Department Budget: hearings

Meeting report

HOUSING PORTFOLIO COMMITTEE
26 March 2003
DEPARTMENT BUDGET: HEARINGS

Chairperson: Ms Z Kota (ANC)

Documents handed out:
Presentation by the National Urban Reconstruction and Housing Agency (NURCHA)
Presentation by Rural Housing Loan Fund (RHLF)

SUMMARY
The Committee was briefed by NURCHA on their role in financing housing delivery with a focus on the past financial year. NURCHA initiates programs to ensure a sustainable flow of finance for low-income housing. One problem identified was the required own contribution by beneficiaries of R2479 towards the cost of their home.

The RHLF briefed the Committee on their work in assisting poor working people in rural areas to gain access to finance for low-income housing. To do this, they have financed the development of rural financing agencies, which act as intermediaries between them and the eventual beneficiaries. Procurement of further funds from a German source was being stalled by their insistence that the South African Government should also contribute to such funding.

MINUTES
National Urban Reconstruction and Housing Agency (NURCHA) briefing
Ms N Mjoli-Ncube, Executive Director, informed the Committee that NURCHA was established in 1995, with the purpose of ensuring that there is a mechanism to ensure access to finance from financial institutions for everyone.

She said that in the subsidised housing market, developers and contractors need to be financed, because:
- Banks are reluctant to finance developers involved in low-income housing, as it is perceived as high-risk, with low returns.
- A mechanism is necessary to ensure that women contractors are participating. Women must be able to access finance.
- There are struggling contractors from all race groups, who build on a small scale. Sometimes they are non-profit-making, and community-driven.

Ms Mjoli-Mncube said that NURCHA was keen to ensure that people do not depend entirely on the organisation. They should be developed to becoming successful as empowered business people, to the extent where their own track record speaks for their competitive ability on the market. Secondly, contractors should not be limited only to housing. Due to the help which they have received from the Agency, they should be able to emerge with their own business plan. Should these contractors decide to stay with the Agency, it should be because NURCHA is a top service provider, not because they depend on the Agency for survival.

Ms Mjoli-Mncube said that there are certain "high risk" people whom financial institutions do not want to lend to. These people are taken on by the Agency as incubator projects, and assisted with a loan at a good interest rate. Should they succeed, they are then able to enter into the mainstream of business. The Agency has been funding small and emerging contractors since 1995. Their default rate is small, with the experience being that the small companies are generally not the ones to default.

The stipulation by the Housing Department that 10% of all contracts should go to women, is being implemented by NURCHA. As a motivator to encourage financial institutions that are cautious about lending to women, the Agency assures them that they will assist these women with financial management.

She informed the Committee that in the Agency's experience, women are generally the best payers of loans, and the best deliverers of houses.

NURCHA has unlocked R1.6 billion worth of housing in South Africa, all entirely in situations where no financial institutions were prepared to offer finance.

The South African Government and the Open Society Institute of New York were the initial funders of the Agency, each investing R20 million. The latter Institute remains the Agency's major financier to date. When the Agency submitted their results to the Institute of New York at the end of 1999, their response was that they had never had such results from any of their benefactors before. The Institute has since produced a booklet which reports on the work of the Agency, and as a result of this booklet, more funding has been received from other donors abroad.

From an individual perspective, potential homemakers face many challenges when they seek to buy housing. Since April 2002, beneficiaries of project subsidies are required to contribute R2479 towards the cost of their house. Developers will not build until each person's contribution has been made.

Although own contributions is a sound principle, its implementation by beneficiaries is sometimes very difficult, because people who are unemployed cannot easily open banking accounts, and are therefore hindered from the ability to save. Ms Mjoli-Mncube said that it is difficult to bank on the poor, but not impossible.

The Agency has negotiated with certain banking institutions across the country, where they have managed to introduce the National Savings Scheme, a savings plan which is accessible to the poor. To date, 40 000 people have registered with the Scheme as savers.

A huge amount of NURCHA's work is on educating consumers about housing. They teach consumers to view their house as an asset, meaning they can use it to generate income (possibly as a venue for business). Adding renovations to the house can increase its value. They are taught to see their homes not just as shelter, but as an empowerment tool, which can serve as an economic asset to assist them to depart from poverty, and one that can be passed on to the next generation.

The Agency is currently designing a loan product with banks for poor people, where banks will grant loans based on what people have managed to save over a period of time.

Discussion
Ms J Semple (DP) commented on the fact that many banks refuse financing to individuals because they have no collateral. She asked if the R2479 owner's contribution would be subject to increases according to the rate of inflation.

Ms Mjoli-Mncube said that this response by banks is often understandable. Financing the construction of ten housing units requires the same kind of financial processes as for a R20 million project. It's a matter of deciding whether to spend 80% of time making 20% of profit. On whether the R2479 would be indexed for inflation, Ms Mjoli-Mncube reminded the Committee that, like other considerations, labour costs would definitely not remain the same, but rise.

Mr W Skhosana (ANC) noted the figure showing 6% of women as beneficiaries.

Ms Mjoli-Mncube responded that the participation of women in the projects was directly linked to how active the resident MEC in the particular province was in engaging women as participants. She added that she was working with MEC's on the matter of encouraging women to get involved.

Ms M Ramakaba-Lesiea (ANC) reported that certain consumers had indicated they would not be approaching NURCHA, as their interest rates were too high.

Ms Mjoli-Mncube replied that a high interest rate is generally good for the lender, because the money is coming into his pocket. The interest rate is consistent with all other banks in the country.

The Chairperson thanked Ms Mjoli-Mncube for a clear and comprehensive presentation, adding that more work of this nature would progressively realise the aims of the Committee, and those of the South African Government.

Rural Housing Loan Fund (RHLF) briefing
Mr W van Emmenis, Managing Director, submitted the presentation for the Rural Housing Loan Fund, with the support of Ms Mjoli-Mncube, RHLF Chairperson. In terms of a bilateral agreement between the South African and German governments, RHLF is funded solely by a German Development Bank. To date, they have not received any funding from the South African Government.

The aim of RHLF is to help address the housing needs of the rural poor. It does this by assisting with the development of financial institutions in rural areas, which act as intermediaries from whom the beneficiaries receive their direct funding. Through RHLF's deliberate focus on the working poor, they have found a strategic niche in the market.

RHLF has managed to achieve financial sustainability through the following:
- Investing in markets which others have shown reluctance to venture into.
- Investing in a diverse portfolio of clients and loan products.

Mr van Emmenis added that although they operate in a high-risk market, RHLF has proven that rural households can contribute to rise in the economy. The organisation strategically targets those households with an income of between R600 and R3500, only in rural households.

He showed a series of slides, depicting how the programme of the organisation has benefited a number of beneficiaries. (Please refer to the attached presentation)

The rural target market employs constructors from within their communities, ensuring that the money circulates within the local economy. Some consumers conduct business from their housing extensions, to augment the family income.

Under specific constraints faced by the RHLF, Mr van Emmenis mentioned the monopoly which the banks enjoy on mechanisms to collect payments from clients. These are more convenient for consumers, whereas collection mechanisms employed by the rural financial institutions are time-consuming. Another constraint experienced is that the German Development Bank is only willing to continue funding if their finances are matched by more funding from the SA Government.

Discussion
Ms L Mabe (ANC) asked, with regard to the R211 million mentioned under "Major Achievements" in the slide series, how many units had been formed with that money.

Mr G Schneemann (ANC) asked to be informed of the process one would have to be followed to access funds for housing. He further wanted to know if RHLF had discussed the German pre-condition for more funding with the Department.

Mr van Emmenis responded that the RHLF works with carefully selected, registered financial agencies, who act as intermediaries between the organisation and the end-users.

Ms Mjoli-Mncube stated that the German-based Bank felt that funding from the SA Government would lend true credibility to the nature of the work, and that would serve as an incentive for them to invest. As an institution which reports directly to Government, there should be some funding forthcoming from Government to support the work of the organisation.

Mr Skhosana requested clarity on the modus operandi of RHLF, with specific regard to its involvement with financial agencies.

The Chairperson asked what sort of interest rates end-users were dealing with, if any. She asked if there was a working relationship between RHLF and the municipalities, who were the developers.

Ms R Southgate (ACDP) asked what happened to homes when end-users were unable to pay back the loans.

Mr Schneeman asked what would happen if the German funding did not arrive, and how long RHLF would be able to continue without it. He noted that the organisation had received R211 million and disbursed R220 million, which meant that they seemed to be in deficit.

Mr van Emmenis responded that RHLF worked through carefully-selected intermediaries. The majority of loans granted by these intermediaries were unsecured, as security would prove too costly, and would be inappropriate in this particular market.

Interest rates are fixed at a lower percentage than banks and other financial institutions, which constitutes 36% of the total credit loan.

The reason that disbursement seems to be more than the allocated budget is because the RHLF has successfully repaid their loans to intermediaries. In terms of costs, they have managed to achieve sustainability. They do not receive allocations upfront, but can only draw funds as they are disbursed to intermediaries.

He reported that RHLF has engaged with different municipalities over time. They have a policy not to lend to municipalities, but engage them especially in their role as developers, and link their clients (intermediaries) with these municipalities.

Ms Mabe asked what monitoring mechanisms were in place to ensure that the funding does actually reach the intended beneficiaries.

Ms Mjoli-Mncube stated that the mandate of the RHLF was to ensure that there was a wholesale funding institution which had the capacity to lend to rural clients. These institutions had to be helped to emerge from the ground in their initial stages. She explained that rural lending is different to urban lending. When the RHLF programme was established, no banks or financial institutions were willing to act as lenders to the rural poor. They were forced to identify people who were willing to be trained and developed to do this work. RHLF has approached banks with the request to design appropriate programs of rural lending and the RHLF monitors whether that money is going to rural loans.

Mr Schneeman observed that some of the finances that had been dedicated to RHLF had actually been used to start up financing institutions, meaning that not all of the finances had gone to assisting end-users.

Ms Mjoli-Mncube responded that, if those financing institutions had not been started up, there would be no loans. Of the R211 million allocated, R190 million was invested in end-user loans. They worked with a staff complement of eight people, and at present had ten clients.

RHLF will not stop working without the German funding, but its mandate is important. They perform a function which nobody else is doing.

Ms Semple asked if RHLF had an annual report. Mr van Emmenis that since their financial year ended at the end of March, he would make the report available in July.

The meeting was adjourned.