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MICRO LENDING IN LOW COST HOUSING Jacques Basson Introduction - End user finance needs in low cost housing sector - Benefits to the housing sector from micro lending Constraints faced in funding this sector Some lessons learnt Impact in housing delivery Topics of Discussion

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micro lending in low cost housing

MICRO LENDING IN LOW COST HOUSING

Jacques Basson

Sumex Housing Finance (Pty) Ltd

introduction
Introduction

- End user finance needs in low cost housing sector

- Benefits to the housing sector from micro lending

  • Constraints faced in funding this sector
  • Some lessons learnt
  • Impact in housing delivery

Sumex Housing Finance (Pty) Ltd

topics of discussion
Topics of Discussion
  • Background to the Exemption Clause to the Usury Act
  • Finance needs in low cost housing

- Capital subsidy scheme

- Incremental housing

- Bond finance

- Why micro lending

  • Other constraints: Usury Act, payment collections, housing allowances, provident funds

Sumex Housing Finance (Pty) Ltd

why micro lending
WHY MICRO LENDING
  • Size of transaction small for housing
  • Property as security not possible: cost of bond registration high; market for property not developed.
  • Provident fund not sufficient value for individual
  • Pricing for risk necessary

Sumex Housing Finance (Pty) Ltd

legal environment
LEGAL ENVIRONMENT
  • Initial motivation for exemption on Usury Act from SMME & housing industries
  • Therefore exemption amount applied for initially R25000
  • SMME & housing retailers motivated exemption for risk purposes
  • Cash loan market was latent and underground
  • Exemption then lowered to R6000
  • This excluded SMME and housing

Sumex Housing Finance (Pty) Ltd

finance needs in low cost housing
Finance needs in low cost housing
  • Capital subsidy housing schemes
  • Incremental housing finance
  • Mortgage lending needs

Sumex Housing Finance (Pty) Ltd

capital subsidy housing
Capital subsidy housing
  • Government subsidies for persons earning <R3500 pm
  • Part of capital required loan funds if less than 100% subsidy
  • Subsidies do not keep up with inflation
  • Small % beneficiaries qualify
  • Project nature of funding means one on one funding
  • Affordable loans mostly longer than 36 months

Sumex Housing Finance (Pty) Ltd

incremental housing
Incremental housing
  • Reality of housing delivery is on incremental basis
  • Subsidy portion covers land only
  • Beneficiaries fund improvements on incremental basis
  • Loans from 24 to 36 months for improvements; up to 60 months for extending the house
  • Constraint: Exemption only to 36 m

Sumex Housing Finance (Pty) Ltd

mortgage loans
Mortgage loans
  • Gap in market for loans from R20000 to R80000
  • Banks only fund “A” spec houses; need for “B” spec houses
  • Usury Act limiting this
  • This can also be seen as micro lending
  • Especially interest rate limit, but more limitations in Act

Sumex Housing Finance (Pty) Ltd

other constraints for housing finance
Other constraints for housing finance
  • Usury Act only addresses bond finance; non bonded housing loans
  • Salary deductions by Gov. as well as private employers initially for housing & education
  • Misused by the sector, now housing finance suffers as well

Sumex Housing Finance (Pty) Ltd

other constraints cont
Other constraints (cont.)
  • Bargaining council for parastatals do not accept non banks; members do not qualify for allowances
  • Loans must be mortgage loans for allowance to qualify
  • Provident funds are biased against non banks for cover but allow banks who do not ensure housing application of loans

Sumex Housing Finance (Pty) Ltd

summary
Summary
  • Micro lending important for housing finance in South Africa
  • Exemption Clause limiting for the needs of housing finance
  • The consolidation of micro lending industry beneficial for housing finance
  • Usury Act, Employers & Bargaining Council to adjust policies

Sumex Housing Finance (Pty) Ltd