PRESENTATION TO THE PORTFOLIO COMMITTEE
ON HUMAN SETTLEMENTS
14 October 2015
Rural Housing Loan Fund
A N N UA L I N T EGRATED R EP O RT 3 1 M A RCH 2 0 1 5
JAB UL ANI FAKAZ I – CEO
B R U CE GO R D O N - CFO
Contents
Mandate, vision, mission and values
Value creation
Operating environment
Performance 2015
Governance
Risks
Looking ahead
Mandate, vision, mission and values
Mandate
• To facilitate funding to enable rural low income earners to better their living conditions through improving their housing situation
Vision
• The Rural Housing Loan Fund is a world-class rural housing social venture capital fund that creates new financial arrangements and
opportunities for rural families to improve their housing, economic and living environments
Mission
• To empower people in rural areas to maximise their housing choices and improve their living conditions through access to housing credit
and government housing subsidy funds
Values
Transparency
Passion for development
Empowerment
Integrity and honesty
Excellence
Respect
Accountability and responsibility
Contents
Mandate, vision, mission and values
Value creation
Operating environment
Performance 2015
Governance
Risks
Looking ahead
How do we create value for better living
conditions?
Outcomes
Outputs
Activities
Capitals
• Finance
• People
• Intellectual
• Relationships
• Natural
• Lending
• Verification
• Risk
Management
• Incremental
loans
• Improved
rural
housing
• A better life
for people
in rural
areas
What does the Rural Housing Loan Fund
deliver?
Rural
Development
Human
Settlements
Financial
Services
Rural Housing
Loan Fund
Housing opportunities delivered since
inception
Mandate achievement: Housing Impact
Monitoring Reports
A. New Number of Loans Per Annum
Loan Usage
New House
House Extension
Home Improvement
Services (water, electricity, sanitation)
Total Housing Usage
Other
B. Number of loans used for:
Build a new house
Extend Existing Houses
Improvements/Innovations
Connecting to Services
Total number of loans used for a
mandated purpose
2000
17,992
2001
11,122
2002
5,553
2003
10,536
2004
8,006
ANNUAL FIGURES
2005
2006
2007
15,202 26,648 32,028
2008
37,644
2009
40,537
2010
33,112
2011
40,289
2012
47,043
2013
44,812
2014
44,610
2015
40,185
10.0% 12.0% 12.0% 11.0% 11.6%
8.0%
2.0%
2.0%
6.0%
8.0%
3.0%
4.0%
4.0%
3.0%
3.0%
0.9%
29.0% 18.0% 19.0% 19.0% 18.4% 14.0%
7.0% 10.0%
8.0% 17.0%
8.0% 10.0% 12.0% 11.0%
8.0%
7.7%
48.0% 54.0% 54.0% 52.0% 53.0% 49.0% 49.0% 48.0% 56.0% 50.0% 71.0% 68.0% 71.0% 76.0% 81.0% 73.5%
7.0%
8.0%
7.0%
7.0%
8.0% 12.0% 16.0% 10.0%
4.0%
3.0%
2.0%
3.0%
3.0%
2.0%
2.0% 14.1%
94.0% 92.0% 92.0% 89.0% 91.0% 83.0% 74.0% 70.0% 74.0% 78.0% 84.0% 85.0% 90.0% 92.0% 94.0% 96.2%
6.0%
8.0%
8.0% 11.0%
9.0% 17.0% 26.0% 30.0% 26.0% 22.0% 16.0% 15.0% 10.0%
8.0%
6.0%
3.8%
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
2000
1,799
5,218
8,636
1,259
2001
1,335
2,002
6,006
890
2002
666
1,055
2,999
389
2003
1,159
2,002
5,479
738
2004
929
1,473
4,243
640
16,912 10,232
5,109
9,377
7,285 12,618 19,720 22,420 27,857 31,619 27,814 34,246 42,339 41,227 41,933 38,668
2005
1,216
2,128
7,449
1,824
2006
533
1,865
13,058
4,264
2007
641
3,203
15,373
3,203
2008
2,259
3,012
21,081
1,506
2009
3,243
6,891
20,269
1,216
2010
993
2,649
23,510
662
2011
1,612
4,029
27,397
1,209
2012
1,882
5,645
33,401
1,411
2013
1,344
4,929
34,057
896
2014
1,338
3,569
36,134
892
2015
350
3,108
29,546
5,664
Cumulative
Total
455,319
5%
12%
63%
6%
86%
14%
100%
Cumulative
Total
21,299
52,778
288,635
26,663
389,375
Our commitment to the current MTSF
Performance against MTSF targets
Previous
term
targets
Incremental Rural Housing Loans
(number)
Percentage used for housing
Percentage to people earning over
R15,000 (R9,800 in previous term)
Percentage to people earning
under R3,500
Previous
term
achieved
Current
term
targets
Year 1
Current
term
%
achieved
to date
17.2%
Higher is
better
Higher is
better
181,811
209,866
233,636
40,185
80%
94%
88%
96%
NA
20.00%
12.70%
12%
2%
NA
Lower is
better
60%
72%
60%
75%
NA
Higher is
better
Contents
Mandate, vision, mission and values
Value creation
Operating environment
Performance 2015
Governance
Risks
Looking ahead
Government development policy
Government Development Policy Priorities as set out in the National Development Plan:
◦
◦
◦
◦
Sustainable human settlements
Rural development
Mining towns
Supporting Small Medium and Micro Enterprises
Economic conditions
o Low economic growth—revised downwards throughout the year
o High unemployment
o Interest rates: REPO rate is still low, the interest rate for unsecured credit is still high, hence RHLF’s
Pricing Policy designed to lower interest rate our borrowers pay
o Inflation (CPI): although largely within the set target during the year, most relevant inflation indices for
RHLF end users are:
o Food inflation
o Transport
o Rural inflation
Interest rates
Maximum microlending rate allowed by National Credit Act (2005) – REPOx2.2+20%
RHLF end user interest rates
Most common interest rate charged by RHLF clients
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Jan 00
Jan 01
Jan 02
Jan 03
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 12
By ensuring that RHLF clients charge discounted rates we increase market competitiveness
Jan 13
Jan 14
Jan 15
RHLF client inflation compared to CPIX
Source: StatsSA
Credit Industry
o Collapse of African Bank put pressure on the microfinance business environment
o Tightening of the credit granting criteria by lenders—RHLF lenders included
o High levels of consumer indebtedness remains a concern
o High rejections rates—ranging between 45% and 90%
o Demand for housing loans is there, but affordability is a challenge
Contents
Mandate, vision, mission and values
Value creation
Operating environment
Performance 2015
Governance
Risks
Looking ahead
Stakeholder perspective: Broaden and deepen the
reach of housing finance
Housing opportunities delivered - 2015
Stakeholder perspective: Achieving visibility
Actual
Value of loans in place (R000)
387,443.2
Budget
Variance
Commentary
Lower disbursements lead to this. An
430,990.6 (43,547.4) anticipated large drawdown did not
occur in March
Impairment provision (%)
-10.5%
-15.5%
Disbursements to retail intermediaries
(R000)
58,915
198,000
Disbursements to retail intermediaries
including mezzanine (R000)
261,499
298,000
Better position than budgeted as
clients pay
Many clients were rolled over instead
(139,085) of drawing new funds and a large
drawdown was not made
5.0%
(36,501)
An anticipated large draw down in
March was not made
Stakeholder perspective: Building lending capacity
Actual
Number of retail intermediaries (units)
Number of community based
intermediaries (units)
Budget
Variance
Commentary
11
8
3 Budget exceeded
5
6
(1)
Community based orgnanisations
could not afford loans
Financial perspective: Real capital preservation
Actual
Budget
Variance
Commentary
Income from core business (R000)
42,110
39,063
3,048
Not as many concessionary loans are
being drawn as RHLF wants.
Income from financial investments
(R000)
12,200
5,405
6,795
Budget exceeded as disbursements
are not as high as planned
Impairments on loans and
investments (R000)
Expenditure excluding debtors
provision (R000)
Operating expense ratio (%)
Operating surplus after taxation
(R000)
Total capital (R000)
Return on equity (%)
(8,687)
1,764
(15,123)
(17,519)
-28%
-39%
Due to the difficult market prudent
(10,451) provisions have been considered
necessary
2,396
12%
There are savings being reflected
Higher than budgeted income and
lower than budgeted expenses
49,916
13,273
36,642
The reversal of taxation backdated to
2004 is reflected here
427,646
384,691
42,954
Increased profitability as well as better
start to the year than budgeted
8.8%
2.5%
6%
Reflects the positive effect of the income
tax reversals
Business process perspective:
Sharpen portfolio risk management
Commentary
Actual
Budget
Variance
Full client due diligence reviews
13
10
3
Budget exceeded
Loan verification visits
12
10
2
Budget exceeded
Single issue site visits
4
6
-2
Reassignment of tasks as clients were
compliant
Business process perspective:
Accelerate client acquisition
Credit committee proposals - new
clients
Credit committee proposals - existing
clients
Actual
Budget
Variance
6
6
0
Budget achieved
-3
Poor market conditions led to less
demand for new facilities by existing
clients
9
12
Commentary
Business process perspective:
Targeted positioning and branding
Actual
Budget
Variance
Commentary
Targeted media briefings
0
4
-4
Paid editorials and advertisements
10
6
4
Target not achieved as focused more on
editorials
Budget exceeded
Information briefings
47
30
17
Budget exceeded
Learning and growth: Skills development and
capacity
Actual
Budget
Variance
Commentary
235
138
97
Skills of employees enhanced more than
budgeted
In house workshops
1
3
-2
Used budget for individual training and
annual workshop covering many topics
Fulltime posts
14
16
-2
A Development Monitoring post was
not filled
Interns
1
3
-2
Appointment of client management
intern postponed
Training expense
Contents
Mandate, vision, mission and values
Value creation
Operating environment
Performance 2015
Governance
Risks
Looking ahead
Audit outcomes
Audit opinion of financial statements
Clean (no qualifications or emphases of
matter)
Comment on predetermined objectives
No material findings
Compliance with legislation
No material non-compliance
Internal control
No significant deficiencies
Governance
BOARD OF
DIRECTORS
Human Resources, Ethics
and Remuneration
Committee – meets at
least 3 times / annum
Credit and Development
Committee - meets at
least 4 times and as
needed
Audit and Risk Committee
– meets at least 4 times
per annum
Internal Audit has a
comprehensive 3 year
rolling work plan
Changes in Board
Board member
Roles at 31 March 2014
Changes since then
Chairperson of the Board and Member of
Added Credit and Development
Thembi Chiliza Human Resources, Ethics, and Remuneration
Committee membership
Committee
Deputy Chairperson of the Board,
Chairperson of Credit and Development
No change but acted as Chairperson of
Adrienne Egbers
Committee and member of Audit and Risk Audit and Risk Committee for a period
Committee
Knowles Oliver Chairperson of Audit and Risk Committee
Deceased
Molefe Mothibe
Chairperson of Human Resources, Ethics and Added Audit and Risk Committee
Remuneration Committee
membership
Reginald
Hamman
Member of Audit and Risk Committee
Nancy Sihlwayi
Jabulani Fakazi
Member of the Human Resources, Ethics,
and Remuneration Committee
Chief Executive Officer and member of
Credit and Development Committee
Became Chairperson of Audit and Risk
Committee
Resigned upon appointment as MEC in
Eastern Cape
No change
Stakeholder engagement
STAKEHOLDER
TYPES OF ENGAGEMENTS
Ministry
Meetings and presentations
Presidency – Performance Monitoring
Meetings and presentations
Parliamentary Portfolio
Presentations
Other departments (Treasury / Rural Development)
Meetings and presentations
Local government
Briefings
Intermediaries
Regular
Funders
Meetings and submissions
Other DFIs
Consultations
Borrowers
Interviews at their homes
Employees
Various
Contents
Mandate, vision, mission and values
Value creation
Operating environment
Performance 2015
Governance
Risks
Looking ahead
Risks
Risk description
Cause
Insufficient funding
National budget constraints, lack of Ongoing selling of the Rural Housing Integrated reporting, research into the
prioritisation of the Rural Housing Loan Loan Fund’s mandate to all stakeholders
Rural Housing Loan Fund outcomes,
Fund
Selling of the benefits of the mandate
Development Financial Institution Policy decision
merger
Debt levels of retail borrowers
Inability to earn
Return on Equity
an
Mitigation
Future
Protection of the Rural Housing Loan Selling of the benefits of the Rural
Fund’s mandate throughout the process
Housing Loan Fund’s mandate
Overenthusiastic lending by consumption Looking for intermediaries who can Educating
consumers
on
lending businesses
deliver in areas where indebtedness is management of their finances
lower
the
adequate The need to reduce interest rates to retail Additional funding is required, ideally Further relaxation of covenant
borrowers
grant funds that can earn the Rural
Exemption from requirement to deposit
Housing Loan Fund additional funds
spare funds with the Corporation for
Income tax exemption
Public Deposits
Relaxation of Development Bank of
Southern Africa / KFW liquidity covenant
Inability to achieve success with Lack of resources well skilled in Using Junior
community based organisations
successfully
working
with
these manage these
organisations
Clients
Executives
to KFW funds will be used to support
community based organisations
Contents
Mandate, vision, mission and values
Value creation
Operating environment
Performance 2015
Governance
Risks
Looking ahead
Looking ahead
oDevelopment finance institution merger
oIndividual Rural Housing Voucher programme
oResearch projects:
o New products to enhance sustainable rural human settlements and the size of the need
o Impact assessment (the effect on peoples living conditions)
oBuilding loan distribution channels:
o Investing in start-up micro-lenders to enhance their sustainability
o Continue targeting co-operatives
Concluding remarks
oMarketing conditions remain a challenge
o Economic growth, unemployment, indebtedness levels, etc.
oDemand for incremental housing finance remains high, but affordability levels remain low
oRHLF is an established working business model.
oBuilds self reliance by empowering people to incrementally realise their housing dreams (and right of
adequate).
oRoom to scale up delivery of loans by:
◦ Supporting emerging black owned housing lenders
◦ Supporting Housing Co-operatives and other co-operatives involved in income generating activities (e.g. Cooperative Financial Institutions under Cooperatives Bank Development Agency)
◦ => Success in working with these new partners complements existing delivery channels and contribute to
delivery of MTSF targets.
Thank you