MICROFINANCE IN AFRICA African Union for Housing Finance Annual - PowerPoint PPT Presentation

1 1 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 (kecia@iafrica.com)

2 2 Outline  What is housing microfinance?  Research commissioned by FinMark Trust in 2009:  A growing sector…  Housing Microfinance in  … with growing demand Africa: Status, Opportunities and  Opportunities Challenges, by Michael  Challenges Kihato .  Available on www.finmark.org.za Kecia Rust (kecia@iafrica.com) ▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust (www.finmark.org.za)

3 3 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 Kecia Rust (kecia@iafrica.com) ▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust (www.finmark.org.za)

4 4 A growing sector… Demand side indicators Supply side indicators   High urbanisation rates Insufficient affordable housing   High real interest rates Low penetration of commercial banking & financial services   Tenure security A growing MFI sector   The desire to self build 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. Kecia Rust (kecia@iafrica.com) ▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust (www.finmark.org.za)

5 5 A growing sector… Investors: public / private / institutional Work individually or together to finance Wholesale Private equity firms / lender hedge funds HMF retailer: loans, Donor equity, guarantees s Acts as a type Rating Agency of guarantor and grades institutions HMF HMF Bank Retailers Retailers Provides support and spurs on community NGO, building material organisation around suppliers, etc. land and infrastructure issues Borrowers Kecia Rust (kecia@iafrica.com) ▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust (www.finmark.org.za)

6 6 A growing sector… lenders Category Description / examples County Informal, locally established Savings based, locally defined. Approach All countries – lessons? (susu, umpato) and use of funds defined by group: individual or collective loans Community Usually donor supported (i.e. Slum Dwellers Trust Fund of the Housing People of based International) largely collective loans, Zimbabwe, WAT Human Settlements Trust shelter funds targeted at most poor in TZ; Angola, Namibia; Kenya Cooperatives and credit unions Individual loans for housing often a NACHU in Kenya; WAT SACCOs in TZ; (Saccos) coincidental focus Namibia; Zambia Non-bank Origins in housing delivery / shelter NGOs Kuyasa Fund & Lendcor in SA; Zambia Low Micro that saw demand for finance Cost Housing Development Fund; lenders (credit-only) Origins in microcredit for SMMEs; housing Uganda Microfinance Ltd; Jamii Bora in the next progression. Kenya; PRIDE in TZ; others… Microfinance banks (deposit Usually when micro lenders convert to K-Rep in Kenya; Zambia National Building taking and lending to members banks to access capital - a focus on housing Society; Pulse Holdings in Zambia; African and sometimes non-members) loans usually comes later Bank, and Capitec Bank in SA; etc. State owned banks Trend is now moving away from these as Ghana, Tanzania, Guinea, Uganda,… offering microloans many sustained losses Commercial banks offering SA banks have offered unsecured loans for Standard Bank, ABSA in SA; Indo-Zambian microloans some time. The NCR estimates that 10-30% Bank; Namibia, Tanzania… of these are used for housing. Kecia Rust (kecia@iafrica.com) ▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust (www.finmark.org.za)

7 7 … with growing demand % of % of % of urban urban urban population households households x x not served who may who may Country No. of by formal want a afford a % of Population potential mortgages loan loan population ------------------ borrowers x x = that is Average (assuming (a)urban, or household one per % of % of % of (b)rural size household) rural rural rural population households households x x not served who may who may by formal want a afford a mortgages loan loan Kecia Rust (kecia@iafrica.com) ▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust (www.finmark.org.za)

8 8 … with growing demand (urban) Kecia Rust (kecia@iafrica.com) ▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust (www.finmark.org.za)

9 9 … with growing demand (urban) No. of Estimated potential Average total borrowers loan size x = value of (assuming (HDI proxy the market one per or avg) ($) household) South Africa Uganda Rwanda $430 Avg $942 $350 Morocco $700 $1150 Kenya (DiD figure) Ethiopia $533 Benin $228 $666 Kecia Rust (kecia@iafrica.com) ▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust (www.finmark.org.za)

10 10 … with growing demand (urban) Kecia Rust (kecia@iafrica.com) ▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust (www.finmark.org.za)

11 11 Opportunities  Successful growing and profitable microlending sector  MDGs mean  Senegal, Burkina Faso governments  Urbanisation and demand are  Morocco, Egypt and Algeria (high urban populations) interested  Ghana, South Africa, Cameroon, Nigeria (high urbanisation rates and large urban centres)  Kenya, Congo DRC, Uganda, Ethiopia, Tanzania (urbanisation rates  greater than 3%) Donors,  Rural demand wholesale  Nigeria, Egypt, Ethiopia, Congo DRC, Uganda, Kenya, Tanzania lenders and  Favourable regulatory frameworks investors are  Morocco has specific legislation focusing on HMF all interested  Use of capital markets  South Africa, Egypt, Nigeria, Ghana, Kenya  International remittances  Growing  Senegal, Burkina Faso, Tunisia, Benin, Mauritius, Eritrea, Malawi, experience Niger, Congo, Lesotho Kecia Rust (kecia@iafrica.com) ▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust (www.finmark.org.za)

12 12 Opportunities WAT Human Settlements Trust,in Dar Es Development Workshop, Salaam, Tanzania . Angola In 1998, WAT established a Savings and In 1999, Development Credit Society to prvide credit for housing. Workshop launched the The WAT Saccos grew to over 5000 Sustainable Livelihoods members and about $800,000 in savings. In Programme, Angola’s first large - 2008, WAT signed an agreement with the scale microfinance programme, Financial Sector Deepening Trust (FSDT) to along the Grameen Bank model. undertake a 3.5 year HMF pilot. This will They realised that up to 30% of increase the number of housing loans to their microfinance clients loans 1000 per year. This pilot will develop were invested in their housing. sustainable and replicable loan products In 2005, they developed a and processes. It is expected that it will be housing microloan: KixiCasa. spread over a network of 40 Saccos in Loan sizes are $800-$2500, Tanzania. repayable over 10 -12 months. Kecia Rust (kecia@iafrica.com) ▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust (www.finmark.org.za)