In: Root » Legal and finance » Loans and mortgages
Since financial systems are predominantly bank-based at earlystages of their development, prioritymust be given to the development of bank-based retail mortgage markets. The question then becomes whether or not private banks are willing or able to lend for housing on a significant scale. In previous work, I have suggested a typology of six types of mortgage finance systems with different development needs and strategic priorities: • Undeveloped mortgage finance systems where the per capita income is low, the economyis small and the overall financial system small and undeveloped as encountered in Sub-Saharan African, and small economies of Asia and Latin America, as well as manyisland economies. The financial systems of these countries are often dominated by state-owned banks. • Systems under construction or reconstruction in former centrally planned economies, the most important of which is China. Russia and Central and Eastern European countries also belong to this group. So does Vietnam, which has a large reservoir of future urban population. These transition economies usuallyface a weak rule of law and banking systems dominated bystate-owned banks that predominantlyfinance state-owned enterprises. • Housing finance systems that are remaining underdeveloped because of the lingering legacyof direct government interventions in the financial system and reliance on public institutions for housing finance. Manycountries of the Middle East still belong in this category. Their financial system is finallyemerging from decades of government interventions and directed credit policies. • Housing finance systems that have suffered from repeated episodes of macroeconomic instability, as has been too frequently the case in Latin America, Turkeyand the Philippines. These countries usuallyhave a bank-dominated financial system that is recovering from such crises. • Then there are the housing finance systems that are generally sound and growing where macroeconomic management and financial sector policy have been supportive. There are number of these cases in Asia such as Malaysia and Thailand. • Finally, there are the developed mortgage markets of high-income economies found in the deep, mature financial systems of Europe, North America and the Pacific region. Across regions of the world, is it quite noticeable that countries of the East Asia region (as defined in World Bank practices) enjoymuch deeper housing finance systems than either Latin America or the Middle East. Countries of South Asia, especiallyIndia, that will contribute a major share of forthcoming urbanization, have veryshallow and undeveloped mortgage finance systems. Except for South Africa, all African financial systems presently lack the economies of scale and scope needed for a performing mortgage finance system, and remain at a seminal stage.
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