Commercializing Housing Support Services Through Housing Microfinance (A case study of Microhousing Africa Limited) Sustainable Housing Microfinance Conference in Sub-Saharan Africa: Turning Loans into Homes, Nairobi – Kenya. April 12 – 15, 2010.

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There is a housing crisis in Nigeria

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Introduction Name of Company-Microhousing Africa Ltd Purpose-Housing Microfinance Target Market-Low - Middle Income Business Model-Up to 2-year Loan Interest Rate-36% p.a.

Partners Roland Igbinoba Real Foundation for Housing and Urban Development Pison Housing Company Select Africa

Microhousing Africa Ltd (Institution’s Operational Strategy)

1 ST Year Operations Total Lending Amount-$11.8 million Client Base-1,900 clients Target Market-Police and Civil Servants Average Loan Amount-Up to $6,250 Payback Period-Up to 2 years (Incremental loan)

MHA Products & Services Land Acquisition Land Titling Home Building Home Improvements

MHA Sector Development Services – Grant Funded/Pro-bono Advocacy and Lobbying Popularize the concept Consumer Training & Education Develop the micro-industry Encourage community and cooperative programs

Building Supply Strategy Consumer Building; o This applies to MHA’s clients that will be involved in the building process of their house (i.e. they will develop their house). Wholesale Building o Most of our clients will need the assistance of a developer to build their house either individually or through their Co-operatives.

Repayment Risks/Collections Start granting Loans from the very conservative and less risky clients before moving down to the risky ones Deductions will be from source and will be paid monthly We will be dealing with Civil servants and government agency workers entirely in the first year.

Security For all our home building loans we will ensure to take collateral which will be the landed property the loan is acquired for or upon which the incremental building is being developed.

MHA Loan Process Example: Customer seeks loan for the purpose of home building; Total loan needed as home developmental cost for example $26,666; Loan will usually be spread over 4 phases of 2years per phase with an average loan size of $6,250.

MHA Loan Process (Cont’d) Phase 1 (Example) This can entail buying and titling the land at a cost of US$4,333; The loan will be paid monthly over a 2-year period at an interest rate of 36% p.a.; Only after phase 1 loan has been paid will the phase 2 loan be disbursed; This minimizes risks against defaulters…

Phase 2 This next stage could include foundation and partial framing at a cost of US$6,600; The Loan will be given to an accredited third party developer on behalf of the home owner; MHA will accredit the third party developer as part of its technical assistance programme for the home owner; At the end of the 2 nd year the home owner has an option to refinance his/her loan;

Cont’d This form of incremental building is more affordable to the customer than a one-off loan; It also helps the institution and the customer reduce losses due to default; Find in the next 2 pages a comparison between an Incremental loan and a One-off loan; This comparison was developed by Select Africa Limited, South Africa

Interest Rate To determine the Interest Rate, complete yellow blocks PV 5,000,000 FV0 Always 0 for a loan Period120 In months Installment 86,899 Monthly Installment % Rate per Month 17.00% Rate per Year 18.39% Effective Interest Rate Installment To determine the Instalment Rate, complete yellow blocks PV 5,000,000 FV0Always 0 for a loan Period120in months Rate17.00%Yearly Simple Interest Rate 86,899 TOTAL COST OF LOAN 5,427,859 TERMLOAN VALUEINTERESTTOTAL LOAN 1120 months 5,000,000 5,427,859 10,427, years

Interest Rate To determine the Interest Rate, complete yellow blocks PV 1,000,000 FV0Always 0 for a loan Period24in months Installment 59,047Monthly Installment % Rate per Month 36.00% Rate per Year 42.58% Effective Interest Rate Installment To determine the Instalment Rate, complete yellow blocks PV 1,000,000 FV0Always 0 for a loan Period24in months Rate36.00%Yearly Simple Interest Rate 59,047 TOTAL COST OF LOAN 417,138 TERMLOAN VALUEINTERESTTOTAL LOAN 124/24 1,000, ,138 1,417,138 LOAN 224/48 1,000, ,138 1,417,138 LOAN 324/72 1,000, ,138 1,417,138 LOAN 424/96 1,000, ,138 1,417,138 LOAN 524/120 1,000, ,138 1,417, years 5,000,000 2,213,508 7,213,508

Microhousing Africa Ltd (Finance and Support Services)

Financial & Technical support Majority of our clients will need Technical assistance during their home development phases; MHA will be involved in both the technical and finance aspect of Incremental housing; The financial and technical support we will provide to our clients will be phased in 4 major areas;

Financial & Technical support – Cont’d Land acquisition and Title support Construction and Building Support Financial and Legal education support Post construction support

Land Acquisition and Title Support MHAs clients seeking land purchase will be provided with an accredited lawyer to ensure the client’s has proper and verifiable land title; This loan will usually form the first tranch of loan disbursed to the client; The title documents also secures MHA in the event the client defaults

Construction and Building Support All loans disbursed for the purpose of construction and building will go to the developer on behalf of MHAs client; All developers building for our clients will need to be accredited by MHA; All accredited developers will need to show capacity to build for a certain number of low income clients incrementally.

Financial and Legal Education Support It is MHAs responsibility to ensure that the client understand the Loan product and services rendered; Our legal partners (not part of MHA) will provide legal advice to clients on the financial implication of the debts undertaken All our clients will need to have passed our prequalification and assessment criteria before any loan can be disbursed.

Post Construction Support MHA also has home improvement loan products that can be assessed by our clients; Offer advisory for additional loans, etc All our home loan products will be paid directly to the dealer or its accredited agents and not to the client; MHA will engage in loan monitoring Home improvement loan products have a maximum loan size of $4,000 per client and payable within 2 years.

MHA Support Services Summary Support services for home finance is rare in Nigeria; MHA will be the first housing microfinance institution in Nigeria and will also be the first to provide financial and technical support services to its clients. As part of our risk management criteria we will ensure most of the financing disbursed will go directly to the technical parties involved (Lawyers, Developers, home improvement dealers e.t.c).

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