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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
2
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
3
� 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?
4
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
5
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
7
Borrowers building Incrementally
8
Backyard Rental
9
Backyard Rental
10
Borrowers building on serviced
sites
11
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
12
Housing Finance Mechanisms
� Government Subsidy Programmes
� Traditional Mortgage Finance
� Own Savings
� Incremental Housing Finance
13
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
14
15
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.
16
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”
17
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
18
RHLF DEVELOPMENT IMPACT
2010/11 FY
19
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%
20
Impact performance: Disbursements
21
Impact performance: No. of loans
Target for 2011: 44,933Achieved: 40,289
22
Impact performance: Loan Usage
Target for 2011: 80% for “Housing”Achieved: 85%
85%
23
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
24
Impact performance: Employment
25
Impact performance: Gender Split
26
Impact performance: Provincial Distribution
Target for 2011: 80% outside Metro’sAchieved : 85% outside Metro’s 27
Impact performance: Provincial Distribution
28
Impact performance: Presidential Rural Nodes
29
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
30
Challenges
�Borrower Affordability
�Economic Challenges
�Borrowers utilizing money meant for housing for consumption
31
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
32
QUESTIONS AND COMMENTS
33
Thank You
Tel: 011-621 2500
34
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