RURAL HOUSING LOAN FUNDRURAL HOUSING LOAN FUNDRHLF Strategic Plan forRHLF Strategic Plan for

2009/2010 FY2009/2010 FY

PORTFOLIO COMMITTEE ON PORTFOLIO COMMITTEE ON HUMAN SETTLEMENTSHUMAN SETTLEMENTS

12 June 200912 June 2009

Presented by:Presented by:Mr. JJ Fakazi –Acting MDMr. JJ Fakazi –Acting MD

Mr. H Potgieter - CFOMr. H Potgieter - CFO

Outline • Background on Establishment of RHLF• RHLF Mandate• Vision• Mission• What we do: Illustration by photos• Policy Context: BNG & Other Policy Priorities• Provincial Involvement• Business Environment: Internal and External + Implications• Key Performance Areas• Financial Projections• Materiality Framework• Corporate Governance

BACKGROUND ON ESTABLISHMENT OF RHLF

Result of German-South African bi-lateral agreement

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

Helps address the housing needs of rural working poor: currently defined as those with housing income below R7, 500 (since 2004)

Assists with financial sector development in rural areas—later advocated by ISRD Programme

Independent board appointed by the Minister of Housing (now Human Settlements)

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

Has raised loan of €12.5 from KfW via DBSA—exhausted

MANDATE

• To provide affordable housing credit to low income rural households

• To support the implementation of the Integrated Sustainable Rural Development Programme

VISION

RHLF is a world-class rural housing social venture capital fund that creates new

financial arrangements and opportunities for rural families to improve their housing,

economic and living environments.

MISSION

To empower people in rural areas to maximise their housing choices and improve their

living conditions with access to credit from sustainable retail lenders.

What we do: Illustration by photos

Policy Context: RHLF’s contribution to BNG

Financial Services Market:

1.Repeated access to credit for incremental housing and fixed home improvementfor the rural working poor

2. Entry level credit – building credit history3. RHLF scales-up using its venture capital investments to leverage additional debt funding from financial sector (Clients reaching maximum RHLF exposure)

Incremental Housing:

1.Existing core financing opportunity for RHLF business2.Enable borrowers to improve quality of their housing asset: especially during post occupancy (Subsidy houses)—progressive build method

Rural Housing:

1.Provision of loans for improving traditional houses on communal land2.Support indigenous housing (maximizing housing choices)3.Enable rural residents to drive their own building process

Policy Context: Implementation of Other Govt Priorities

• Rural Development: IRSD• SMME Development:

– Indlu– Norufin– Mafori– Lendcor, etc

• Job Creation (within intermediaries & local builders)

• Addressing needs of the 2nd Economy: productive housing & also local builders

Provincial Involvement

RHLF is a national wholesale housing finance institution Has national reach through intermediary lenders who lend in all provinces Need to ensure that RHLF programme augments housing delivery where

appropriate, e.g. improvement of basic core house and improvement of quality of traditional rural houses

Intensify efforts to ensure that RHLF is seen by provinces as value adding in housing delivery and in the improvement of quality of housing in rural areas

Business Environment: Internal Factors

Internal factors affecting RHLF: Limited financial resources available for growth remain

a challenge– No new DOH funding for 2009/2010– R50mil from DOH in both 2010/2011 and 2011/2012– No other outside funding– Applying the current DBSA covenant rules of 30% of capital employed

Business Environment: External Factors / Economic Climate

Start of a lower Interest cycle – smaller margin available to cover operating costs Liquidity crunch has reduced possible RHLF leveraging effect of private sector finance into

the housing microfinance market Economy in recession and retrenchments are real—reflection of domestic weakness and

global recession Food prices remain high and thus erosion of disposable incomes of the target market Oil price decline absolutely important to tame adverse economic situation and inflation—but

oil prices are generally volatile Overall economic outlook for 2009 is grim: falling consumer expenditure and global demand

—hopefully see slight improvements last quarter of 2009 into first quarter of 2010 Demand for micro finance high but not necessarily for housing Increases in rate of defaults

Implications of Environmental Considerations

Targets set in the context of these economic realities Targets for 2009/10 are more realistic – lower growth than 2008/2009 Intermediaries focus on improving portfolio quality and less growth: best

time to take stock—holding position Intermediaries to tighten credit evaluation Consumer protection critical: avoid pushing credit and then looking at

portfolio as “sub-prime” later Consolidation / mergers may be an option for some intermediaries—can’t be

ruled out in this climate

Challenges and Opportunities

Challenges:• Increased risk of bad debts – maintain balance of portfolio• Leakage in terms of: Non Rural and Non Housing – more focus on intermediaries who

are using building material suppliers• High Interest rate charged to end users – focus on community based origination

channels (2 new for 2010) and give interest rate of between 7% and 10%

Opportunities:• Direct government transfer in outer years—opportunity to explore lower interest rate

model• Individual Rural Housing Subsidy Voucher Scheme—currently being considered for

approval by the Executive—expand RHLF role in housing delivery

KEY PERFORMANCE AREAS:Rural housing finance reach

KEY PERFORMANCE AREAS:Rural housing finance reach

KEY PERFORMANCE AREAS:Rural housing finance reach

KEY PERFORMANCE AREASBuilding lending capacity

KEY PERFORMANCE AREASCost Revenue Ratio

KEY PERFORMANCE AREASImpairments

KEY PERFORMANCE AREAS

KEY PERFORMANCE AREASDisbursements and geographic spread

Target for 2010: 70% outside Gauteng

KEY PERFORMANCE AREASDisbursements by borrower income level

Actual for 2009: 59% earn below R3500Target for 2010: 58% earn below R3500

KEY PERFORMANCE AREASLoan Usage

Actual for 2009: 78% used on HousingTarget for 2010: 74% used on Housing

KEY PERFORMANCE AREASStatement of Financial Position

KEY PERFORMANCE AREASStatement of Financial Position

KEY PERFORMANCE AREASStatement of Financial Performance

MATERIALITY FRAMEWORKDetermination of financial materiality for 2010

NoteDisbursements made in terms of approved client facilities and approved equity investments shall be excluded from the materiality framework as these transactions are within the normal course of business of the Company.

a)10% of annual Interest income= 45 346 780 *10% 4 534 678

b)1% of total assets= 314 031 872 *1% 3 140 319

c) Average of (a) and (b) = Materiality value= 4 534 678 plus 3 140 319 /2= 3 837 498

d) Tolerable error = 10% of (c)= 3 837 498 *10% 383 750

MATERIALITY FRAMEWORKDetermination of qualitative materiality for 2010

Qualitative materiality refers to those transactions where by their very nature indicates that management should apply their minds with additional care.

The RHLF management shall consider all transactions, which contravene any regulation, law or statute as being material despite the size of the transaction.

CORPORATE GOVERNANCEThe board of directors retains full and effective control over the company, monitors management and ensures that decisions on material matters are in the hands of the board.The composition of the board of directors provides for a majority of non-executive directors, including a non-executive chairperson. RHLF MD is the only Executive Director on the BoardThe sub-committees of the board are as follows:

CORPORATE GOVERNANCEBOARD & SUB-COMMITTEES

INTERNAL COMMITTEES

BOARD OF

DIRECTORS

HR ETHICS &

REMUNERATION COMMITTEE

CREDIT

COMMITTEE

AUDIT

COMMITTEE

DEVELOPMENT

COMMITTEE

INTERNAL

AUDIT

Management Committee

Portfolio Committee

Sales Committee

Team

Meetings

CORPORATE GOVERNANCERHLF Board member name Rac

e

Gen

der

Ms TBJ Memela-Khambule B F

Mr L Mashaba B M

Ms G Mthethwa B F

Ms T Chiliza B F

Mr KR Oliver W M

Mr MP Silinga B M

Mr M Hathorn W M

Ms N Makiwane B F

Ms N Sihlwayi B F

Mr M Pule B M

Mr JJ Fakazi (acting CEO) B M

Demographics: Black 9 White 3

Female 5 Male 6

Thank You