the state of housing microfinance in africa description / examples county informal, locally...

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THE STATE OF HOUSING MICROFINANCE IN AFRICA

African Union for Housing Finance Annual General Meeting and Annual Conference

“Housing Finance - A Public-Private Partnership”

Joaquim Chissano International Conference Centre Maputo, Mozambique 8-11 September, 2009

Kecia Rust ([email protected])

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Kecia Rust ([email protected]) ▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust (www.finmark.org.za)

Outline

What is housing microfinance?

A growing sector…

… with growing demand

Opportunities

Challenges

Research commissioned

by FinMark Trust in 2009:

Housing Microfinance in

Africa: Status,

Opportunities and

Challenges, by Michael

Kihato.

Available on

www.finmark.org.za

http://www.finmark.org.za

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What is housing microfinance?

Housing microfinance is … any micro financial tool to support investment in the components of

housing, including land purchase or access, provision of or improvement to services, full or

incremental house construction, renovation or maintenance. So, credit, savings, insurance.

Housing microloans are generally unsecured loans granted to individual borrowers (sometimes co-signers)

intermediate in size (from US$ 100 - $5000)

of longer duration (1-5 years) than other microfinance loans given their size.

higher in interest than secured loans but with interest rates on par with microloans

used to build or improve the home incrementally

a niche market product: something special about the housing part…

Productive, not consumption loans: enhancing risk management

Less than 30% of households in most emerging countries can afford a mortgage to purchase the least

expensive developer-built unit, so, most households build step-by-step, room-by-room

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A growing sector…

Demand side indicators

High urbanisation rates

High real interest rates

Tenure security

The desire to self build

Supply side indicators

Insufficient affordable housing

Low penetration of commercial banking & financial services

A growing MFI sector

Availability of funding: Savings / Capital markets / International remittances

The Financial Bank in Benin was the first to propose social loans in 1995 to people who could not access formal funding from banks to improve their housing and buy land. In November 1998, Financial Bank created FINADEV as their microfinance subsidiary. Since its start up, FINADEV SA has given access to microcredit to more than 25 000 small borrowers in Benin. Apart from traditional microfinance products, it provides housing loans. FINADEV suffers from similar problems as other microfinance institutions including limitation of funding, a lack of innovation in loan management, difficulty in adjusting to risks, increasing unmet demand as well as weaknesses of MIS and governance.

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Borrowers

A growing sector…

HMF

Retailers

Investors: public / private /

institutional

Wholesale lender

Private equity firms / hedge funds

Donors

HMF

Retailers

Rating Agency

Provides support and spurs on community organisation around

land and infrastructure issues

Acts as a type of guarantor and grades institutions

Bank

NGO, building material suppliers, etc.

Work individually or

together to finance

HMF retailer: loans,

equity, guarantees

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Category Description / examples County

Informal, locally established (susu, umpato)

Savings based, locally defined. Approach and use of funds defined by group: individual or collective loans

All countries – lessons?

Community based shelter funds

Usually donor supported (i.e. Slum Dwellers International) largely collective loans, targeted at most poor

Trust Fund of the Housing People of Zimbabwe, WAT Human Settlements Trust in TZ; Angola, Namibia; Kenya

Cooperatives and credit unions (Saccos)

Individual loans for housing often a coincidental focus

NACHU in Kenya; WAT SACCOs in TZ; Namibia; Zambia

Non-bank Micro lenders (credit-only)

Origins in housing delivery / shelter NGOs that saw demand for finance

Kuyasa Fund & Lendcor in SA; Zambia Low Cost Housing Development Fund;

Origins in microcredit for SMMEs; housing the next progression.

Uganda Microfinance Ltd; Jamii Bora in Kenya; PRIDE in TZ; others…

Microfinance banks (deposit taking and lending to members and sometimes non-members)

Usually when micro lenders convert to banks to access capital - a focus on housing loans usually comes later

K-Rep in Kenya; Zambia National Building Society; Pulse Holdings in Zambia; African Bank, and Capitec Bank in SA; etc.

State owned banks offering microloans

Trend is now moving away from these as many sustained losses

Ghana, Tanzania, Guinea, Uganda,…

Commercial banks offering microloans

SA banks have offered unsecured loans for some time. The NCR estimates that 10-30% of these are used for housing.

Standard Bank, ABSA in SA; Indo-Zambian Bank; Namibia, Tanzania…

A growing sector… lenders

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… with growing demand

Country Population

------------------ Average

household size

% of population

that is (a)urban, or

(b)rural

x

No. of potential

borrowers (assuming

one per household)

=

% of urban

households who may afford a

loan

x

% of rural

households who may afford a

loan

x

x

% of urban

population not served by formal mortgages

% of rural

population not served by formal mortgages

% of urban

households who may want a

loan

x

% of rural

households who may want a

loan

x

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… w

ith

gro

win

g d

eman

d (u

rban

)

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… with growing demand (urban)

No. of potential

borrowers (assuming

one per household)

Average loan size

(HDI proxy or avg)

x =

Estimated total

value of the market

($)

Avg

$700 (DiD figure)

Morocco

$1150

South Africa

$430

Kenya

$533

Uganda

$942

Ethiopia

$228 Benin

$666

Rwanda

$350

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… w

ith

gro

win

g d

eman

d (u

rban

)

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Opportunities Successful growing and profitable microlending sector

Senegal, Burkina Faso

Urbanisation and demand Morocco, Egypt and Algeria (high urban populations)

Ghana, South Africa, Cameroon, Nigeria (high urbanisation rates and large urban centres)

Kenya, Congo DRC, Uganda, Ethiopia, Tanzania (urbanisation rates greater than 3%)

Rural demand Nigeria, Egypt, Ethiopia, Congo DRC, Uganda, Kenya, Tanzania

Favourable regulatory frameworks Morocco has specific legislation focusing on HMF

Use of capital markets South Africa, Egypt, Nigeria, Ghana, Kenya

International remittances Senegal, Burkina Faso, Tunisia, Benin, Mauritius, Eritrea, Malawi,

Niger, Congo, Lesotho

MDGs mean

governments

are

interested

Donors,

wholesale

lenders and

investors are

all interested

Growing

experience

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Opportunities WAT Human Settlements Trust,in Dar Es Salaam, Tanzania.

In 1998, WAT established a Savings and Credit Society to prvide credit for housing. The WAT Saccos grew to over 5000 members and about $800,000 in savings. In 2008, WAT signed an agreement with the Financial Sector Deepening Trust (FSDT) to undertake a 3.5 year HMF pilot. This will increase the number of housing loans to 1000 per year. This pilot will develop sustainable and replicable loan products and processes. It is expected that it will be spread over a network of 40 Saccos in Tanzania.

Development Workshop, Angola

In 1999, Development Workshop launched the Sustainable Livelihoods Programme, Angola’s first large-scale microfinance programme, along the Grameen Bank model. They realised that up to 30% of their microfinance clients loans were invested in their housing.

In 2005, they developed a housing microloan: KixiCasa. Loan sizes are $800-$2500, repayable over 10 -12 months.

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Challenges Land & services

Tenure security

Sustainable infrastructure

Regulatory frameworks Supportive legislation

Funding Guarantees

Information systems

HMF track record Appropriate products: savings + credit + technical support

Scaleable models: viable systems

Lender capacity & technical support: operations

Developmental outputs: the housing ingredients Product targets: home improvements, backyard rental, incremental housing

Public / private partnership opportunities

Role for donors, DFIs, NGOs

NGO / commercial partnership opportunities

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Conclusion

Total urban demand for Africa is potentially

large, but not unmanageable:

Total urban demand for Botswana estimated at

$37,5m vs. total pension assets for Botswana in

2005 of $3,58: Less than 1.5% of pension funds

used for HMF would meet total urban demand

in that country

Total urban demand for Kenya estimated at

$295m vs. stock market capitalisation of $6b (in

2005)

Total potential urban demand for the top 40

countries is over $10 billion - this is only 0.5% of

the estimated $2 trillion directly lost on sub-

prim loans.

Opportunity for government,

private sector, NGOs and

donors to come together to

address Millennium

Development Goals

Accepting incremental housing

on secure tenure as a viable

housing approach, is the first

step.

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Conclusion

Establishing a housing loan product

Cooperative savings and loans for housing

Scaling up capacity for growth

Offering housing support services

Broadening institutional actors

The use of cheap and effective building technology

Public-private-international partnerships

Guarantee finance

Pension funds investment

Ugafode, Uganda

Faulu, Kenya

KixiCredito, Angola

Nachu, Kenya

Kuyasa Fund, South Africa

Development Action Group, South Africa

Centenary Bank, Uganda

Mchenga, Malawi

Zakouara with Shorebank Int’l & USAID’s DCA

WAT, Tanzania Nachu, Kenya

Teba Bank, South Africa

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