ANNUAL PERFORMANCE PLAN FOR 2013/14 FY Parliamentary Portfolio Committee on Human Settlements 27 March 2013 Presented by: Jabulani Fakazi, CEO & Bruce Gordon, CFO

Presentation Outline RHLF Mandate The RHLF Market Size and Coverage Market Conditions Government Policy Context Challenges Raising Awareness & Developing New Foot Print Internal Resources Strategic Objectives Governance Conclusion

RHLF MANDATE To facilitate access to incremental housing finance for low income households in rural areas Focus on rural areas and small towns (outside of metros) Market segment: below R9, 800 (bias towards those earning R3, 500 and less) To support the implementation of rural development programme

RHLF Market Size and Coverage (Census 2011) Close to 5 million households living on tribal and farm areas RHLF loans since inception to end of Q3 of 2012/13 FY = 348 291 (RHLF has a long way to go to have impact on the rural households) & Less than 1% of RHLF loans reach rural households Small towns not included in these statistics—so market is much higher Despite all RHLF’s track record of delivery, households in tribal and farm areas are not adequately serviced, because: Funding shortage (mainly) Loan distribution channels/intermediary network Economic conditions: e.g. Low affordability levels and high unemployment

RHLF MARKET

Market Conditions Low economic growth outlook Unemployment rate likely to remain high Volatility of Rand—currently deteriorating and will likely have inflationary pressure Inflation food, energy, transport- less income for housing Level of consumer indebtedness remain high following astronomical growth of unsecured lending

Policy Context Despite the challenges posed by the market conditions, government policy interventions present an opportunity to do more, examples: 1. Strategic Infrastructure Projects When projects are implemented and commissioned, will serve as basis for growth and job creation We foresee demand for housing loans as a result of implementation of Infrastructure Plan

Policy Context 2. Contribution to Outcome 8: Output 4: Facilitating incremental housing loans (non- mortgage loans) in rural areas: In 2013/14 RHLF will exceed the outcome 8 target set for RHLF

Policy Context 3. National Development Plan (NDP) Approved Government Plan providing guidance to service delivery Vision: “… in 2030, we experience daily how: We participate in efforts to liberate ourselves from conditions that hinder the flowering of our talents.” RHLF is well positioned to support implementation of the NDP, especially in two key areas (Chapters in the NDP): Inclusive Rural Economy (Rural Development) Transforming Human Settlements

NDP Areas With a Fit to RHLF Mandate Productive farms Funding housing in agricultural areas and adjoining settlements Land reform beneficiaries Financing housing for beneficiaries who want to resettle on land Development of new towns as a result of development of rural development (agricultural and non-agricultural activities) Funding housing for households/individuals who do not qualify for housing subsidy programmes or mortgage finance Secure water and food supplies Funding for connecting to utilities (water, sewerage and electricity) A mix of housing types Funding self or owner specified homes— maximising housing choices Energy efficient homes (contributes to transition to low carbon economy) Funding for solar energy, insulation,alternative building technologies, etc. Rural areas fully integrated into the economy Funding productive housing, local building industry activity, increased activity for local building merchants

Few examples of communities mobilising to initiate their own planning and problem solving but many have become dependent and have become passive recipients of government delivery. By funding individuals who are required to repay loans and identifying CBOs, NGOs and broad based community structures that can deliver housing. RHLF encourages rural communities to help themselves thus encouraging independence in the spirit of Vukuzenzele. Renewed effort is needed to ensure that national provincial and local government work together in reshaping the built environment As a national SOE, RHLF makes a point of interacting with a broad range of players in the housing delivery market in rural areas, meeting with representatives of all 3 tiers of government Rural restructuring zones—e.g. new settlements formation (Spatial Restructuring) Funding housing for households/individuals who cannot access subsidy programmes or mortgage finance

Challenges 1. Shortage of Intermediaries: Action: Provide additional facilities to existing intermediaries with scale to deliver on the mandate Continue with efforts to identify community based organisations— three approved in the current financial year (will deliver high impact, but at small scale: Sasekisani Cooperative, Shiyendlele, Amajuba Livestock Association) Pipeline: Cane Growers Association Continue efforts to sign new intermediaries and partner provincial DFIs: Pipeline: Risima Housing Finance, Mpumalanga Economic Development Agency, Free State Development Corporation, Bashumi Banking Services However, adding more intermediaries to scale up access to incremental housing finance requires more funding

Challenges 2. Funding Constraint In light of the huge market that RHLF has to serve, funding resources are limited to fully respond to market needs. During the current financial year, we had a shortfall of R98m in meeting the demand for additional facilities from existing intermediaries—a credibility for RHLF and government Action: Application for additional capital injection from RHLF shareholder—this is critical for meeting long term development objectives Applied for relaxation of liquidity covenant on KfW/DBSA/RHLF loan— from 30% to 10% of Total Assets Exploring raising loan funding from private and international institutions (however, cost may be high given RHLF mandate to facilitate unsecured incremental housing loans & will defeat efforts to continue with the strategy to lower the cost of credit for borrowers)

Raising Awareness & Develop New Foot Print Participate in the DHS capacity development programme for municipalities Use relevant media in raising awareness of incremental housing finance offered by RHLF and intermediaries Building merchants willing to partner RHLF intermediaries as loan distribution channels have been identified in Limpopo, North West, Free State, & Northern Cape In 2013/14 RHLF will facilitate partnerships between its intermediaries and identified building merchants Opportunities for joint marketing

Internal Resources 1. Funding No new funding, thus limited resources for business growth and development impact 2. Human Resources: Maintain lean model in line with the Wholesale Business Model, built capacity in core business areas: Operations (Business Development)—Will appoint 1 new Client Executive Intern resulting in the total of 4 staff members Development Monitoring (New Unit) under Risk Management Department—Will appoint 2 current interns on permanent basis

STRATEGIC OUTCOME GOALS

Implications of Situational Analysis Targets must be set in the context of these economic realities Targets for 2013/14 are still on the conservative side through funding constraints Work done is finding new business needs to be followed up with funding RHLF enhancing audits of compliance with human settlement mandate Focus more on supporting intermediaries with sound infrastructure to achieve impact Additional effort on CBOs being undertaken

Strategic Objectives Broadening & Deepening the Reach of Rural Housing Finance Building Lending Capacity Preservation of real value of capital

Strategic Outcome Orientated Goals Stake client goals – delivery to Rural Low Income Earners Lower loan numbers due to funds already committed Effort being made to move funds to intermediaries who grant lower loans – therefore touch more people Proud of effect RHLF is having on human settlements for those earning below R3,500 Leakage targets considered adequate as cost of enforcing higher will lead to more funds on enforcement, less on human settlements

Strategic Outcome Orientated Goals Stake client goals – debtors book Budget based on current funding constraints Efforts being made to overcome these Impairment expectation remains constant as risks are needed for rewards

Strategic Outcome Orientated Goals Financial goals Income increases as most funds are distributed for a full year Expenses as a % of income decrease as we maintain our cost base while improving revenue These lead to improved profitability

KEY PERFORMANCE AREAS Statement of Financial Position

KfW (via DBSA) Soft Loan: KEY PERFORMANCE AREAS Statement of Financial Position 2011/2012 R49,5 million (received) 2012/2013 R32 million 2012/13 R0.00 Capital Funding: Repayment start in Dec 2014 Repayable in 41 half yearly instalments KfW (via DBSA) Soft Loan: RHLF is in the initial phases of exploring new funding areas Some may need National Treasury permission in terms of PFMA No government guarantees will be sought Other avenues

KEY PERFORMANCE AREAS Statement of Cash Flow

Statement of Financial Performance KEY PERFORMANCE AREAS Statement of Financial Performance Travel and accommodation increase to enable more support to CBOs in remote areas As RHLF seeks to increase its presence in rural areas our Marketing costs need to increase Consulting fees are budgeted to increase as we focus on CBO development and research Employment costs increase by 6% plus the cost of 1 new intern and 2 interns becoming fulltime

GOVERNANCE

Composition of the Board CORPORATE GOVERNANCE Full and effective control over the company Monitors management Decisions on material matters are in the hands of the board. Board of directors Six non-executive directors Non-executive chairperson One Executive Composition of the Board

Governance – Board and Committees

Governance: Board Committees BOARD OF DIRECTORS HR ETHICS & REMUNERATION COMMITTEE CREDIT AND DEVELOPMENT COMMITTEE AUDIT AND RISK INTERNAL AUDIT

Concluding Remarks RHLF will meet targets which have been set low due to limited funding resources—however the market is huge that is not serviced Market conditions will remain gloomy due largely to subdued economic growth If Government initiatives for job creation materialise, and general economic conditions improve—the NDP implementation provides a scope for RHLF growth assuming additional funding is resolved during the MTEF period and beyond

Discussion Thank You