The Municipal Leadership Housing Forum Programme

RURAL HOUSING LOAN FUNDRURAL HOUSING LOAN FUND

Micro finance for housing and its potential for informal settlement

upgrading

Contents

• Purpose of the Presentation

• RHLF establishment & Mandate

• Policy Context

• RHLF Business Model

• Housing Financing Mechanisms

• RHLF Development Impact (2010/11)

• Challenges

• Concluding Remarks

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Purpose

• Introduce Rural Housing Loan Fund & its Business Model

• Introduce and advocate Incremental Housing Finance as an appropriate housing finance mechanism

• Illustrate RHLF Development Impact

• Confirm RHLF support to Provinces and Municipalities in expediting housing delivery to those who qualify for loans

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� Result of German-South African bi-lateral agreement

� Established by SA govt. in September 1996 as a Section 21 company

as a wholesale financial institution (wholly owned by SA government)

� Report to NDHS and national Parliament (via Portfolio Committee on

Human Settlements)

� Focus on facilitating access to housing finance by low income earners

� Funding:

� Initially capitalised with DM50 million (R150 million) grant from German Development Bank, KfW, to the SA government

� Raised loan of €12.5 from KfW via DBSA—fully drawn

� Government: R49.5m (2010//11 & 2011/12) & R52m

Establishment & Funding- Who is RHLF?

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MANDATE – Why do we exist?

� To facilitate housing credit to low income rural households:

including communal land, rural towns, small towns

� To support Government’s Rural Development Programme

(CRDP)

� Focus on low income market: currently R9, 800 per month

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Policy Context- How & Who do we assist?

• Contribution to the creation of Sustainable Human Settlements

� Enabling Access to Financial Services

� Incremental Housing

� Rural Housing

� Addressing the Needs of the Gap Market in Rural Areas

� Contribution to Outcome 8

� Upgrading of Informal Households

� Backyard Rentals

• Contribution to the Comprehensive Rural Development Programme

(CRDP)

• Contribution to SMME Development

• Job Creation and Local Economic Development

• Addressing the Needs of the Second/Informal Economy

• The New Growth Path6

Informal settlement upgrading

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Borrowers building Incrementally

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Backyard Rental

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Backyard Rental

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Borrowers building on serviced

sites

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Our Primary Business Model:

�Wholesale with retail intermediary network (MFIs)

New Initiatives:

� Identify Community based organizations and support them directly

� Work with Rural Employers to assist employees to improve housing

conditions

RHLF Business Model

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Housing Finance Mechanisms

� Government Subsidy Programmes

� Traditional Mortgage Finance

� Own Savings

� Incremental Housing Finance

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Incremental Housing Finance/ Housing Micro Finance

� Maximizing people’s housing choices

� Progressive construction due to affordability

� Creating additional living space

� Improving peoples living conditions—e.g. access to

services (water and electricity), fencing

� Productive housing—e.g. home based business for self-

employed

� = Core RHLF Business

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TRADITIONAL HOUSING FINANCE PARADIGMCOMPARED TO INCREMENTAL HOUSING FINANCE

Traditional Housing Finance Paradigm Incremental Housing Finance

�Finance must be for a complete housing solution

�Loans large enough for a complete housing solution must

be long-term and subsidised to be affordable for low-

income households

�Low –income households are accustomed to a

“progressive build” process

�“Progressive build” or “incremental housing” loans

with market rates of interest rates can more easily be

customised to households’ capacity to repay

�Financing “stages” of a project with multiple

(repeat), shorter-term loans rather than one larger,

longer-term loan reduces interest paid by the

household and risk to the lender

�Design, planning and construction must be done by

outside, technical experts to reduce the cost of the project

and ensure quality of construction

�Households can manage portions of the technical

process on their own and still achieve an acceptable

level of quality

�Households have a strong preference to make their

own design decisions

�Role of external technical expertise varies

depending on the project and the household—largely

consultant role.

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TRADITIONAL HOUSING FINANCE PARADIGMCOMPARED TO INCREMENTAL HOUSING FINANCE …CONT

Traditional Housing Finance Paradigm Incremental Housing Finance

�Low-income “housing” finance follows a paradigm

similar to the mortgage finance industry in the

developed world

�Low-income housing finance follows a

paradigm similar to microfinance industry in

many parts of the world

�The interest rate is the key factor in households’

decision to borrow

�Access to capital for housing investment,

simplicity, flexibility and speed of disbursal are

the primary factors in households’ decision to

borrow. Interest rates are important, but

secondary.

�Investment in housing is “non-productive.” �In many, though not all cases housing

investment directly generate additional income

(e.g. rental, additional space for home based

industries—such as spaza shops, etc)—a

phenomenon labeled “productive housing”

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Incremental Housing Finance

• Has a nice fit with the manner in which low-income people build

• Incremental housing/Progressive build: traditionally poor people or people

earning low income build their houses in a progressive manner:

– First build a core house: could be one room or few rooms such as a subsidy (RDP) house

– Over a period of time (could be 2yrs or so) they add another habitable space

– Adding new space may not be done all at once:-

• can start by stockpiling building materials

• Saving little from own income or bonus

• Borrow money from lenders (family, friends, or housing lenders, etc)

• The process takes a little while, but is in line with access to building resources

• Ultimately the desired house is achieved

• IHF enables low income earners to access loans for housing that they can

afford to repay and access further loans (repeat loans) for the next stages in

the building process

• In essence, low income people “build their houses—one brick at a time”

LENDER CONTACT PROVINCE of OPERATION

Bayport Financial Service

www.bayportfinance.com

T: 0861 550 555

E: apply@bayport.co.za

Nationally- all provinces

(mainly via Post Office)

Elite Group

www.elitegroup.co.za

T:086 111 3845

E: headoffice@elitegroup.co.za

Gauteng & North West

Indlu Finance Company

www.beehivefin.co.za

T: 013 235 1695 Mpumalanga & Limpopo

Izwe Loans

www.izwe.co.za

T: 011 274 7000 Nationally- all provinces

Kuyasa Fund

www.thekuyasafund.org.za

T: 021 448 3144 Western Cape & Eastern Cape

Lendcor Group

www.lendcorgroup.co.za

T: 031 310 7100 Nationally – all provinces

Norufin Housing

www.norufin.co.za

T: 018 381 9900 North West

Real People

www.realpeople.co.za

T: 043 702 4600

F: 086 620 0412

Nationally-all provinces

Mazwe Financial Services

Spectrifin Capital (Pty) Ltd

www.spectrifin.co.za

T:011 803 9003

Toll free: 0800 734 346

Tel: 021 917 2500

Gauteng, Eastern Cape, KZN

and Western Cape.

Western Cape, KZN, Eastern Cape

RHLF APPROVED LENDERS

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RHLF DEVELOPMENT IMPACT

2010/11 FY

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Impact performance 31 March 2011Development impact statistics compiled from 2007 2008 2009 2010 2011

monthly Housing Impact Monitoring Reports

Number of new loans 32 028 36 310 40 537 33 112 40 289

Loan usage

New House 2% 6.2% 8% 3% 4%

Extension 10% 7.9% 17% 8% 10%

Improvement 48% 55.9% 50% 71% 68%

Services 10% 4.4% 3% 2% 3%

70% 74% 78% 84% 85%Others (mainly education) 30% 25.6% 22% 16% 15%

100% 100% 100% 100% 100%

Repeat loan borrowers 27% 25% 22% 29% 30%Borrowers using loan together with government subsidy 25% 27% 28% 32% 29%

Gender of borrower

Male 49% 48% 46% 41% 42%

Female 51% 52% 54% 59% 58%

Borrower's employment

Private sector 43% 44% 43% 30% 27%

Public sector 55% 54% 53% 68% 70%Self-employed, informal 2% 2% 4% 2% 3%

Borrower's income

less than R1 500 p.m. 25% 29% 30% 45% 40%R1 500 p.m.-R2 500 p.m. 19% 14% 12% 9% 6%

R2 500 p.m.-R3 500 p.m. 20% 15% 16% 8% 7%

R3 500 p.m.-R6 000 p.m. 22% 24% 22% 17% 17%

86% 82% 81% 79% 70%R6 000 p.m.-R9 500 p.m. 18%

more than R9 500p.m. (Pre 2011 more than R6 000 p.m.) 14% 18% 19% 21% 12%

100% 100% 100% 100% 100%

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Impact performance: Disbursements

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Impact performance: No. of loans

Target for 2011: 44,933Achieved: 40,289

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Impact performance: Loan Usage

Target for 2011: 80% for “Housing”Achieved: 85%

85%

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Impact performance: Income Levels

Target for 2011: 65% to households earning R3500 or less pmAchieved: 53% to households earning R3500 or less pm

Large number of small

loans Ave below R2000

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Impact performance: Employment

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Impact performance: Gender Split

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Impact performance: Provincial Distribution

Target for 2011: 80% outside Metro’sAchieved : 85% outside Metro’s 27

Impact performance: Provincial Distribution

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Impact performance: Presidential Rural Nodes

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Impact in ISRDS – Loans in 13 Rural Nodes

and Other Rural District Municipalities

West Coast

Northern Free State

Uthungulu DCFrancis Baard

Kgalagadi

Sisonke DC

DPLG listed Rural Nodes

Other Rural District Councils

Amatole District`

uMgungundlovu

Uthukela

Ehlanzeni

Nkangala

BolandOverberg

Xhariep

Thabo Mofutsanyana

Motheo

2007 2008 2009 2010 2011

Number of loans 5029 9340 16376 12264 16779

Value of loans disbursed 19 313 524R 44 660 375R 86 990 118R 48 939 462R 81 522 730R

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Challenges

�Borrower Affordability

�Economic Challenges

�Borrowers utilizing money meant for housing for consumption

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CONCLUDING REMARKS

• RHLF supports PDHS & Municipalities in meeting housing needs of communities

• Especially those who do not qualify for government subsidy and mortgage finance to build their houses

• Even those who have previously accessed subsidy can take loans to extend their subsidy houses or improve quality of houses

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QUESTIONS AND COMMENTS

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Thank You

Tel: 011-621 2500

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