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MICRO LENDING IN LOW COST HOUSING

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

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  1. MICRO LENDING IN LOW COST HOUSING Jacques Basson Sumex Housing Finance (Pty) Ltd

  2. 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

  3. 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

  4. 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

  5. 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

  6. Finance needs in low cost housing • Capital subsidy housing schemes • Incremental housing finance • Mortgage lending needs Sumex Housing Finance (Pty) Ltd

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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

  12. 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

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