11 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

22 Kecia Rust ▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust ( 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

33 Kecia Rust ▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust ( 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$ $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

44 Kecia Rust ▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust ( 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 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. For example: in Benin

55 Kecia Rust ▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust ( Borrowers A growing sector… HMF Retailers Investors: public / private / institutional Wholesale lender Private equity firms / hedge funds Donor s 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

66 Kecia Rust ▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust ( CategoryDescription / examplesCounty 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… Third tier Second tier First tier A growing sector… lenders

77 Kecia Rust ▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust ( … 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

88 Kecia Rust ▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust ( … with growing demand (urban)

99 Kecia Rust ▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust ( … 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 ($) Estimated total value of the market ($) Avg $700 (DiD figure) Morocco $1150 South Africa $430 Kenya $533 Uganda $942 Ethiopia $228 Benin $666 Rwanda $350

10 Kecia Rust ▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust ( … with growing demand (urban)

11 Kecia Rust ▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust ( 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

12 Kecia Rust ▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust ( 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 months. For example…

13 Kecia Rust ▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust ( 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

14 Kecia Rust ▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust ( 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.

15 Kecia Rust ▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust ( 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