State of Housing Microfinance in Africa

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Key note Presentation at the 6th Microfinance conference in Durban on August 14-16th. A review of the state of the industry, the opportunities in the housing finance space.

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<ul><li> 1. WaganeDiouf,CEOUrbanisAfricawww.urbanisafrica.com StateofHousing MicrofinanceInAfrica </li></ul> <p> 2. Urbanisdelivered330housesandisyetto finalizeofenduserfinancing. HousingMicrofinanceiskeytogrowthof AffordablehousinginAfrica. 1UrbanisAfricaExperience 3. Affordablehousingisa$30billionmarketin Africa.Thesizeofthemarketcommandsahuge potentialforhousingrelatedMicrofinance services. 2OpportunitiesinHMF 4. AfricaisalmostasurbanizedasChinaandhasas manycitiesof1millionpeopleasEurope. Asaresult60%ofAfricasurbanpopulationlives ininadequatehousing. 3RapidUrbanpopulationgrowth Share of rural vs. urban population by region, 2010 (%. Million) SOURCE: United Nations; McKingsey Global Institute 100% = Rural Urban 1,219 1,032 1,351 830 594 349 48 52 109 52 63 48 Cities with &gt;1 million people 5. Africaisplaguedwithachronicinabilitytomeet thewideninggapbetweenhousingdemandand supplyforlowincomegroups.Thegapis approaching10to1. 4DemandSupplyGapis1to10 Region Demand Supply Sub Saharan Africa 32millionhouseholdsinSubSaharanAfricaare consideredinadequate. Undercurrenturbanisationrates,anadditional14 millionhousingunitsperannumarerequired 308millionpeople;191millionofwhich liveininadequatehousing. Kenya 60%ofhouseholdsareconsideredinadequate housingandarelocatedinslums. 150,000unitsarerequiredperyear Lessthan30000unitsperyear Theannualdeficitisthusmorethan 120,000housingunitsperyear Ghana Ghanasannualdemandforhousingcurrently standsat120,000housingunitsperannum Currenthousingsupplyprovides42,000 unitsperannumwhichisonly35%ofthe demand Nigeria 33.6millionNigerianslivinginurbanareas(46%of theurbanpopulation)areconsideredtobelivingin inadequatehousing Theannualdeficitis16millionunits 720,000unitsneedtobecreated annuallytomeetthedemand Currentsupplyishowevermeetingonly 3%ofthisdemand Tanzania 80%oftheentirepopulationislivinginunplanned, informalsettlementswithpoorshelterandfew basicservices Thehousingdeficitinurbanareasis estimatedat1.2millionunits. 6. Theoverwhelmingnumberofhomebuyersare fromtheinformalsectoranddonotqualifyfor formalmortgages.HMFistheonlyoptionfor mostAfricapotentialhomebuyers. 5InformalSectoris80%ofhomebuyers Sub-Saharan Africa population Informal sector Informal working-age labor force Informal sector households 800 million 650 million 250 million 50 million UN Statistics Division ILO; Finscope surveys World Development Indicators World Development Indicators Depositing and transacting market Borrowing market Source: 1Dr.SherVerick,TheImpactofGlobalizationontheInformalSectorinAfrica 7. TheaffordablehousingindustryinAfricahas beenheldbackbythelackofmortgagefacilities. Withaafewnotableexceptions,mortgages representlessthan10%ofGDP. 6Lackoffinancingistheculprit Source:AfricaHousingFinanceYearbook2012 8. Productofferingisfocusedontheendofthe Valuechainanddoesnotincludesmall contractors,suppliersanddevelopers.Amore holisticapproachisneeded. 7HMFexpandingproductoffering Product Amounts Features Examples HomeImprovement Between$1,000and $15,000 35yearsunsecuredloan towardadditionstothe house.Flexiblepayment terms SelectAfricaProcredit AkibaBank MicroMortgage From$571to$57,000 Upto10years.Requires proofofsalaryorregular income.Pensionsavings moreandmoreusedas collateral. UBank,NationalBuilding SocietyZambia MicrofinanceLoanapplied towardahousingproject From$500to$10,000 Upto2years.Usually collaterized MostMicrofinanceBanks 9. Private2ndtierinstitutionandmissinginthelist ofplayers.Realscalewillnotbeachievedunlessa stablesourceoflongtermcommercialcapitalis available. 8Fourkeyplayersdrivechange 2stTier 1stTier Commercial NonProfit MIFs DTM Banks Housing MFIs Coop Societies MIFs Non DTM Housing NGOs SACCOS Investment Clubs DFIs Private Equity Housing Funds Apex Institutions Commercia l Funds Commercia l Banks 10. Private2ndtierinstitutionandmissinginthelist ofplayers.Realscalewillnotbeachievedunlessa stablesourceoflongtermcommercialcapitalis available 8Fourkeyplayersdrivechange 2stTier 1stTier Commercial NonProfit Ugafode AKIBA Bank Select Africa NACHU MIFs Non DTM Habitat for Humanity SACCOS Investment Clubs IFC/ KFW/OPIC Kuyasa Fund Rooftops Canada/CL IFF NACHUNUFF IHS 11. ThelevelofHMFloanscomparedtootherMF productsislow.Theperformanceofkeyplayersis mixedatbest.Theopportunitiesstilllieahead 9EncouragingHMFperformance 12. 10MajorHMFchallenges Inappropriate government policies Political &amp; regulatory barriers Lack of replicable, scalable models Poor understanding of HMF OverallEnvironment Wholesale Need for appropriate guarantee mechanisms: to extend access, deal with currency risk, and facilitate wholesale lending, etc. Retail High interest rates; insufficient providers: limited availability of end user credit especially for the very poor. Finance Inability of the poor to access serviced land In situ land servicing Security of tenure Bulk and connector infrastructure Land Technical assistance required in a wide range of areas Development and cost of appropriate, effective technology Limitations with data collection, management, analysis mechanisms and MIS systems Limited ability to articulate and support the finance/ housing link Chicken-and-egg challenge of scale: limitations with operational systems, capital and human resources HMFICapacity Borrower education and consumer/investor financial literacy Unstable incomes requires tailored collection methods Limited affordability and lack of collateral Lack off housing support services to support sound housing development Borrowers Manychallengesrelatedto thebroadervaluechain affecttheHMFindustry Challenges 13. Thewayforwardistointerveneinthevaluechain byfinancingcontractors,suppliersaswellasend users.Anintegratedapproachwillreduceriskand improverevenuegeneration. 11Innovationisthewayforward 14. Urbanisisexploringwaystobeingthe conventionalBanksintotheMicrolending businessthroughsecuritization. 12Innovationisthewayforward Mortgage Bank Jamii Bora Makao Finance 80% of Price of the House Security Fund 20 % Deposit Home Buyer Single Secured Mortgage Bundled Instalments of 20 Deposits of 20% Home Buyer Home Buyer Sell Houses to Buyers Monthly Instalment 15. www.Urbanisafrica.com wagane@urbanisafrica.com </p>