Notes on Differences Between Customary and Statutory Mortgages in Ghana and Africa

Introduction

Mortgages serve as a common means of securing loans or credit, with land and property often being the primary assets used as collateral. In Ghana and many parts of Africa, there are two predominant types of mortgages: customary mortgages and statutory mortgages. While both aim to provide financial security for borrowers and lenders, they differ significantly in their legal frameworks, processes, and cultural underpinnings.

Nature of Customary Mortgages

1. Definition: Customary mortgages are governed by the traditions and norms of a specific community. They are informal agreements where land or other assets are pledged as security for a loan under customary law.
2. Characteristics:
• Informality: typically lacks formal documentation.
• Community Involvement: Validated by community leaders or elders.
• Symbolic Acts: Transactions often involve symbolic gestures, such as handing over a piece of soil or crops.
• Oral Agreements: Relies on verbal commitments witnessed by trusted members of the community.
3. Cultural Basis: Customary mortgages are deeply rooted in the social and cultural practices of African communities. They emphasize communal trust and local governance over formal legal systems.

Nature of Statutory Mortgages

1. Definition: Statutory mortgages are formal agreements governed by national laws and regulations. They involve documented contracts registered with legal authorities.
2. Characteristics:
• Formality: requires written agreements and registration with land or financial authorities.
• Legal Enforcement: Enforced through courts of law.
• Standardized Procedures: follows prescribed legal processes for creation, registration, and enforcement.
• Documentation: Includes legal deeds and registration documents.
3. Legal Basis: Statutory mortgages are established under national laws, such as the Land Act, 2020 (Act 1036) in Ghana, and similar laws across Africa that regulate land transactions and mortgage processes.

Key Differences Between Customary and Statutory Mortgages

Advantages and Disadvantages of Customary Mortgages

Advantages:

1. Accessible to individuals who lack formal education or financial resources.
2. Culturally relevant and trusted within the community.
3. Flexible terms and conditions that adapt to the borrower’s circumstances.

Disadvantages:

1. Limited recognition by formal legal systems.
2. Lack of documentation can lead to disputes and misunderstandings.
3. Exclusion of marginalized groups, especially women, in patriarchal societies.

Advantages and Disadvantages of Statutory Mortgages

Advantages:

1. Legally binding and enforceable in courts.
2. Provides clear documentation and transparency.
3. Greater protection for both borrowers and lenders under statutory laws.

Disadvantages:

1. High transactional costs can exclude low-income individuals.
2. Complex legal procedures may deter rural or uneducated borrowers.
3. Rigid terms limit flexibility for borrowers.

Integration and Coexistence

In Ghana and other African countries, there is an ongoing effort to harmonize customary and statutory systems to create an inclusive land administration framework. The Land Act 2020 in Ghana, for example, promotes the documentation of customary land transactions to bridge the gap between the two systems.

Conclusion

Customary and statutory mortgages serve different segments of the population in Ghana and Africa, each addressing unique needs and contexts. While customary mortgages provide an accessible and culturally relevant option for rural and low-income individuals, statutory mortgages offer legal certainty and protection for more formalized transactions. Bridging the gap between these systems through education, documentation, and policy reforms can enhance land security and financial inclusion across the continent.

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Emmanuel Amoabeng Gyebi

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