The state of housing microfinance in africa
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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

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THE STATE OF HOUSING MICROFINANCE IN AFRICA

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The state of housing microfinance in africa

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 ([email protected])


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 www.finmark.org.za

Outline


What is housing microfinance

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 (1-5years) 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


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

A growing sector…

For example: in Benin

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.


A growing sector1

A growing sector…

Investors: public / private / institutional

Work individually or together to finance HMF retailer: loans, equity, guarantees

Wholesale lender

Private equity firms / hedge funds

Donors

Acts as a type of guarantor and grades institutions

Rating Agency

Bank

HMF Retailers

HMF Retailers

Provides support and spurs on community organisation around land and infrastructure issues

NGO, building material suppliers, etc.

Borrowers


A growing sector lenders

A growing sector… lenders

Third tier

Second tier

First tier


With growing demand

% of

urban

population

not served

by formal

mortgages

% of

urban

households

who may

want a

loan

% of

urban

households

who may

afford a

loan

x

x

No. of

potential

borrowers

(assuming

one per

household)

x

=

% of

rural

population

not served

by formal

mortgages

% of

rural

households

who may

want a

loan

% of

rural

households

who may

afford a

loan

x

x

… with growing demand

Country

Population

------------------

Average

household

size

% of

population

that is

urban, or

rural

x


With growing demand urban

… with growing demand (urban)


With growing demand urban1

Average

loan size

(HDI proxy

or avg)

Estimated

total

value of

the market

($)

x

=

South Africa

$430

Uganda

$942

Rwanda

$350

Avg

$700

(DiD figure)

Morocco

$1150

Kenya

$533

Ethiopia

$228

Benin

$666

… with growing demand (urban)

No. of

potential

borrowers

(assuming

one per

household)


With growing demand urban2

… with growing demand (urban)


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

Opportunities


Opportunities1

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 10 -12 months.

Opportunities

For example…


Challenges

Challenges

Public / private

partnership opportunities

  • 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

Role for donors, DFIs, NGOs

NGO / commercial

partnership opportunities


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.

Conclusion


Conclusion1

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

Conclusion

Ugafode, Uganda

KixiCredito, Angola

Faulu, Kenya

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


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