ANNUAL PERFORMANCE PLAN FOR 2013/14 FY

Parliamentary Portfolio Committee on Human Settlements

27 March 2013

Presented by:

Jabulani Fakazi, CEO & Bruce Gordon, CFO

Presentation Outline

RHLF MandateThe RHLF Market Size and CoverageMarket ConditionsGovernment Policy ContextChallengesRaising Awareness & Developing New Foot

PrintInternal ResourcesStrategic ObjectivesGovernanceConclusion

To facilitate access to incremental housing finance for low income households in rural areas

Focus on rural areas and small towns (outside of metros)

Market segment: below R9, 800 (bias towards those earning R3, 500 and less)

To support the implementation of rural development programme

RHLF MANDATE

RHLF Market Size and Coverage (Census 2011)

• Close to 5 million households living on tribal and farm areas• RHLF loans since inception to end of Q3 of 2012/13 FY = 348 291 (RHLF

has a long way to go to have impact on the rural households) & Less than 1% of RHLF loans reach rural households

• Small towns not included in these statistics—so market is much higher• Despite all RHLF’s track record of delivery, households in tribal and farm

areas are not adequately serviced, because:• Funding shortage (mainly)• Loan distribution channels/intermediary network• Economic conditions: e.g. Low affordability levels and high

unemployment

Province Tribal or Traditional area

Farm area Total Average Household Size

Number of Households

RHLF Loans 2011/12

RHLF Market reach

Eastern Cape 3 400 239 194 948 3 595 187 3.89 924 213 11 403 1.23%Free State 240 613 195 898 436 511 3.33 131 084 1 645 1.25%Gauteng 167 190 150 385 317 575 3.14 101 139 8 333 8.24%KwaZulu-Natal 4 948 057 428 285 5 376 342 4.04 1 330 778 15 278 1.15%Limpopo 4 194 206 227 102 4 421 309 3.81 1 160 449 2 207 0.19%Mpumalanga 1 723 065 348 588 2 071 653 3.76 550 972 3 146 0.57%North West 1 625 852 330 346 1 956 199 3.30 592 788 621 0.10%Northern Cape 184 596 99 479 284 074 3.80 74 756 2 068 2.77%Western Cape - 470 224 470 224 3.56 132 085 2 342 1.77%Total 16 483 817 2 445 256 18 929 073 4 998 263 47 043 0.94%

348 291 7%

RHLF Cumulative Loans since inception to end of Q3 of 2012/ 13 FYRHLF Cumulative Loans as a percentage of Total Rural Households

RHLF MARKET

-

100 000

200 000

300 000

400 000

500 000

600 000

Housing by Type of Main Dwelling, Census 2011

Traditional dwelling/hut/structure made oftraditional materials

Informal dwelling (shack; in backyard)

Informal dwelling (NiB)

Eastern Cape Free State Gauteng KwaZulu-Natal Limpopo Mpumalanga North West Northern Cape Western Cape TOTAL476 285 19 543 13 724 483 296 63 974 48 285 17 531 9 507 7 775 1 139 920

34 407 48 634 305 684 62 658 32 279 38 274 76 182 9 558 105 283 712 959 95 983 80 355 434 075 148 888 41 434 78 533 148 794 30 047 191 668 1 249 777

Market ConditionsLow economic growth outlook Unemployment rate likely to remain highVolatility of Rand—currently deteriorating and

will likely have inflationary pressure Inflation food, energy, transport- less income

for housingLevel of consumer indebtedness remain high

following astronomical growth of unsecured lending

Policy ContextDespite the challenges posed by the market conditions, government policy interventions present an opportunity to do more, examples:1. Strategic Infrastructure ProjectsWhen projects are implemented and commissioned, will serve as basis for growth and job creationWe foresee demand for housing loans as a result of implementation of Infrastructure Plan

Policy Context2. Contribution to Outcome 8:Output 4: Facilitating incremental housing loans (non-mortgage loans) in rural areas:

In 2013/14 RHLF will exceed the outcome 8 target set for RHLF

Financial Year No. of Loans2009/10 33 112 2010/11 40 289 2011/12 47 043

2012/13 ( for Q3) 35 775 Total to Dec 2012 156 219

2014 Target 181 811 Performance Against Target 86%

Policy Context3. National Development Plan (NDP)Approved Government Plan providing guidance to service deliveryVision:

“… in 2030, we experience daily how: We participate in efforts to liberate ourselves from

conditions that hinder the flowering of our talents.”

RHLF is well positioned to support implementation of the NDP, especially in two key areas (Chapters in the NDP):

Inclusive Rural Economy (Rural Development)Transforming Human Settlements

NDP Areas RHLFProductive farms Funding housing in agricultural areas

and adjoining settlementsLand reform beneficiaries Financing housing for beneficiaries

who want to resettle on land Development of new towns as a result of development of rural development (agricultural and non-agricultural activities)

Funding housing for households/individuals who do not qualify for housing subsidy programmes or mortgage finance

Secure water and food supplies Funding for connecting to utilities (water, sewerage and electricity)

A mix of housing types Funding self or owner specified homes—maximising housing choices

Energy efficient homes (contributes to transition to low carbon economy)

Funding for solar energy, insulation,alternative building technologies, etc.

Rural areas fully integrated into the economy

Funding productive housing, local building industry activity, increased activity for local building merchants

NDP Areas With a Fit to RHLF Mandate

Few examples of communities mobilising to initiate their own planning and problem solving but many have become dependent and have become passive recipients of government delivery.

By funding individuals who are required to repay loans and identifying CBOs, NGOs and broad based community structures that can deliver housing. RHLF encourages rural communities to help themselves thus encouraging independence in the spirit of Vukuzenzele.

Renewed effort is needed to ensure that national provincial and local government work together in reshaping the built environment

As a national SOE, RHLF makes a point of interacting with a broad range of players in the housing delivery market in rural areas, meeting with representatives of all 3 tiers of government

Rural restructuring zones—e.g. new settlements formation (Spatial Restructuring)

Funding housing for households/individuals who cannot access subsidy programmes or mortgage finance

Challenges1. Shortage of Intermediaries:Action:

Provide additional facilities to existing intermediaries with scale to deliver on the mandate

Continue with efforts to identify community based organisations—three approved in the current financial year (will deliver high impact, but at small scale: Sasekisani Cooperative, Shiyendlele, Amajuba Livestock Association)Pipeline: Cane Growers Association

Continue efforts to sign new intermediaries and partner provincial DFIs: Pipeline: Risima Housing Finance, Mpumalanga Economic

Development Agency, Free State Development Corporation, Bashumi Banking Services

However, adding more intermediaries to scale up access to incremental housing finance requires more funding

Challenges2. Funding ConstraintIn light of the huge market that RHLF has to serve, funding resources are limited to fully respond to market needs.During the current financial year, we had a shortfall of R98m in meeting the demand for additional facilities from existing intermediaries—a credibility for RHLF and governmentAction:

Application for additional capital injection from RHLF shareholder—this is critical for meeting long term development objectives

Applied for relaxation of liquidity covenant on KfW/DBSA/RHLF loan—from 30% to 10% of Total Assets

Exploring raising loan funding from private and international institutions (however, cost may be high given RHLF mandate to facilitate unsecured incremental housing loans & will defeat efforts to continue with the strategy to lower the cost of credit for borrowers)

Raising Awareness &Develop New Foot Print

Participate in the DHS capacity development programme for municipalities

Use relevant media in raising awareness of incremental housing finance offered by RHLF and intermediaries

Building merchants willing to partner RHLF intermediaries as loan distribution channels have been identified in Limpopo, North West, Free State, & Northern CapeIn 2013/14 RHLF will facilitate partnerships between

its intermediaries and identified building merchantsOpportunities for joint marketing

Internal Resources1. FundingNo new funding, thus limited resources for business growth and development impact2. Human Resources: Maintain lean model in line with the Wholesale Business Model, built capacity in core business areas:Operations (Business Development)—Will appoint 1 new Client Executive Intern resulting in the total of 4 staff membersDevelopment Monitoring (New Unit) under Risk Management Department—Will appoint 2 current interns on permanent basis

Chief Executive Officer

Finance and Risk Management Unit

Chief Financial Officer

Financial Management:

Accountant

Risk Management:

1 Risk Manager

1 Risk Analyst (Jnr)

2 Development Monitor

Operations Unit

Business Executive

Lending Business:2 Client Executives

1 Client Exec

1 Intern (Client Exec)

Subsidy Voucher Admin

1 Programme Manager

1 Admin Assistant

Internal & Stakeholder Communications Unit:

1 Office Manager

1 Marketing Consultant (Jnr)

1 Assisstant Office Administrator

1 Office Assistant

STRATEGIC OUTCOME GOALS

Implications of Situational Analysis

Strategic ObjectivesBroadening & Deepening the Reach of

Rural Housing FinanceBuilding Lending CapacityPreservation of real value of capital

Strategic Outcome Orientated GoalsStake client goals – delivery to Rural Low Income

Earners

• Lower loan numbers due to funds already committed• Effort being made to move funds to intermediaries who grant lower

loans – therefore touch more people• Proud of effect RHLF is having on human settlements for those

earning below R3,500• Leakage targets considered adequate as cost of enforcing higher will

lead to more funds on enforcement, less on human settlements

TargetMeasure Budget Forecast Budget Budget Budget

2013 2013 2014 2015 2016Number of end user loans disbursed Units 38,202 38,202 34,231 58,167 43,917

Average end user loan size R 6,000 6,000 5,800 6,000 6,000

Qualifying housing use target Percent 80.0% 80.0% 80.0% 80.0% 80.0%

Percentage end users earning below R9,800 Percent 20.0% 20.0% 20.0% 20.0% 20.0%

Percentage end users earning below R3,500 Percent 60.0% 60.0% 60.0% 60.0% 60.0%

Percentage end user loans outside metros Percent 80.0% 80.0% 80.0% 80.0% 80.0%

Strategic Outcome Orientated GoalsStake client goals – debtors book

• Budget based on current funding constraints• Efforts being made to overcome these• Impairment expectation remains constant as risks are needed

for rewards

TargetMeasure Budget Forecast Budget Budget Budget

2013 2013 2014 2015 2016

Value of loans in place R000 375,496 385,100 378,189 395,673 410,035

Percentage impairment provision % 17.4% 18.0% 18.0% 18.0% 18.0%

Disbursements to retail intermediaries R000 101,500 101,500 104,000 243,000 165,500

Disbursements to retail intermediaries (including Mezzanine)

R000 229,213 229,213 198,538 349,000 263,500

Number of retail intermediaries Units 13 13 14 15 15

Number of community based intermediaries Units 5 5 9 14 20

Strategic Outcome Orientated GoalsFinancial goals

• Income increases as most funds are distributed for a full year

• Expenses as a % of income decrease as we maintain our cost base while improving revenue

• These lead to improved profitability

KEY PERFORMANCE AREASStatement of Financial Position

KEY PERFORMANCE AREASStatement of Financial Position

KEY PERFORMANCE AREASStatement of Cash Flow

KEY PERFORMANCE AREASStatement of Financial Performance

• Travel and accommodation increase to enable more support to CBOs in remote areas

• As RHLF seeks to increase its presence in rural areas our Marketing costs need to increase

• Consulting fees are budgeted to increase as we focus on CBO development and research

• Employment costs increase by 6% plus the cost of 1 new intern and 2 interns becoming fulltime

2013 2014 2015 2016Year Year Year YearR000 R000 R000 R000

Revenue 42,006.1 60,939.6 57,552.8 72,391.9

Total Interest 46,587.8 56,442.5 60,208.3 74,485.5

Other income (4,581.7) 4,497.1 (2,655.5) (2,093.6)

Interest paid (10,666.5) (10,666.5) (10,290.4) (9,796.6)

Operating expenses (15,306.8) (16,693.4) (17,775.7) (21,955.6)

Operating profit before taxation 16,032.8 33,579.7 29,486.7 40,639.7

Total taxation (4,489.2) (15,458.6) (8,256.3) (11,379.1)

Operating profit after taxation 11,543.6 18,121.1 21,230.4 29,260.6

GOVERNANCE

CORPORATE GOVERNANCE

Governance – Board and Committees

NameJoined Board

Years of Service

Role Role RoleNumber of meetingsMs T Chiliza - Chair Jul-06 6 MemberMs A Egbers - Deputy Chair Oct-10 2 Chair MemberMr J J Fakazi Jan-09 4Mr M Mathibe Oct-10 2 ChairMr K R Oliver Feb-00 13 Member ChairMs N Sihlwayi Jul-06 6 MemberMs A Thakor Oct-10 2 Member MemberMr R Haman Mar-13 0 MemberMr M Pule * May-98 14 Chair** resigned due to pressure of other activitiesNote that the term of this Board ends in October 2013

Credit and Development

Committee

Audit and Risk

Committee

Human Resources, Ethics and

Remuneration Committee

Governance: Board Committees

Concluding Remarks

Discussion

Thank You