As part of its ongoing activities, the Monthly Financial Sector Bulletin (MFSB), which I edit, monitors new product initiatives and rates them according to set criteria.
By Omen Muza
The product which ticks the highest number of boxes becomes the product of the month. The main objective of this initiative is not only to recognise, but also promote product innovation in the financial services sector while helping the banking public to understand new products.
Accordingly, the product of the month for April is the MBCA Home Loan which, according to our set criteria achieved a score of 6,5 out of 10. Read on to find out how well this new product measures up to our innovation and utility criteria.
Innovation
A number of banks already have housing or mortgage finance products on the market, although most of them offer units that are part of standard cluster houses (think FBC) or housing schemes (think CABS) whose construction they oversee.
Such schemes are, however, typically one-size-fits-all housing solutions which the majority of aspiring house owners can’t afford and for which only people in their locality can apply for.
What MBCA Bank is doing differently through the Home Loan product is to offer customers the flexibility to choose houses they can afford in areas of their choice, which means that the bank is targeting anyone anywhere in Zimbabwe.
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For now, the bank is content to stay out of the actual building of houses while concentrating on just financing their acquisition. The drift MBCA Bank has taken is laudable because many Zimbabweans appear to struggle with making the simple realisation that rather than continuing to make rental payments ad infinitum, the sooner they apply those funds towards mortgage payments which help them to acquire their own property, the better. Financial Inclusion
While banks these days generally prefer to lend to salaried folks in order to manage the endemic risk of default, MBCA says it readily welcomes self-employed people who want to apply for the Home Loan product. All the applicant has to do is to present a six-month bank statement or personal statements together with the other standard requirements. The Home Loan product is inclusive in the sense that it is not limited to MBCA Bank clients, so aspiring homeowners who bank with other financial institutions can access the loans.
Cost effectiveness
According to MBCA Bank, its home loan finance allows prospective homeowners to purchase existing residential property “at very competitive interest rates” which the bank, however, does not disclose, regardless of which we are willing to take their word for it. More clearly, however, the product has scope for reduction of up front payments required from the employee and for reduction of interest rates in the case of employer assisted schemes.
Versatility/international utility
Theoretically, anyone anywhere — including in the Diaspora — who meets the bank’s qualifying criteria can apply for this product. However given its focus on those for whom it is feasible to convert rental payments into mortgage payments, the MBCA Home Loan will likely appeal more to local buyers since the bank could not possibly finance housing units in foreign jurisdictions.
Convenience
The 20-year tenure of the underlying mortgage enhances the convenience of the product as this makes repayments more affordable and bearable for borrowers. Additionally, the fact that the bank has taken the trouble to clearly and comprehensively outline its minimum requirements/qualification criteria means that if potential house owners follow the guidelines closely, this should lead to an easy and convenient application process.
Employment creation credentials
The MBCA Home Loan will most likely be delivered through the bank’s existing distribution channels; so no significant internal job creation can be anticipated. However, by creating demand for housing units, the bank’s mortgage financing initiatives (through the Home Loans) stimulates the housing market and this can save existing downstream jobs or create new ones in the construction industry. Partnership leverage
For employer assisted schemes, the bank has to work with employers in a partnership to which employers bring their reputation and balance sheets in order to secure reduced up front payments and lower interest rates for their employees. It is not inconceivable that MBCA Bank could, in the near future, enter into partnerships with preferred developers of housing units for its mortgage borrowers. Tech-savvy credentials
The bank has not publicly articulated anything to indicate that it is leveraging on technology or new media to deliver this product.
Synergistic capacity/integration Although this is not a particularly strong point of this product, the recognition of existing loans either with MBCA Bank or with other institutions is a redeeming factor. Naturally, for loan repayment purposes, the home loan has to be linked to the client’s transactional accounts for settlement purposes, which can create revenue opportunities for the bank. Scale
While this product is flexible enough in terms of the qualification criteria and application process, the limitation may very well be the prevailing liquidity situation which prevents the majority of Zimbabweans from affording houses. Additionally, MBCA Bank does not have such a wide footprint in terms of a branch network, something which may impact negatively on uptake of the product. If uptake of the housing loans is to improve, the bank might have to consider agency arrangements, which could come in handy for an institution with a modest branch network in Zimbabwe.
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