MICRO LENDING IN LOW COST HOUSING

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MICRO LENDING IN LOW COST HOUSING

• Jacques Basson

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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

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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

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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

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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

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Finance needs in low cost housing

• Capital subsidy housing schemes
• Incremental housing finance
• Mortgage lending needs

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Capital subsidy housing

• Government subsidies for persons earning ltR3500
  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

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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

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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

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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

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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

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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