Presentation to the 2015 African Union of Housing Finance,

Durban, South Africa

How Low

Can Finance G

o??

James M

ugerwa

Ma

naging D

irector

106 million

ad

ditional household

s will

not find afford

able housing by 2025 w

orldw

ide

96 million

urban households a

re financially overstretched

w

orldw

ide

235 million

global urban households

live in substandard

housing

Source: McKinsey G

lobal Institute, October [2014]

AFRIC

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Shelter Afrique ena

bling new housing supply (and

dem

and) in Sub-Sahara A

frica

for 32 years;

Over the next 5 years, w

e will a

pprove financing worth over US$1.1bn for new

, affordable

housing across the continent;

Over the next 5 years, w

e will be getting closer to the m

arket and opening new

regional offices in Lusaka, Kinshasa and

Ivory Coast.

We w

ill be launching Rugara

ma Project, w

hich is a sustained

integrated d

evelopment for

1000+ units, in association with the city of Kiga

li.

The future is green; we w

ill be incorporating green and sustainable projects as part of our

front-of-line offering.

In 2011, we m

ad

e Afforca

ble Housing one of our strategic objectives and

since then we

have pivoted

towa

rds large scale projects for the bootom

of the pyramid

.

Meet Shelter A

frique

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Housing Finance remains an elusive subject for people living at the bottom

of the pyramid

, and

in truth that covers most people living in A

frica and the

developing w

orld.

What w

e must d

etermine, tod

ay and going forw

ard, is how

do w

e make

housing finance ava

ilable to people at the bottom of the pyram

id.

Affordable Housing Finance in A

frica

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“Affordability is not just about the price of housing; it is also

critically about the access to and the cost of housing finance. O

nly 15% of the population in urban A

frica can afford formal

housing with the associated financing costs”

(Afford

able La

nd a

nd Housing in A

frica, 2012, P10)

How Low

Can Housing Finance G

o??

Quick Facts and Figures

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There are about 4 Billion people at the Bottom

of the Pyra

mid

(BOP).

The BOP constitutes a

$5 Trillion global consum

er market.

The African BO

P constitutes 71%

of the purchasing power

for the continent.

Source: Working w

ith the Bottom of the Pyram

id; Success in Low

-Income M

arkets [2007]

Between 2005 and

2010, Lagos grew

by 1.8 Million

people, Kinshasa by 1.6 M

illion and Luand

a by 1.2 M

illion.

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The housing market a

t the BO

P in Africa is valued

at $332 Billion.

Africa

has a

n urban future, betw

een over the coming

fifteen years, cities in Africa

will, every d

ay, become

home to a

t least another

40,000 people.

‘05

1 2

‘06‘07

‘08‘09

‘10Years

Amount in Million Dollars

Accord

ing to a UN- Habita

t survey of 2001, urba

n A

frica had

the highest price-to-incom

e ratio of

12.5%.

The Housing Finance Situation

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Rent-to-income ra

tio for A

frican cities is m

ore than tw

ice that of cities in high-incom

e countries, it at 39.5%

of income.

Mortgages are not

comm

onplace in Africa

and w

here there are, interest rates are crippling.

RentIncom

e

39.5% 100%

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Housing Fina

nce is most ina

ccessible to those at the bottom of the pyram

id,

where m

ost are em

ployed in the inform

al sector.

Most fina

ncial institutions still require trad

itional forms of security w

hich simply

do not a

pply to the bottom of the pyram

id.

Perceptions still abound

, financiers view financing housing at the BO

P as too

risky and d

evelopers see it as an unattractive segment and

a government

problem.

Even among D

evelopment finance institutions there is still confusion on the

definition of w

hat affordable housing looks like.

The Housing Finance Situation (contd.)

Why Housing Finance Doesn’t go as low

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Lenders face high cred

it risks.

Lack of fina

ncial literacy am

ong low

-income household

s.

Difficulties in registering m

ortgage liens.

The cost and tim

e of foreclosing on properties.

Limited

access to long-term fund

s.

Difficulty accessing land

and property rights

limit the housing ind

ustry’s ability to underta

ke large-sca

le afford

able developm

ents.

Regulatory obstacles, such as d

ifficulties in registering title or outd

ated build

ing codes and

planning regulations.

Developers also often find

it hard

to access appropriate, long-term

funding.

A lack of public finances can also

imped

e developm

ent of appropriate infrastructure.

Innovation can open a

new pa

th for Housing

finance to the BO

P, we w

ill review som

e of

the concepts we feel can grea

tly shift the

dyna

mic for housing at the bottom

of the

pyramid

.

Innovation is the way to

the bottom

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Incrementa

l Self Help H

ousing [Ca

se Study]

Resurrecting Dead

Ca

pital

Home Rem

ittances

Cem

ex, in Mexico, is one of the largest cem

ent and build

ing supply

corporations in the w

orld, w

ith over $15 Billion in net sales in 2014.

Cem

ex’s Patrimonio Hoy (Spanish for “Personal Property Tod

ay”) initiative

was origina

lly launched in M

exico, and has since expand

ed to includ

e

several other Latin Am

erican m

arkets.

In 2000, the compa

ny launched Patrim

onio Hoy, a mem

bership program for

low-incom

e home im

provement custom

ers.

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Case Study

Patrimonio Hoy C

emex

How it w

orks

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Mem

bers apply in groups of three.

Group is responsible

for 70 week

payments of $10-15

which is held

as

payment tow

ard

s m

ateria

l.

Paym

ents buy a pa

ckage of build

ing material

with architectural

and

engineering services.

Price of materials

held fixed

over course of w

ork to avoid

fluctuations.

Patrim

onio Hoy beca

me profitable in 2004. In 2005, a stud

y found that than

99.2% of the $42 M

illion in ma

terials and loans provid

ed by C

emex had

been

paid for on tim

e.

Com

pany estima

tes that, since inception, Patrimonio Hoy has extend

ed over

$135 Million in m

icrocredit to custom

ers.

Assisted

over 350,000 to build their ow

n homes.

Delivery Value For the BOP

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A Peruvia

n economist, Hernand

o de Soto, introd

uced the concept of Dead

Capital in w

hich he estima

tes that about $1Trillion is locked in the inform

al

sector in Africa

.

This amount is three tim

es sub-Saharan Africa's a

nnual GD

P, and m

ore than

70 times the a

mount of aid

the continent receives each year.

Case Study: M

ozambique

Relied on loca

l institutions to resolve land d

isputes and introd

uced a law

in

2000 to codify a

nd register la

nd for those in the inform

al sector - allowing

them to buy up long lea

ses and

freeing locked capital.

Resurrecting Dead Capital

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Accord

ing to the World

Bank, hom

e remittances is one of the largest financial

inflows to d

eveloping countries.

It exceeded

240 Billion USD in 2007 accord

ing to World

Bank statistics.

A significa

nt amount of it is invested

in mortgages and

real estate.

Most of the people in the d

iaspora have fam

ily, parents, siblings living in

inad

equate housing.

Governm

ent backed incentives and

financial products should

be developed

for those who w

ant to rem

it toward

s upgrades, m

ortgages or construction of

decent living qua

rters.

Home Rem

ittances

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Opportunities at the Bottom

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There is significant opportunity to bring the BO

P ma

rkets into the form

al sector with

enhanced service d

elivery.

Accord

ing to McKinsey,

building hom

es for 106 M

illion new low

-income

households by 2025 w

ould

represent a $250 Billion construction m

arket.

The largest markets for new

construction for low

incom

e would

be China,

Russia, India, Brazil and

Nigeria.

“When housing fina

nce at the BOP is freed

, there are some im

med

iate gains.”

Construction and building - a

re a m

ajor contribution to GD

P and grow

th.

Job creation - most of the jobs crea

ted by construction and

building are jobs taken by

people at the bottom of the pyra

mid

.

Entrepreneurship - when asset borrow

ing is possible, people are able to expand their

businesses or begin new ones using their houses a

s collatera l.

Knock- on Effects

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In 2011, we la

unched our Social Housing Prod

uct for low-incom

e earners

and

for the bottom of the pyram

id.

Will cond

uct impa

ct studies from

2016 to trace level of business inclusiveness

and

see where fund

ing is most required

.

Launching the SHAF Trust Fund that w

ill train artisans on technical skills and

comm

unities on how to d

evelop and access housing finance.

Our Experience at the Bottom

of thePyram

id

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Working w

ith the Bottom of the Pyra

mid

; Success in Low-Incom

e Markets [2007] Dansk

Industri

Breathing Life Into D

ead C

apita

l; Why Secure Property Rights M

atter [2004] The Economist

Afford

able Land

and

Housing in Africa

; Volum

e 3 [2012] UN- Habitat

A Blueprint For A

dd

ressing The Globa

l Afford

able Housing C

hallenge [2014] Mckinsey G

lobal

Institute

The Next Four Billion; M

arket Size and

Business Strategy at the base of the Pyram

id [2007] IFC

Patrim

onio Hoy: A

ccess to Housing a

nd Fina

nce [2005] Shared Value Initiative

Reference Material

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Questions!!

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FRICA

UNIO

N O

F HOUSIN

G FIN

AN

CE, 2015

Thank You