEO, Dr. Mourad Goumiri. “A certain reticence on the part of bankers was overcome, and we found ways of encouraging banks to offer housing loans without actually giving them instructions.”

Dr. Goumiri understands the banks’ initial reluctance. “Housing loans seemed too risky, and they stretch over a long period of time – maybe 30 years. For commercial banks used to dealing with short-term loans, this meant a serious problem of transformation which could have had an impact on economic activity and inflation.”
SGCI’s credit risk insurance meets up to 90 percent of the outstanding debt, covering such issues as death, full invalidity and the temporary or permanent insolvency of the borrower. It is in everyone’s interest from the outset to avoid bad risk, so applicants for loans go through a rigorous vetting program. When someone turns up at a bank wanting a mortgage or similar financial product, he or she is passed on to SGCI for endorsement.

“Of course, we have established conditions for eligibility,” says Dr. Goumiri. “Things such as age, salary and ability to repay. We sign an agreement with the bank concerned, which acts as a sort of insurance policy.”
A similar process occurs when a developer or company approaches a bank asking for loans for building schemes. “SGCI is upstream within the banking system,” he adds. “We are the ones who have the key, because a banker won’t hand out a cent without our guarantee.”

This does not mean that SGCI has to shoulder all of the associated risk itself. Some is passed on to national and international reinsurance companies. SGCI is also able to call on resources from external bodies such as the United Nations Development Program (UNDP), the IMF, the African Development Bank, World Bank and others – which is in itself proof of the importance the international financial community ascribes to successful financial sector reforms in Algeria.
Dr. Goumiri believes the country’s housing finance sector can learn a lot from abroad as well. “I myself went to Canada to gain experience,” he says, “and it was the Canadians who helped me set up SGCI. When it comes to building the sort of high-rise developments that our cities need, Americans have the financial formula for developments in concrete and steel.”

However, there is one hurdle that can only be cleared by Algerians themselves: reform of the land title system. Currently, there is often confusion caused by the triple legacy of traditional law, Islamic law and French law, which often means people don’t have the documents that they need to qualify for loans. This is something that is likely to take several years to sort out.