Determinant Attributes of a Well-Functioning Market-Based Home-Financing Model in the MENA Region
Constraints and Feasible Development Paths

Abstract

Determinants of a well-functioning market-based home-financing system for MENA
Housing finance is a cross-cutting topic of major economic, social, and political significance. It enables middle-class households and other targeted people to turn need for housing into effective demand by extending finance to buy their homes. Housing finance in Middle East and North African (MENA) countries is underdeveloped compared with countries of a similar level of income and stage of development. Existing literature cites many causes for this underdevelopment, among which is path dependency and culture. The study aims to address the path dependency issue by identifying attributes of a well-functioning housing finance system with the objective of contributing to the design of housing finance systems in MENA countries.
To fulfil its objectives, the study uses primary and secondary research. Using comparative case analysis, firstly, housing finance systems in nine developed and emerging economies were assessed. Secondly, housing finance supply in nine countries in MENA were evaluated using a framework of analysis developed as part of the research. By conducting a survey in three MENA countries, the study attempts to understand people in terms of beliefs and attitudes towards housing finance, and characteristics of demand for housing finance.
The findings of the study demonstrate the pivotal role of governments, and the significant influence of private financial institutions in the evolution and performance of any HFS. MENA countries have a fragmented supply of housing finance rather than a system, mainly due to a performance gap of players, lack of diversity in products, and self-exclusion of people from housing finance. Generally, people prefer finance from friends and family members and lack proper understanding of Islamic finance in Muslim dominated population.
In conclusion, transferability and development of a well-functioning market-based housing finance system necessitates adoption of right public policies; regulators who supervise and enable financial institutions. Product diversifications is crucial to tailor to the needs of consumers, while engaging people by spreading awareness and protecting consumers.