African Union for Housing

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African Union for Housing Finance Conference 6th
to 7th September Kigali, Rwanda ________________
______________________________________ Managing
the Aids Risk In Housing Finance by Ethel
Matenge-Sebesho
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AFRICA HOUSING GUARANTEE FUND (AHGF)
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Background

• Interaction with members of the African Union for
  Housing Finance has revealed a need for a
  guarantee mechanism to facilitate access to
  housing finance in the medium to low income
  market because
• Most of our countries are struggling to provide
  housing finance in the low to medium markets
  and in some instances across the board
• Financial institutions perceive the default
  risk as too high, especially including
• Economic reasons
• HIV/Aids related reasons

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What the Guarantee Fund will do

• Develop a risk intervention programme that
  effectively minimizes the financial loss and
  effect of default for lenders, and lowers the
  actual rate of default based on the nearly 17
  years experience of the HLGC
• Facilitate access to funding for housing for
  lower income persons by
• providing, mobilising and managing mortgage
  guarantees
• provision of guarantees of last resort for
  non-mortgage finance

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How it will do it

• Portfolio Guarantees to Lenders against Premium
• It will manage and control the risk through
• Focussed due diligence on lenders
• Housing education
• Interaction with each defaulting borrower
• In time, treatment for Aids related default

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Important Interactive relationships

• Relevant Government Ministries
• Regulatory and Legislative authorities
• Lenders
• Housing Institutions
• Insurers

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Products and Services

• Mortgage-based guarantees
• Non-mortgage based guarantees
• Housing education programmes

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Guarantees and Services

• Guarantees and services
• will be designed to provide
• specialised solutionsand guidelines in
  thehousing finance process
• and will be
• developed to suit each
• countrys requirements

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The HIV/Aids Initiative

• Most Lenders in Africa believe
• that they face
• unprecedented financial loss
• as a result of loan default
• arising from HIV/Aids

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The HIV/Aids Initiative

• The Guarantee Funds intention is not to replace
  or compete with existing products in the market
• The Guarantee Fund is in a position to
  significantly reduce the potential HIV and Aids
  risk to lenders or Government
• With a prevalence rate between 10 25 the Aids
  risk should not be a hidden risk

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The HIV/Aids Initiative

• The Guarantee Funds primary objective is to
  provide cover for HIV and Aids related default
• Where there remains a need for collateral
  replacement guarantees, the Guarantee Fund would
  continue to provide such cover so as to address
  issues around actual loss severity
• We believe there is merit in combining these
  products

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The HIV/Aids Initiative

• The HIV/Aids related programme for
  Africa is being developed
• The programme features will be similar to the
  South African one.
• Upon development, the HIV/Aids programme for
  Africa will be available to all participating
  African countries

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Guarantee Funds priorities

• Home loans are available to all borrowers
  irrespective of HIV/Aids status
• People affected by HIV/Aids retain their homes
• Lenders do not have non-performing loans
• There is sustainable access to appropriate
  treatment

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Guarantee Profiles

• Enhance guarantees to cover outstanding balance
  or instalments when non-payment is a result of
  HIV or Aids-related illness
• The underlying collateral (house/pension or
  provident fund) is not accessed in the event of
  an Aids related default
• An appropriate borrower education programme is
  provided
• Pre loan testing for HIV/Aids is not required
• Lenders usual credit criteria apply

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• Borrowers will benefit from the guarantee to the
  lender if they participate in an appropriate
  treatment programme
• because

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• The most effective way to manage and control risk
  is to deal with the cause of loss

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Managing the Risk

• Facilitate appropriate treatment
• Partner with existing organisations
• Treatment programme will complement medical aid
  and employee benefits and where available
  Government Programme
• Encourage early Voluntary Counselling and Testing
• Education

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HOW IT WILL WORK
Fund enters into Agreement with Lenders
Borrower accesses loan from Lender. Lender pays
premium

• Education
• Rights, duties and obligations of home owner
• Effect of HIV/Aids on home loan
• Benefits and impact of VCT and treatment
• Borrower provided with identification card
• Education ongoing

Credit Approval on affordability
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No VCT after education
VCT after education
Loan default
HIV- No further action required
HIV Starts appropriate treatment
Lender advises default within 15 days Fund
interacts with defaulting borrower to determine
cause
If default occurs procedures applied
Clear economic (non health) Reason for default
Potential health Reason for default
Reinforce benefits of programme Suggest VCT
Borrower goes for VCT, is HIV and accepts
treatment programme Fund starts paying
instalments Fund has ongoing interaction
with Borrower to monitor health status and
employment capacity
Borrower HIV-
Foreclosure Eviction CRI claim where taken up
Borrower refuses VCT
Borrower HIV Refuses treatment
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Preconditions for Aids Cover

• Borrower must go for VCT at the latest at time of
  default
• If HIV positive the borrower must commit to
  treatment, failing which borrower is still
  evicted
• However, if treatment is refused, the Bank will
  not be prejudiced

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Pricing

• Priced for Guarantee not for treatment
• Treatment philanthropically funded

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Housing Education Programmes

• Housing Consumer Education
• Borrower Education
• Tenant Education
• Customer Specific Education Programmes
• Train the Trainer

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Why Housing Education?

• Knowledge is power
• With knowledge, the right housing decision can
  be made
• the appropriate tenure, area, instalment for
  the individuals circumstances

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Why Housing Education?

• Most low to medium-income people are first time
  homeowners
• If borrowers know their rights, responsibilities
  and obligations they are more likely to hold
  their asset because
• Housing education reduces default risk
• Housing education will be provided for
• Government, Lenders and employers