Legal origins and mortgage finance contradictions

This study aims to examine why Ghana has English legal origins (hypothesised as a legal framework that promotes financial development) but has not developed a well-functioning mortgage finance market.

The authors adopt the institutional autopsy approach developed by Milhaupt and Pistor (2008). This study is not a cross-country study but a historical examination of Ghana’s mortgage finance regulatory framework. The institutional autopsy framework considers the iterative process of change in a system and allows for context-specific system analysis.

The authors note that for a long period of about 68 years (1940-2008), some of the legal rules regulating mortgage finance were not typical of the hypothesised characteristics of the English common law tradition. These rules, including, interest rate controls, excessive entry barriers, loan default guarantee discriminations and complex foreclosure procedures, tended to inadequately protect creditors. In the context of the history of military rule and law-making, judicial discretion that could have promoted legal efficiency and strengthened contract enforcement was also limited. During this period, the legal system demonstrated a concentrated and coordinative character. New legislation in the form of the Home Mortgage Finance Act 2008 (Act 770) attempts to resolve some of these bottlenecks and improve creditor rights protection.

The study focuses solely on how the legal institution affects creditor protection and mortgage finance in Ghana.

Policy-wise, the study deepens the understanding of the channels through which the law affects the development of mortgage finance.

To the best of the authors’ knowledge, the methodology used (institutional autopsy) is novel in the context of analysing mortgage finance.