1. NHFC’S MECHANISMS IN PLACE TO MONITOR REPAYMENTS 30 August 2006

2. Table of Contents Background High-Level Credit Processes Credit Governance Structures Highlights of Current Loan Book Portfolio Mechanisms

3. Brief Background The NHFC caters to the following clients –Social Housing Institution –Private and Public developers –Retail Finance Intermediaries The Products –Project Finance –Bridging Finance –Term Loans –Technical Assistance

4. High level process Social Housing Project Finance Wholesale Finance Bridging Finance Management Credit Committee Board Credit Committee Marketing Projects & Direct Up to R20m R20m – R100m Finance Credit & Legal Disbursement & Administration (Monitoring)

5. Credit Approval Structures MANAGEMENT CREDIT COMMITTEE (MCC) 1.Chaired by CEO; 2.Comprised of representative from: – Finance; – Legal; – Credit; and – an outside independent expert. BOARD CREDIT COMMITTEE (BCC): 1.Terms of Reference approved by the Board; 2.The members of the Committee are 4 independent non- executive directors and the CEO; 3.Other members of the MCC attend by invitation; and 4.The Board Credit Committee can approve loans to the level of counter party limits set by the Board (currently 5% of capital and reserves to any one party). R20m to R100m < R20m > R100m BOARD OF DIRECTORS

6. Highlights of NHFC Loan Book – In its 10 years of existence the NHFC has approved R 2.5 billion and disbursed R2,1 billion in loans. – 8% of that was written off/impaired – Recovery of the impaired/written off amounts is still pursued. Details30 June 06 (R000’s) Portfolio (%) Lending books Unsecured Loans 87,16110.91 Social Rental Housing459,58957.51 Secured Loans (Mostly Mortgages) 252,45131.59 TOTAL799,201100

7. MECHANISMS IN PLACE TO MONITOR REPAYMENTS The management of credit/repayment is dependent on the quality of the credit decisions and the monitoring of clients on a regular basis after disbursement to identify problems as early as possible.

8. FACTORS THAT ARE EVALUATED A PROPOSAL The proposal Includes (but is specific to the type of funding required) among others: a)The proposal Includes (but is specific to the type of funding required) among others: b)A description of the project, eg. location of property, area of lending; c)Number of units/loans to be generated from funds; d)Corporate Governance in place; e)Financial forecasts, with an emphasis on cashflows to ensure that there is an ability to repay loans, both capital and interest; f)Details of capacity/equity to be provided by the client (for micro financiers) the requirement is that they have equity of 20% loans); and g)Details of security for the loan, where apllicable.

9. MONITORING PROCESS  A Business Development Manager allocated to client  visits regularly and  ensures that monthly management accounts are received from the clients in terms of the loan agreement.  client receives a monthly statement  non payment is immediately followed up by the Credit Controller.  Management Information system support to the process : Credit Ease

10. MONITORING MECHANISMS Regular Monitoring Early Warning signal on clients in Distress : Technical Assistance Responses to Advanced Distress : –Turnaround (Workout) –Consolidation Option –Foreclosure and Liquidation –Security Perfection –Recovery

11. CLIENTS IN EARLY DISTRESS… Nature of Interventions… Technical Assistance –Review –Equity –Facilitate Partnership Interventions Community Facilitation –Meeting with residents committees

12. EXAMPLES… Successes in Rehabilitation : –Greater Germiston City Housing Company –African Dawn –King William’s Town Housing Association –Greater Middelburg Housing Association

13. CLIENTS IN ADVANCED DISTRESS (1)  When the client is unable to meet commitments and rescheduling of the repayment will not suffice, further action is taken in consultation with the Client. These actions may include such measures as: a)Requiring the client to appoint professional Property Manager/debt collection agencies to take over the collection of the book. b)In instances where liquidation is not indicated NHFC has a turnaround strategy that seeks to have NHFC and the institution working together to find a viable solution.

14. EXAMPLES IN SOCIAL HOUSING: Examples of Failed Turnarounds : Chronic Non-Payments, Failed Evictions… HAB – Western Cape Abahlali 2 – Eastern Cape Reatlehile – Free State Semag - Gauteng

15. CLIENTS IN ADVANCED DISTRESS (2)  When the client is unable to meet commitments and rescheduling of the repayment will not suffice, further action is taken in consultation with the Client. These actions may include such measures as: a)Consolidating ailing clients to obtain a more substantial business that could run profitability; and b)Perfecting security and finding partners to take over the assets and manage them to recover amounts outstanding. c)As a last resort, initiate a process to Liquidate the Client.

16. EXAMPLES IN OTHER PRODUCTS… Southfin – Liquidated but book being successfully collected Agishana / Protea Finance / Sumex – Consolidated but not successful and book will now be collected via outsourced collectors Homebuild – Liquidated but book collected in full by third party Rural Housing Fund