From success to significance:From success to significance:The Kuyasa Fund

S h Af iSouth Africa

Agenda

The South African housing context & housingThe South African housing context & housing finance sector

Housing micro finance as a lever to address povertypoverty

Th l f KThe role of Kuyasa

Ch ll d f dChallenges and ways forward

S f /

• 1994: Introduction of capital subsidy system for households earning

The South African housing context 1/3: Basic delivery

• 1994: Introduction of capital subsidy system for households earning less than R3500 per month

• Delivers 2.7 m units (15% of housing stock) - 2.1m as individual title, 100 000 credit-linked

BUT

• Unit sizes range from 23m2 and average 30m2

Apartheid spatial frame ork remains largel intact & other settlement• Apartheid spatial framework remains largely intact & other settlement elements such as jobs, health care & social fabric factors are absent

• Backlog of 2.4m remains

S f / f S

• Assumption underlying government

The South African housing context 2/3: Role of State

ssu p o u de y g go e ehousing strategy – government investment would lead to title, lead to h i fihousing finance

• From 1996 there have been various o 996 e e a e bee a ousgovernment attempts to encourage banks – very limited sucess

• Special governmental institutional arrangements - NHFC, SERVCON, a a ge e ts C, S CO ,NURCHA - fails,

NGO d i l h i t• NGO and social housing sector weak and weakening – funding & capacity

The South African housing context 3/3: Changing

• Financial sector Charter Nov 2003 Altered (and murky) landscape

g g ghousing finance landscape

•

• Voluntary commitment by formal financial sector for housing lending of R42b by 2008

Altered (and murky) landscape• Government programme covers gap

market ( R3501 – R7500)A dlending of R42b by 2008

S

And• Central government and banks take on

joint projects – mixed income projects New housing vision September 2004:

Link housing to poverty alleviation, job creation and wealth creation

But• Poor households still receive same

housing unit as in past – more t b id t lwealth creation

• Leverage the growth in the economy

government subsidy goes to less poor households – no improved access to finance for poor

• Households remains unhappy about• Housing - improve quality of life & create social cohesion

• Housing - sustainable human

• Households remains unhappy about the housing allocation and social processes underpinning housing developments

settlements & support spatial reconstruction

• Affordability remains a problem for mortgage finance

Gap pMarket

MiMicro finance Market

Th S th Af i h i t t & h i fiThe South African housing context & housing finance sector

Housing microfinance as a lever to address poverty

The role of Kuyasa

Challenges and ways forward

Housing Microfinance 1/2: the lever to develop housing assetsHousing Microfinance 1/2: the lever to develop housing assets

U it l d U it l d tUnits valued at R50 000

Units valued atR150 000 to

R250 000

Governmentdelivers:

Banks require:• 60 m2 – finishes

MicrofinanceS ll

• 23 – 36 m2

• Tenure

60 m finishes

• Tenure

C dit

Small successive savings and loans• Tenure • Credit

worthiness of Individual

loans

Incremental improvements Individual

& Community

Example of a RDP (front) house vs a Kuyasa House (back)Example of a RDP (front) house vs a Kuyasa House (back)

23m2 home 84m2 home

The South African housing context & housing finance sectorThe South African housing context & housing finance sector

Housing micro finance as a lever to address povertyHousing micro finance as a lever to address poverty

The role of KuyasaThe role of Kuyasa

Challenges and ways forwardChallenges and ways forward

O Mi iOur Mission

Kuyasa provides microfinance services because improvingKuyasa provides microfinance services because improving the quality of housing adds essential social value, and

because no other appropriate sources of housing financebecause no other appropriate sources of housing finance are available to low-income households.

f ?What is the development formula?

G i i i t th h i• Gearing savings into the housing process

Small nsec red micro loans geared to ards ho sing• Small unsecured micro loans geared towards housing

• Ensuring that the consumption is for housing• Ensuring that the consumption is for housing

• Short and repeated loan cycles• Short and repeated loan cycles

• Household freedom and responsibility of how housing• Household freedom, and responsibility of how housing loan is consumed

• Use of local labour – maximising local value

’ CKuyasa’s Clients

• Women 74%

• 75% between 40 and 60 years old

• 60% Informally employed & Pensioners

• 60% earning below R1 500; 93% under R3 500

• Regular income - formal & informally employed; social security grantssecurity grants

’ fKuyasa’s Institutional Performance

• Successfully expanding the banking frontier

• Directly mobilised R26m of savings into the housing process

• Disbursed: R55.6 million to 9 200 clients over 8 years

• Loan balance outstanding: R16 1 million• Loan balance outstanding: R16.1 million

• Write off between 1 2% and 7%• Write off between 1.2% and 7%

Kuyasa Development Impact

• 9 200 clients; impacting on 46 000 individuals within households

6 808 h d d h h ld• 6 808 women-headed households

Add d l t R200 illi b idi• Added value to R200 million subsidies

• Transforming neighbourhoods• Transforming neighbourhoods

• Significantly improved asset values• Significantly improved asset values –R920 million

V l dd d t t f diValue added to grant funding

Operational grant funding received R13.2 mil Cost per square meter of subsidy house R750Cost per square meter of subsidy house R750

Number of m2 of space for grant funding i d

17 682m2

receivedAvg increase in space - Kuyasa loan 24m2

No. of Kuyasa clients 9 000If di t t i t h h ld 737If direct grants were given to households 737 Multiplier 12

Key lessons

P d t d l t b d i ti i• Product: development based on existing experiences, must evolve

• Collections: Relationship building & fieldwork

• Operations: Information management leverage IT

• Sustainability: – within the next 2 years

A t it l iti l t t th• Access to capital – critical to support growth

• Effective micro finance practice requires strong &• Effective micro finance practice requires strong & integrated social process

VisionVision• 300 000 new loans from 2008 – 2014

Outreach to 6 provinces & 9 cities• Outreach to 6 provinces & 9 cities• Loan book grows to ZAR669million

1 100 t ff• 1 100 staff

Drivers• Expand Board & increase management capacityp g p y• Harness technical assistance• Project manage the expansion• Fund loan book growth with debt• Raise operating grant of at least ZAR22m

Year 1 Year 2 Year 3 Year 4 Year 5

FY08/09 FY09/10 FY10/11 FY11/12 FY12/13

Income 16 61 136 275 449Financial Expense -2 -13 -25 -47 -70Net Financial Income 14 48 112 228 380Net Financial Income 14 48 112 228 380Loan Loss Provision -2 -15 -28 -57 -79Operating Costs -16 -35 -73 -146 -256p gNet Income -4 -2 11 25 45

Y/E Loan book 44 161 315 649 956

Debt Requirement 45 163 264 522 672New clients 7,000 25,000 45,000 95,000 130,000V l f l di b d 46 163 293 618 845Value of loans disbursed 46 163 293 618 845New Equity 40 50 110

Snapshot of Milestones in Kuyasa’s funding strategyp y g gy

+ “Debt and Equity Phase”“Debt Phase”

Stage I

Stage II Stage IIIBreak-even

Increase product range

Stage I

-2012/13

even

2008/09 2009/10 2010/11 2011/12

eg: Insurance,

savings2012/132008/09 2009/10 2010/11 2011/12

April 7, 2008 April 7, 2011 April 7, 2013Legal architecture: NGO NGO

(Financial Institution Formal Financial Institution

NGO

g

or

Deepenbeing set up)

Size of loan portfolio: 12,529,856 246,065,788 830,944,298 Profitability (ROA): -3.0% 3.0% 7.0%Oper. Expense Ratio: 68.5% 55% 40%PAR 31-365: 25.3% 10% 6%

Deepen housing range eg

meta financeWrite-off ratio: 1.2% 2.5% 1.6%FSS: 43% 95% 115%# branches: 3 21 68# of staff: 60 340 1,050Products: 1 (housing loan) 2 (housing, other) 2 (housing, other)

meta-finance & micro

mortgagesDebt (ZAR): 9,695,715 202,819,535 570,860,181 Equity (ZAR cum.): 7,529,828 45,630,754 259,619,412 D/E ratio: 1.29 4.44 2.20GIRAFE rating: * D C B-

* Next GIRAFE rating to be carried out at the end of 2009

The South African housing context & housing finance sector

Housing micro finance as a lever to address poverty

The role of Kuyasa

Challenges and ways forward

CChallenges

A t b ildi l t l t th li t• Asset building cycle not complete -the client develops an asset – that does not necessarily in the short term have financial value – client affordability

Li k b t K ’ k d f l• Links between Kuyasa’s work and formal sector is emerging – but development is slow

• Achieving scale and expanding microfinance services

• Meeting the capacity constraints of growth –financial, people and systems, p p y

fRole of our partners

• Acknowledgement of role and power of housing microfinance as a lever to fight g gpoverty and to build assets

• Technical support and operational grants

• Start up capital and capacity building• Start up capital – and capacity-building support for expansion and growth

• Market enablement support – guarantees; loans etcloans etc

Housing Microfinance: the housing asset cycleHousing Microfinance: the housing asset cycle

The house as anThe house as a social The house as an economic asset is tied

into issues such as location and the

economic opportunities in the community

The house as a social asset and the family’s approach is strongly

influenced by the delivery process

in the community

House as financial asset is linked to the

social processes of the community and the credit

worthiness of a community

&The Real Reconstruction & Development Programme

Families live,

CChildren play and grow,

fMoving from unsecure shelter…

To homes.