Affordable housing finance for the unbanked
Affordable housing finance for the unbanked
Business Model Description
Provide affordable housing finance to households outside the formal banking system and with limited credit history, at conditional repayment rates, using algorithmic assessments of social and non-banking financial transactions to determine a risk profile.
Expected Impact
Enable a path to affordable house ownership, which provides for a safe living environment and reduced inequalities.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- South Africa: Countrywide
- South Africa: Countrywide
Sector Classification
Infrastructure
Development need
South South Africa faces significant challenges in achieving SDG 9 - Industry, Innovation and Infrastructure, with a score of 45.0. Scores for other goals include 48.7 for SDG 3 - Good Health and Wellbeing, 67.0 for SDG 6 - Clean Water and Sanitation, 79.0 for SDG 7 - Affordable and Clean Energy, and 77.9 for SDG 11 - Sustainable Cities and Communities.(1)
Policy priority
The National Planning Committee identified 9 primary challenges, 4 of which have infrastructure development needs and implications: the public health system cannot meet demand or sustain quality, the economy is unsustainably resource intensive, spatial divides hobble inclusive development, and infrastructure is poorly located, inadequate and undermaintained.(2)
Gender inequalities and marginalization issues
Poor infrastructure can exacerbate the gender gap. In low income countries, women collect over 70% of water and fuelwood. Women spend 200 million hours on water collection every day. Unsafe and low security transport also disadvantage women who are more affected by violence, which affects their wellbeing and workforce participation.(8)
Investment opportunities
President Ramaphosa has an investment drive to mobilise $100 billion for priority sectors, including the energy, water, transport and logistics, and data and ICT sectors.(4) The Sustainable Infrastructure Development Symposium South Africa organised by the Investment and Infrastructure Office within the Presidency seeks to create a $20.5 billion infrastructure fund.(5)
Key bottlenecks
High fixed costs, high levels of debt and low cash reserves may cause a liquidity crisis.(6) Construction was restricted during lockdown and sharp contractions of fixed investment can be expected as firms reconsider or postpone implementation.(7) Projects exposed to foreign currency risk foreign exchange fluctuations and further uncertainty if not previously hedged.(6)
Real Estate
Development need
Nearly 1.5 million families live in informal settlements, half of which are in the 8 metropolitan cities.(3) Based on Statistics South Africa data, over 300,000 households are estimated to live in informal dwellings in the Western Cape alone. Many of these individuals are outside the formal banking system and can't afford traditional forms of finance.
Policy priority
It is now a national priority to respond systematically to the increasing rate of urbanisation. The National Development Plan (NDP) aims to eliminate poverty and reduce inequality by 2030. To reduce the effects of poverty in the short term, the NDP promotes mixed housing strategies and more compact urban development.(6)
Gender inequalities and marginalization issues
The Constitution provides equal rights to women and men to own, manage and use land. But government reports show these rights have not been realised for many South African women, particularly in rural areas. The disjuncture between Constitutional and customary rights often creates practical barriers for women to secure access to land and assets.(9)
Investment opportunities introduction
The National Development Plan relates strongly with SDG 11 - Sustainable Cities and Communities, with specific references to closing supply gaps in the housing market.(6) The goal is to improve standards of living by delivering low income housing in good urban locations.
Key bottlenecks introduction
The vast majority of South African households are unlikely to have access to mortgages or other secured housing finance solutions.(6) A lack of traditional financial information also makes it difficult for lenders to make sound lending decisions.
Real Estate
Pipeline Opportunity
Affordable housing finance for the unbanked
Provide affordable housing finance to households outside the formal banking system and with limited credit history, at conditional repayment rates, using algorithmic assessments of social and non-banking financial transactions to determine a risk profile.
Business Case
Market Size and Environment
1.5 million households living in informal settlements across South Africa
Analysis indicates that roughly 21% of the 14.9 million households who earn less than R15,000 per month lie within the market for affordable housing finance. These households could potentially support lending activity of around R35 billion disbursed per year.(10)
Investing in and stimulating the gap housing market for those earning between R3,500 and R22,000 holds great potential.(11)
Indicative Return
5% - 10%
General: According to IMP, yields for the affordable housing segment range from 8% to 10%.(12)
Rent to buy: Centre for Affordable Housing Finance in Africa (CAHF) estimates the gross rental yield in city centers is 10.29%, and 11.28% outside city centers.(13)
Investment Timeframe
Long Term (10+ years)
Loan term is 15 years for the Trust for Urban Housing Finance (TUHF) finance model.(15)
Ticket Size
< USD 500,000
Market Risks & Scale Obstacles
Capital - Requires Subsidy
Market - Volatile
Impact Case
Sustainable Development Need
South Africa has a major financing gap for households earning between R3,500 and R15,000.(19) Mortgage products remain beyond the reach of the majority of households.(10),(20)
Based on Statistics South Africa data, over 300,000 households are estimated to live in informal dwellings in the Western Cape alone.(21) Many of these individuals are outside the formal banking system and can't afford traditional forms of finance.
The vast majority of South African households are unlikely to have access to mortgages or other secured housing finance solutions.(10)
Gender & Marginalisation
Women in South Africa account for 34% of individual land ownership and 13% of total farmland.(16)
Under certain customary systems, women are regularly excluded from obtaining rights to land in their own capacity. Traditional authorities favour requests from adult, married men to land allotments.(17)
Expected Development Outcome
Increase housing accessibility for individuals at the lower end of the residential market who cannot afford traditional financial products; increase the mortgage market by introducing innovative products that serve households with stable albeit low incomes; assist in revealing a true credit risk profile for the unbanked that can help them to access finance and expand financial inclusion.
Gender & Marginalisation
Empower female entrepreneurs through asset ownership.(14) In particular, women can realise entrepreneurial opportunities through their housing, including using their homes as a business premises (such as running a shop on site).
Home ownership also allows access to collateral, increasing access to finance.
Primary SDGs addressed
1.4.1 Proportion of population living in households with access to basic services
Proportion of population living in households with access to: (i) improved sanitation facilities: 82.0%; (ii) improved electricity: 89.6%; (iii) improved water facilities: 86.4% in 2017.(18)
South Africa’s key poverty reduction program (2000) provides assistance to 17 million South Africans. In 2015 social grants covered 71.9% of all elderly persons and 92.2% of those classified as poor, one-third of households with children and 61.3% of poor households with children. Expenditures on social grants are expected to rise by 26% between 2016/17 and 2019/20.(16)
1.4.2 Proportion of total adult population with secure tenure rights to land, (a) with legally recognized documentation, and (b) who perceive their rights to land as secure, by sex and type of tenure
11.1.1 Proportion of urban population living in informal, informal settlements or inadequate housing
Women account for 34% of individual land ownership and 13% of farmland in South Africa.(16)
Percentage of urban population living in informal dwellings: 12.2% (2017). (17)
The Department of Trade and Industry Integrated Strategy on Development and Promotion of Cooperatives (2010 - 2020) encourages women’s cooperatives that promote women’s participation in rural economies.(24)
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Indirectly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Outcome Risks
This investment opportunity area (IOA) may exclude people unable to afford loans according to data-driven criteria, thus further marginalizing some of South Africa's most vulnerable people.
Impact Risks
Stakeholder participation risk if investments further marginalize vulnerable segments of society
Execution risk due to lack of policy framework for public-private partnerships
Impact Classification
What
The outcome is likely to be positive, by providing access to affordable housing.
Who
Underserved, low income individuals in informal settlements and local builders. Gender is not expected to affect access (e.g. more women than men are banked in South Africa).
Impact Thesis
Enable a path to affordable house ownership, which provides for a safe living environment and reduced inequalities.
Enabling Environment
Policy Environment
Inclusionary housing is a policy tool to enable low income households to access quality housing they can afford, in areas of the city where they have maximum access to employment opportunities, services and amenities.(11)
Housing Policy and Strategy: Since 1994, the government has prioritised upgrading informal settlements. The Housing Policy and Strategy developed after 1994 focused on stabilising the environment to address the housing backlog.(11)
South Africa's Constitution lists housing as a basic human right.(22)
Financial Environment
Financial incentives: Through its National Housing Subsidy Scheme (NHSS), the government has delivered 2.6 million (at 2014) state-subsidised houses to low income households across the country.(21)
Fiscal incentives: The government has introduced new separate metropolitan and provincial grants to the value of nearly R6 billion for informal settlement upgrading.(23)
Other incentives: Direct funding programs focus on households earning below R15,000 a month, but most programs focus on households earning below R3,500 a month.(21)
Regulatory Environment
Housing Act 107 of 1997: Adequate housing is defined in the Housing Act 107 of 1997, the Breaking New Ground policy (2004), and the National Housing Code 2009 (NHC), which facilitate a sustainable housing development process.(22)
The Social Housing Regulatory Authority (SHRA) regulates and invests in delivering affordable rental homes and renew communities.
National Credit Amendment Act 7 2019: This Act erases the debt of highly indebted citizens who earn up to R7,500 a month and have unsecured debt adding up to R50,000.
Marketplace Participants
Private Sector
Development Action Group (DAG), Trust for Urban Housing Finance (TUHF), Gauteng Partnership Fund (GPF) , Rural Housing Loan Fund (RHLF), Ikhayalami, Chartwell, IBUILD, Heart Capital, Flash Money, PACE Property Group, Innovation Switch, GIG Property
Government
Social Housing Regulatory Authority (SHRA), National Treasury, National Urban Reconstruction and Housing Agency (NURCHA)
Non-Profit
GreenCape, Government Technical Advisory Centre (GTAC)
Target Locations
South Africa: Countrywide
South Africa: Countrywide
References
- (1) Sachs, J., Schmidt-Traub, G., Kroll, C., Lafortune, G., Fuller, G., Woelm, F. (2020). The Sustainable Development Goals and COVID-19. Sustainable Development Report 2020. Cambridge: Cambridge University Press. https://dashboards.sdgindex.org/#/ZAF
- (2) National Science and Technology Forum (2019). The National Development Plan. http://www.nstf.org.za/wp-content/uploads/2019/04/All-The-NDP-1.pdf
- (3) Le Roux, A., Arnold, K., Makhanya, S. and Mans, G. (2019). South Africa’s urban future: Growth projections for 2050. Green Book. https://pta-gis-2-web1.csir.co.za/portal2/apps/GBCascade/index.html?appid=3c4901e8681244d1a7989e8ed2ace1f9
- (4) Industrial Development Corporation (2019). The Case For Investing in South Africa. https://sainvestmentconference.co.za/wp-content/uploads/2019/11/The-case-for-investing-in-South-Africa-2019-Executive-summary-31-October-2019.pdf
- (5) Sustainable Infrastructure Development Symposium (2020). Sustainable Infrastructure Development Symposium South Africa. https://sidssa.org.za/
- (6) Deloitte (2020). The Impact of COVID-19 on infrastructure projects and assets. https://www2.deloitte.com/content/dam/Deloitte/ng/Documents/finance/ng-the-Impact-of-COVID-19-on-Infrastructure-project-and-assets_27052020.pdf
- (7) Arndt, C., Davies, R., Gabriel, S., Harris, L., Makrelov, K., Modise, B., Robinson, S., Simbanegavi, W., van Seventer, D. and Anderson, L. (2020). Impact of Covid-19 on the South African economy. https://sa-tied.wider.unu.edu/sites/default/files/pdf/SA-TIED-WP-111.pdf
- (8) Organization for Economic Cooperation and Development (2019). Gender Equality and Sustainable Infrastructure. http://www.oecd.org/governance/gender-equality-and-sustainable-infrastructure-paris-march-2019.htm
- (9) Organization for Economic Cooperation and Development (2019). Social Institutions and Gender Index 2019. https://www.genderindex.org
- (10) Rural Housing Loan Fund. Understanding Demand for Housing Microfinance in South Africa http://housingfinanceafrica.org/app/uploads/RHLF-HMF-report_FINAL.pdf
- (11) Centre for Affordable Housing Finance (2019). Yearbook - South Africa 2019. http://housingfinanceafrica.org/app/uploads/V21-SOUTH-AFRICA.pdf
- (12) Interview with Monique Mathys from IMP on 15/04/2020.
- (13) Centre for Affordable Housing Finance (2019). Housing Finance in South Africa. http://housingfinanceafrica.org/countries/south-africa/
- (14) Email correspondence with Katherine Cox from TUHF on 24/7/2020.
- (15) Email correspondence with Katherine Cox from TUHF on 24/7/2020.
- (16) South African Government (2019). South Africa Voluntary National Review: Empowering people and ensuring inclusiveness and equality. https://sustainabledevelopment.un.org/content/documents/23402RSA_Voluntary_National_Review_Report___The_Final_24_July_2019.pdf
- (17) Statistics South Africa (2017). Sustainable Development Goals: Baseline Report 2017. Available at: www.statssa.gov.za
- (18) Statistics South Africa (2019). Sustainable Development Goals: Country Report 2019 - South Africa. http://www.statssa.gov.za/MDG/SDGs_Country_Report_2019_South_Africa.pdf
- (19) McGaffin, R., Spiropoulous, J. and Boyle, L. (2018). 'Micro-developers in South Africa: a Case Study of Micro-property Developers in Delft South and Ilitha Park, Cape Town', Urban Forum, 30, 153-169. https://link.springer.com/article/10.1007%2Fs12132-018-9347-2
- (20) Baer, T., Goland, T. and Schiff, R. (2013). New credit-risk models for the unbanked. https://www.mckinsey.com/business-functions/risk/our-insights/new-credit-risk-models-for-the-unbanked#
- (21) Better Living Challenge (2020). Report on developing innovative financing models for gap housing. https://betterlivingchallenge.co.za/
- (22) South African Human Rights Commission (2020). The Right to Adequate Housing Factsheet. https://www.sahrc.org.za/home/21/files/Fact%20Sheet%20on%20the%20right%20to%20adequate%20housing.pdf
- (23) National Treasury Republic of South Africa (2019). Budget Review. http://www.treasury.gov.za/documents/national%20budget/2019/review/FullBR.pdf
- (24) Organization for Economic Cooperation and Development (2019). Social Institutions and Gender Index 2019. https://www.genderindex.org