‘a mouse that roared’? housing microfinance in south africa: status, problems and prospects...
TRANSCRIPT
‘A Mouse That Roared’?
Housing Microfinance in South Africa: Status, Problems and Prospects
FinMark ForumSandton
David Gardner18 September, 2008
2
Study Background
Finmark Trust & HIVOS-funded
Based on literature review, interviews, workshop inputs &
peer inputs
Builds on other work by FinMark Trust Township Residential Property Markets study Housing Entrepreneurs Study (comprising Small Scale Landlords and Home
Based Enterprises) FinScope, access frontier for housing finance in South Africa Causes of Default of Housing Micro Loan clients Literature review: housing finance development in Sub-Saharan Africa Access to housing finance in Africa –Zambia, Botswana, Kenya, Namibia
Focus on access to housing finance for the poor
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PRESENTATION OVERVIEW
1. Key Findings
2. Definition & Scope of HMF
3. Institutional Arrangements
4. Demand for Housing Microfinance
5. South Africa’s Develompental Paradigm
6. Status Quo & Lessons Learned
7. Way Forward
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1. Key FindingsThe mouse has not yet roared…but why?
She still believes she is a mouse and not a lion HMF still not secure in its developmental role
All the rats are roaring…so why should the mouse? Microfinance is working. Burgeoning household credit sector Increasing microfinance finding its way into housing by default, not
design
She is caught in a mousetrap Structural constraints limiting HMF to specific market sub-segments,
and precluding HMF from playing a major role in primary housing production processes
She doesn’t get enough cheese…and probably needs steroids Actively and passively maligned HMF sector requires a voice, a presence, and proactive lobbying
Sq
uee
ak!
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2. Definition & Scope
Housing Microfinance: ‘unsecured loans used for housing purposes’ Used for housing and related elements (land, services, construction) Default and design Size: larger than normal microloans: R1000 to R25 000 Term: generally longer than standard MF Interest Rate: competitive even though allowance given for ‘Developmental Credit’ Collateral: range of options being experimented with internationally – not the norm
Importance of Housing Microfinance Commercial Imperative:
untapped MF market Limit and problems of conventional housing finance (mortgage and asset-backed): HMF is more affordable, better understood, more widely available and appropriate
Housing Imperative: Importance of housing to low-income households: security, shelter, housing asset,
economic asset Supporting Incremental housing processes (urban and rural)
Developmental Imperative: Potential to bridge the divide between minimum standards and needs of urban poor and
not-so-poor Potential for supporting urban transformation objectives & relieving housing burden on
state
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2. Definition & Scope: Typology
FIRST TIER Regulated by Banks Act Multiple Financial services 8 registered with NCR
Commercial Banks Deposit-taking institutions offering microloans as part of financial service offering
Portion of lending used for housing purposes. Some considering HML
ABSA, Std, Nedcor, FNB
Microfinance Banks Banks focusing on microcredit
Portion of lending used for housing purposes. Few considering targeted products
African Bank, Capitec, Teba, etc
SECOND TIER Regulated as Non-Banks via NCA
Generally microloans, limited other financial services
2338 registered with NCR
Non-Bank Microfinance Institutions
Commercial providers of microcredit
Portion of lending used for housing purposes
>2 200 entities. Includes Blue, Mafori
Housing-Focused MFIs Focused on provision of housing microfinance
Mostly to all housing related lending
< 20 entities? Includes Kuyasa, Lendcor
Co-operatives & Credit Unions
Generally focused on savings and loans to members
Extent of housing lending unclear
<30 entities registered
THIRD TIER Generally Unregulated / Informal
Savings and credit instruments
Numbers unknown
Mutual Entities, Comm-Based Shelter Funds
Usually donor-supported Membership-based savings funds. Sometimes geared with debt
Numbers unknown
Informal Moneylenders Limited compliance Non-specific, small, high interest loans
Numbers unknown
Informal Savings Groups Group savings Revolving credit groups Numbers unknown
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2. Definition & Scope: Forms
Secured Loans
Unsecured Microcredit
‘Developmental Credit’
Savings-backed Housing microloans
Short-Term Loans
Credit Facilities / Cards
Debit Cards
Informal Loans
Revolving Savings Takings
Personal Savings?
Other Products
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2. Scope Scope of HMF: Up to R8-
billion housing-related microloan portfolio in SA
10% to 24% of total household microfinance portfolio ‘housing-related’
FSC 2007: R1,22-bn (96 760) housing-specific unsecured loans @ R12 600 avg
FSC Growth between 2004 & 2007: 138%, value by 261%
0
5
10
15
20
25
30
2004 2005 2006 2007 2008
Total
Hsng-Low
Hsng-High
Hsng-Spec
0% 20% 40% 60% 80% 100%
AVERAGE
SOUTH AFRICA
NAMIBIA
BOTSWANA
KENYA
TANZANIA
UGANDA
ZAMBIA
Banked Formal - Other
Informal - Only
2. Definition & Scope
9
x
3. Institutional Arrangements
National Credit Act
Co-operativeBanks Bill
Co-operativeBanks Bill
DEVELOPMENT FINANCE
INSTITUTIONS
SA Microfinance Apex Fund (SAMAF)
National Housing Finance Corporation
(NHFC)
Rural Housing Loan Fund
(RHLF)
Land Bank
Development Bank of Southern Africa
(DBSA)Self-regulated EntitiesStokvels
Burial SocietiesVillage BanksCredit Unions
NURCHA
Dedic. Banks Bill
MINISTRIES
STATUTORY BODIES
FINANCIAL MARKETS
Donors & NGOs
RETAIL FINANCE INSTITUTIONS
National Consumer Tribunal
National Credit Regulator
Credit BureauxTCB
SUPPORT ORGANISATIONS
EquityDebt
Insurance
Home Loan Guarantee Company
Equity Debt
Technical Assistance
Equity & DebtTechnical AssistanceGuarantees
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4. Demand for Housing Microfinance
Potential HMF Demand: every person with secure tenure (and some without)Four main areas of potential demand
‘Substitute Finance’: people who cannot afford or access other housing finance – cynical & prevailing view – NOT REALISTIC Space left by lack of penetration by mortgage and secured housing finance Finance-related and housing supply-related problems inhibit potential
Incremental Home Improvement ‘After-Market Demand’– CURRENT FOCUS Improvement of existing properties: rural & urban, formal & informal title. Transferred public rental, RDP/BNG, rural housing
Mobilising Primary Housing Development – NOT YET POSSIBLE Primary access to land and housing for low-mid income people not possible outside of BNG HSS Increasingly recognized as only viable approach to improving housing conditions of lower-income
people en masse Requires a fundamental re-formulation of human settlement & housing paradigm & processes
Housing Entrepreneurship & Private Rental – ADDED STRATEGY Home-based enterprises: 70% of SMMEs linked to the home Backyard Rental / Tenements: Operating housing sub-market housing 13% of urban households Perfect for realizing multiple urban development benefits
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4. Demand for Housing Microfinance
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0
5000
10000
15000
20000
25000
30000
35000
40000
Enrolments
Years
Figure 10.3: Gauteng Enrolments per Category (2000-2005)
>R500,000 1217 2231 3209 3326 6804 7992
R200k-R500k 3875 6992 10185 8475 15178 17889
R100k-R200k 5188 4423 4911 3337 6755 8057
R50k-R100k 4029 4018 2950 1586 1815 962
<R50,000 281 918 536 97 43 132
2000 2001 2002 2003 2004 2005 P/R
4. Demand for Housing Microfinance
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HOUSEHOLD PROPORTION OF HOUSEHOLDS DEEMED SUBSIDY SV / DEPADDITCREDIT PRODUCT SERVICED SITE TOP STRUCTURE FUNDING
INCOME AFFORDABILITY ELIGIBILITY REQ'DSAVINGSAFFORD PRICE SPECIFICATION SPECIFICATION MIX
(R/month) (% inc & R/Mnth (R Total) (R min)(R Total)(R Total) (R Total) (R Average) (m2) (% of Min Product)
8 VERY HIGH NO NO YES
Max >R 10001
Min R 10,001 25% / +R2500.25/m R 30,877 R 277,890 R 308,767 R80000 Fully serviced +-83m2 @ R2,750/m2
7 HIGH NO NO YES
Max R 10,000 22.5% / to R2250/m R 25,906 R 233,155 R 259,062 R65000 Fully serviced +-78m2 @ R2,500/m2
Min R 7,001 R 18,137 R 163,232 R 181,369 R65000 Fully serviced +-52m2 @ R2,250/m2
6 HIGH-MIDDLE YES-DEP. NO YES
Max R 7,000 20% / to R1400/m R 6,357 R 6,692 R 127,147 R 140,196 R45000 Fully serviced +-48m2 @ R2,000/m2
Min R 5,001 R 4,542 R 4,781 R 90,838 R 100,160 R45000 Fully serviced +-32m2 @ R1,750/m2
5 MIDDLE YES-DEP. NO YES
Max R 5,000 17.5% / to R875/m R 3,973 R 4,182 R 79,467 R 87,623 R25000 Fully serviced +-42m2 @ R1,500/m2
Min R 3,501 R 2,782 R 2,929 R 55,643 R 61,353 R25000 Fully serviced +-36m2 @ R1,000/m2
4 LOW-MIDDLE YES YES YES
Max R 3,500 15% / to R525/m R 36,708 R 2,479 R 37,736 R 76,923 R15000 Fully serviced +-73m2 @ R850/m2
Min R 2,501 R 36,708 R 2,479 R 26,965 R 66,152 R15000 Fully serviced +-60m2 @ R850/m2
3 LOW INCOME YES YES YES
Max R 2,500 12.5% / to R312.5/m R 36,708 R 2,479 R 14,048 R 53,235 R15000 Fully serviced +-51m2 @ R750/m2
Min R 1,501 R 36,708 R 2,479 R 8,435 R 47,622 R15000 Fully serviced +-43m2 @ R750/m2
2 V. LOW INCOME YES NO YES
Max R 1,500 7.5% / to R112.5/m R 36,708 R 0 R 1,922 R 38,630 R15000 Fully serviced +-36m2 @ R650/m2
Min R 801 R 36,708 R 0 R 1,027 R 37,735 R15000 Fully serviced +-35m2 @ R650/m2
1 SPECIAL NEEDS YES NO NO
Max R 800 0% / to R0/m R 36,708 R 0 R 0 R 36,708 R15000 Fully serviced +-33m2 @ R650/m2
Min R 0 R 36,708 R 0 R 0 R 36,708 R15000 Fully serviced +-33m2 @ R650/m2
R 36,708 R15000 Fully serviced +-33m2 @ R650/m2
R 2,479
R1 501 to R3 500/ month only
LOAN FINANCE TERMS: UNSECURED LOANS: Term: 2 Yrs; Int: 35%; Dep: 0%. Min: R0, Max: R10,000
GUARANTEED FINANCE: Term: 5 Yrs; Int: 12%; Dep: 10%. Min: R5,000, Max: R50,000
MORTGAGE LOANS: Term: 20 Yrs; Int: 16%; Dep: 10%. Min: R20,000, Max: None
MINIMUM STANDARD HOUSE:
MANDATORY SAVINGS CONTRIBUTION:
ADDITIONAL SAVINGS REQUIREMENT:
100%
100%
77%
5%
90%
10%
65%
90%
18%
5%90%
10%
90%
10%
90%
5%
5%
4%30%
4%
?%
18%
5%
Ownership (51.1%) Rental (35.5%)Squatting(12.3%)
TribalEx-council(7.6%) Subsidy(15.2%)Private (27.2%) Squat(12.3%)
SHI (0.5%)Private(11.5%)Council(7.6%)
Co. (1.6%)Informal(11.4%)
• Step up to minimum standard product• Linear progression up the pyramid thereafter: this is unusual
Limited Subsidy Supply
Impractical FLISP
‘Chasm Housing’
Secondary Housing Mkt
Rental & backyard rental
Access to Land & ServicesInformal Settlement
Minimum Standards
5. SA’s Development Paradigm
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Current HMF Realities Solid financial sector in SA: microfinance still shape-shifting Level playing fields for MFIs: standard operating conditions, barriers to entry, pressure
to grow, consolidation of players NCA: Sector stability via blanket regulation of MF providers & protection of consumers Concerns: household indebtedness, macroeconomic changes, default
HMF is different from MF Emerging literature & local body of evidence of what works and what does not:
wholesale & retail Much larger than RHLF and NHFC-supported HMFIs: works across the board Organic flow of conventional microfinance into housing good, but not enough Emerging sense of differences: points of contact, parameters for successful lending,
alternative methodologies & products, origination, management, risk identification & mitigation, default management
Need to continue to facilitate growth of sector and help ‘turn money into houses’
HMF works but is a prejudiced ‘sector’ Differentiate organisational commercial failure from methodological failure Benefits to lenders and borrowers of all sizes: voluntary, profitable, growing business
area HMF not only the ambit of NGOs and small HMFIs: interest from banks, non-bank
lenders, community groups & alliances, even developers
6. Status Quo & Lessons Learned
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6. Status Quo & Lessons Learned
Current Housing Realities Mismatch between housing demand and supply: quantum and nature of housing products Minimum standards and subsidy system create artificial divide between formal and informal
housing conditions and sterilise the latter Large and growing demand and discontent about housing conditions down-market
Implications of SA Housing Paradigm BNG does not alter development paradigm sufficiently for future success Housing programme out of touch with South Africa’s state of development, real housing needs
and appropriate strategic responses. Housing policy actively antagonistic to role of HMF and potential of incrementalism Need to fundamentally shift human settlement development processes & current housing
subsidy programmes
First and Second ‘Pillars’ of housing policy developed from middle up low-income housing strategy viewed from minimum standards upwards low income people relegated to sub-optimal, maligned housing situations Need to couple only viable low-income housing strategy with only viable low-income financing
Mechanism
fundamental political, strategy and policy change needed – this is more a housing problem than a finance problem
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6. Way ForwardTurning Microfinance into houses:
Institutional Infrastructure: Mainstreaming HMF in affordable housing delivery: Unblock HMF path to primary urban shelter
production Lobbying for new housing paradigm including incrementalism Tackle problems inherent in current housing approach: rigid minimum standards, fully-subsidised
one-step accommodation programmes Key is new methodology combining individual, state (subsidy) and private sector (microfinance) Reformulate facilitative roles of DFIs to offer institutional support to HMFIs, government,
developers
Organisational Infrastructure: Competition & Co-operation: Collaborative partnerships between mainstream and niche players
to seek new housing development methodologies & microfinance models New HMF approaches and products need to be tested:
Longer-term housing microloans Assessment of risk and interest rate Sources of fixed, movable and social collateral ‘Formal rollover’ microloan products Technical Assistance options Savings-based, housing-linked, product-driven, TA-linked
Support to nascent HMF / incremental housing programmes
Support Infrastructure: Understand successful housing strategies that engage with HMF internationally Research true depth and breadth of HMF in South Africa Grow confidence in HMF amongst housing and finance decision-makers. Technical Assistance: Turning HMF into houses: plans, approvals, supports, technologies
