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

2011/2012 FY2011/2012 FY

16 March 201116 March 2011

Presented to:

National Department of Human Settlements

by:MR. JJ Fakazi – CEO

MR. H Potgieter - CFO

Outline • RHLF Mandate• Vision• Mission• Policy Context: HS & Other Policy Priorities• Provincial Involvement• Partnerships with other Development Finance Institutions• Business Environment: Internal and External + Implications• Key Performance Areas• Financial Projections• Materiality Framework• Corporate Governance

MANDATE

• To facilitate housing credit to low income rural households: including communal land, rural towns, small towns

• To support Government’s Rural Development priority—(Comprehensive Rural Development Programme)

• To support government’s effort to expedite housing delivery in rural areas through administering the delivery of the Individual Rural Housing Voucher Programme – once implementation is approved by MINMEC

• Focus on low income market: upper limit increased from R7, 500 to R9, 800 per month– Takes into account inflation– Covers the gap market who can’t access mortgage (limited affordable

housing product, and no title to land in communal land)

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: – Housing finance from sustainable retail lenders &– Government subsidy through the Individual Rural

Housing Subsidy Voucher Programme

Policy Context: RHLF’s contribution to Sustainable Human Settlements

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

Incremental Housing:

1.Existing core financing opportunity for RHLF business2.Enable borrowers to progressively improve quality of their housing asset

Supporting Rural Human Settlements Development:

1.Provision of loans for improving traditional houses in communal land2.Support building of new quality houses—especially “rural gap market”3.Enable access to services: water, energy & sanitation

POTENTIAL CONTRIBUTION TO OUTCOME 8

Encourage intermediaries to explore financing opportunities in:• Informal Households Upgrading

– Target can be only set once clear understanding on delivered service sites have been ascertained

• Backyard rentals– Cannot set targets at this stage– One client conducting feasibility on this financing opportunity & will submit

proposal to pilot

• RHLF will liaise with the Provincial DoHS on these two opportunities in order to identify opportunities

Policy Context: Other Govt Priorities

• Rural Development• SMME Development• Job Creation (within intermediaries & local

builders)• Addressing needs of the 2nd Economy:

productive housing• Local Economic Development

Provincial Involvement

RHLF is a national wholesale housing finance institution Has national reach through intermediary lenders who lend in all provinces Engage & support with provinces on human settlements development issues Ensure that RHLF programme helps in enhancing housing delivery in rural

areas and small towns: Improvement of basic core house and improvement of quality of traditional rural houses Enabling people in the gap market to access housing finance, without need for collateral

Engage Traditional Leaders as partners in the improvement of quality and delivery of housing on communal land

Partnerships with other DFIs

Engagement with NURCHA on the Subsidy Voucher Scheme Pilot Implementation

RHLF has strong funding relationship with DBSA—resulting from KfW loan to RHLF

Possibility of RHLF to establish funding relationship with NHFC to scale up incremental housing finance—which is RHLF’s only core business. Especially clients in which RHLF has reached max exposure

RHLF – Strategic plan for 2011/2012

Business Environment: Internal Factors

Internal factors affecting RHLF: Funding: RHLF received R49,5 million during 2010/2011

Expecting R49,5 million in 2011/2012R51,9 million in 2012/2013

Human Resources: Small but dedicated team Mr. JJ Fakazi appointed CEO in Sept 2010 Need to build capacity: Employed following during 2010/2011

Risk Analyst Marketing Consultant Intern Client executive

DFI review: RHLF is playing an active roll in the ongoing DFI review process.

Business Environment: External Factors / Economic Climate

Steady growth rate predicted but recovery will be slow and fragile for next 12 months

High level of job losses – Around 1 million. Seeing some improvement but re-employment in the formal sectors will lag the economic recovery

Inflation has moderated somewhat – Risk of oil price, food prices and effect of ESKOM price increase

Over indebtedness - household debt represents on average between 70% and 80% of their disposable income At the end of 2010, South Africa close to half of the credit active consumers

had impaired credit records Lower interest rates to remain for rest of the year Liquidity crunch - credit supply conditions remain tight

Implications of Environmental Considerations

Targets must be set in the context of these economic realities Targets for 2011/12 are still on the conservative side Intermediaries are starting to look at growth but they will

remain focused on improving portfolio quality Consumer protection critical: avoid pushing credit and then

looking at portfolio as “sub-prime” later

KEY PERFORMANCE AREAS

Rural Housing Finance Reach Number of end user loans financed by RHLF

Average loan size in 2010/2011 = R4500Budget for 2011/2012 based on R4855

KEY PERFORMANCE AREAS

Rural Housing Finance Reach Annual Disbursements

KEY PERFORMANCE AREAS

Rural Housing Finance Reach Value of Loans in place and impairment provision

KEY PERFORMANCE AREAS

Rural Housing Finance Reach Impact

Perspective Actual Mar-10 Forecast Mar-11 Mar-12 Mar-13 Mar-14

Value of Loans in Place R 230 414 581 273 363 854 336 817 341 402 841 094 467 975 810

Percentage impairment provision % 20.7% 19.3% 19.5% 20.5% 22.2%

Disbursements to Retail Intermediaries R 57 000 000 122 100 000 164 000 000 170 000 000 192 500 000

Disbursements to Retail Intermediaries (incl. Mezzanine Dis) R161 133 000 202 000 000 228 000 000 234 000 000 256 500 000

Number of End-User Loans disbursed # 33 112 44 933 46 960 44 625 45 293

Average End-User Loan Size R 4 866 4 496 4 855 5 244 5 663

Qualifying Housing Use Target (% of loan instances) % 84.0% 80.0% 80.0% 80.0% 80.0%

Number of Retail Intermediaries # 12 12 13 14 15

Community Based Organizations # 3 2 4 6 8

80.0% 80.0% 80.0%80.0%

20.0% 20.0% 20.0%

Percentage of end-user loan instances going to households earning R3,500 p.m. or less. % 62.0% 60.0% 60.0% 60.0% 60.0%

20.0%

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Percentage of end-user loan instances going to households earning R9,500 p.m. or more. % 21.0%

Percentage of end-user loan instances going to non-metropolitan areas. % 88.0%

KEY PERFORMANCE AREAS

Rural Housing Finance Reach Finance

Performance IndicatorsPerspective Actual Mar-10 Forecast Mar-11 Mar-12 Mar-13 Mar-14

Income from Core Business R 31 970 104 35 270 512 36 226 572 39 658 433 46 519 470

Average Interest on Loans Granted % 14.1% 13.6% 11.9% 10.7% 10.7%

Income from Financial Investments R 7 647 393 8 433 241 6 175 220 7 952 801 6 647 648

Impairments on Loans and Investments R (10 504 500) (5 000 000) (13 120 000) (17 000 000) (21 175 000)

Impairment charge as % of disbursements % 7% 2% 6% 7% 8%

Expenditure R (9 012 639) (11 799 047) (15 850 077) (17 372 947) (18 869 584)

Operating Expense Ratio % 23% 27% 37% 36% 35%

Operating Surplus before Taxation R 34 402 972 16 760 323 3 015 232 2 821 804 2 706 051

Total Capital R 329 343 939 383 432 205 432 650 264 485 827 069 487 729 870

Loan Capital R 139 642 166 139 891 826 138 729 453 138 729 453 138 729 453

Capital used in Operations R 189 701 773 243 540 379 293 920 811 347 097 615 349 000 416

Liquid Funds R 103 291 849 145 053 170 140 933 869 141 328 243 94 413 212

Return on Equity % 18.7% 6% 1% 1% 1%

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KEY PERFORMANCE AREAS

Rural Housing Finance Reach Strategies to increase number of loans

RHLF plan to add at least 2 more community based organizations to its delivery channel. In this process we would give preference to organizations that are based in the provinces where our impact is currently on the low side, like Northern Cape

RHLF plan to add at least 1 new intermediary with a foot print in the provinces where our impact is currently on the low side as well as rural provinces in general.

RHLF will be extending a facility to RPH and Lendcor Group – Low leakage risk due to business model allows RHLF to introduce lower interest rates

RHLF to roll out its low interest rate loans to all other clients who have capacity and distribution channels to on-lend the low interest rate product–

Will reduce rates by between 6% and 8%

• Lendcor gives 94% housing loans in deep rural parts• R40 mil revolving facility – R5 mil disbursements per month• In April 2010 Lendcor lowered its rates on the 18, 24 & 36 month loans• RHLF interest rate to Lendcor = 15%p/a• To assist Lendcor: RHLF lowered its rate to 12%p/a• From 1 Now 2010 RHLF lowered rate to 9.5% on all new disbursements• 2% of the saved points will be passed on to endures.

Lendcor Low Interest loans

KEY PERFORMANCE AREASStatement of Financial Position

Assets Actual Mar-10 Forecast Mar-11 Mar-12 Mar-13 Mar-14

Non Current Assets

Gross Loans Receivable 230 414 581 273 363 854 336 817 341 402 841 094 467 975 810 Impairments (47 642 509) (52 642 509) (65 762 509) (82 762 509) (103 937 509)

Net Loans Receivable 182 772 072 220 721 345 271 054 832 320 078 585 364 038 301

Investments in Associates 3 150 198 3 400 198 3 650 198 3 900 198 4 150 198 Available for sale financial assets 1 481 590 1 481 590 1 481 590 1 481 590 1 481 590 Property Intangibles and Equipment 137 803 231 790 230 463 169 141 330 507 Deferred Tax Asset 10 178 972 11 228 971 13 984 171 17 554 171 22 000 921

Total Non-Current Assets 14 948 563 16 342 549 19 346 422 23 105 100 27 963 216

Current Assets

Trade and Other Receivables 28 331 455 1 315 141 1 315 141 1 315 141 1 315 141 Cash and Cash Equivalents 103 291 849 145 053 170 140 933 869 141 328 243 94 413 212

Total Current Asssets 131 623 304 146 368 311 142 249 010 142 643 384 95 728 353

Total Assets 329 343 939 383 432 205 432 650 264 485 827 069 487 729 870

KEY PERFORMANCE AREASStatement of Financial Position

Equity and Liabilities Actual Mar-10 Forecast Mar-11 Mar-12 Mar-13 Mar-14

Capital and Reserves

Grant Capital 154 762 590 199 522 589 249 022 589 300 997 589 300 997 589 Reserves 33 111 390 45 179 526 47 350 493 49 382 192 51 330 549

Total Capital and Reserves 187 873 980 244 702 115 296 373 082 350 379 781 352 328 138

Non-Current LiabilitiesDBSA / Kfw Loan Facility 139 642 166 139 891 826 138 729 453 138 729 453 138 729 453

Total Non-Current Liabilities 139 642 166 139 891 826 138 729 453 138 729 453 138 729 453

Current Liabilities

Trade and Other Payables 1 782 126 1 182 226 1 182 226 1 182 226 1 182 226 Taxation 45 667 (2 343 962) (3 634 498) (4 464 392) (4 509 947)

Total Current Liabilities 1 827 793 (1 161 736) (2 452 272) (3 282 166) (3 327 721)

Total Equity and Liabilities 329 343 939 383 432 205 432 650 264 485 827 069 487 729 870

KEY PERFORMANCE AREASStatement of Financial Performance

STATEMENT OF FINANCIAL PERFORMANCE

Actual Mar-10 Forecast Mar-11 Mar-12 Mar-13 Mar-14

Financial Revenue

Interest Revenue on Advances 31 970 104 35 270 512 36 226 572 39 658 433 46 519 470 Income from Equity Investments 722 600 250 000 250 000 250 000 250 000 Cash Dividend Income 2 948 063 360 755 - - - Income from Financial Investments 7 647 393 8 433 241 6 175 220 7 952 801 6 647 648

Total Financial Revenue 43 288 160 44 314 508 42 651 792 47 861 234 53 417 118

Financial Expense

Net Impairment of Advances and Investments (10 504 500) (5 000 000) (13 120 000) (17 000 000) (21 175 000) Interest Paid on Non-Current Liabilities (9 842 384) (10 551 644) (10 666 483) (10 666 483) (10 666 483)

Total Financial Expense (20 346 884) (15 551 644) (23 786 483) (27 666 483) (31 841 483)

Net Financial Income / Net Interest Margin 22 941 276 28 762 864 18 865 309 20 194 751 21 575 635

Total Operating Expenses (9 012 639) (11 799 047) (15 850 077) (17 372 947) (18 869 584)

Total Non-Interest Income 20 474 335 (203 494) - - -

Net Income Before Taxation 34 402 972 16 760 323 3 015 232 2 821 804 2 706 051

Taxation (5 458 642) (4 692 187) (844 265) (790 105) (757 694)

Net Income After Taxation 28 944 330 12 068 136 2 170 967 2 031 699 1 948 357

KEY PERFORMANCE AREASStatement of Financial Performance

Operating Expenses Actual Mar-10 Forecast Mar-11 Mar-12 Mar-13 Mar-14

Non-Executive Directors' Fees (168 000) (256 000) (414 000) (447 120) (482 890) Staff Cost (5 287 039) (7 066 934) (8 513 838) (9 426 209) (10 401 397) Travel Expenses (301 446) (329 755) (618 420) (667 894) (714 646) Occupancy Expense (575 591) (640 792) (691 044) (753 038) (820 380) Communication Cost (169 591) (225 147) (260 604) (281 452) (301 154) Marketing Expenses (554 837) (663 721) (921 996) (995 756) (1 065 459) Depreciation Property, Plant and Equipment (127 732) (114 365) (101 326) (126 322) (88 634) Consulting, Legal and Audit Fees (971 860) (1 618 997) (3 304 996) (3 569 396) (3 811 855) Other Administrative Expenses (856 543) (883 336) (1 023 852) (1 105 760) (1 183 169)

Total Operating Expenses (9 012 639) (11 799 047) (15 850 077) (17 372 947) (18 869 584)

KEY PERFORMANCE AREASStatement of Financial Performance

•62% increase in Directors fees: Fee increased from R4000 to R4500. Budget based on all directors at all meetings•Staff cost up 20%

•COO appointed from Sept 2011•New positions:

•Intern for Client Executive team•Receptionist

•Annual increase for current employees based on inflation and performance•Travel Expenses up 88%

•Increase activity – new clients, monitoring low interest loans, risk reviews•Increase in fuel prices and toll fees•Increased travel re Rural Housing Subsidy Voucher Scheme

•Marketing cost, up 39%•Consulting, up 104%

•Inflation increase for internal and external audit•Increase in legal fees – new agreements for new clients and low interest loans•Impact audit at clients•Rural Housing Subsidy Voucher Scheme – R1,5million

KEY PERFORMANCE AREASCash Flow Statement

STATEMENT OF CASH FLOW

Actual Mar-10 Forecast Mar-11 Mar-12 Mar-13 Mar-14

Beginning Cash 68 091 864 103 291 849 145 053 170 140 933 869 141 328 242

Cash Financial Revenue (w/o interest on investments) 31 970 104 35 270 512 36 226 572 39 658 433 46 519 470Cash Financial Expense (9 405 172) (8 455 140) (11 828 856) (10 666 483) (10 666 483) Cash Financial Income / Net Interest Margin 22 564 932 26 815 372 24 397 716 28 991 950 35 852 987

Cash Operating Expenses (7 309 861) (11 684 681) (15 748 750) (17 246 047) (18 780 333) Non-Operating Income / ExpenseReduction in Net working Capital 26 416 414

Net Cash Before Disb. / Repaym. and Financing 83 346 935 144 838 954 153 702 136 152 679 772 158 400 896

Disbursement of Advances (57 000 000) (122 100 000) (164 000 000) (170 000 000) (192 500 000) Capital Repayments of Advances 54 143 704 73 855 696 100 546 513 103 975 669 127 364 668 Capital Expenditure (27 264) (195 476) (100 000) (65 000) (250 000) Grant capital injection DoHS - 44 760 000 49 500 000 51 975 000 0

Ending Cash Balance before Cash Investments 100 597 277 141 159 174 139 648 649 138 565 441 93 015 563

Interest Earned on Surplus Funds 7 627 464 8 433 241 6 175 220 7 952 801 6 647 648 Dividends Received 2 948 063 360 755 Cash Tax Payments (7 880 955) (4 900 000) (4 890 000) (5 190 000) (5 250 000)

Ending Cash Balance 103 291 849 145 053 170 140 933 869 141 328 242 94 413 212

KEY PERFORMANCE AREASRHLF high level organisational design

CORPORATE GOVERNANCE•The 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 CEO is the only Executive Director on the Board•The sub-committees of the board are as follows:

CORPORATE GOVERNANCEBOARD & SUB-COMMITTEES

INTERNAL COMMITTEES

Management Committee

Portfolio Committee

Sales Committee

Team

Meetings

CORPORATE GOVERNANCE

Thank You