RURAL HOUSING LOAN FUNDRURAL HOUSING LOAN FUNDRHLF Strategic Plan forRHLF Strategic Plan for
2009/2010 FY2009/2010 FY
PORTFOLIO COMMITTEE ON PORTFOLIO COMMITTEE ON HUMAN SETTLEMENTSHUMAN SETTLEMENTS
12 June 200912 June 2009
Presented by:Presented by:Mr. JJ Fakazi –Acting MDMr. JJ Fakazi –Acting MD
Mr. H Potgieter - CFOMr. H Potgieter - CFO
Outline • Background on Establishment of RHLF• RHLF Mandate• Vision• Mission• What we do: Illustration by photos• Policy Context: BNG & Other Policy Priorities• Provincial Involvement• Business Environment: Internal and External + Implications• Key Performance Areas• Financial Projections• Materiality Framework• Corporate Governance
BACKGROUND ON ESTABLISHMENT OF RHLF
Result of German-South African bi-lateral agreement
Established by SA govt. in September 1996 as a Section 21 company
Helps address the housing needs of rural working poor: currently defined as those with housing income below R7, 500 (since 2004)
Assists with financial sector development in rural areas—later advocated by ISRD Programme
Independent board appointed by the Minister of Housing (now Human Settlements)
Initially capitalised with DM50 million (R150 million) grant from German Development Bank, KfW, to the SA government
Has raised loan of €12.5 from KfW via DBSA—exhausted
MANDATE
• To provide affordable housing credit to low income rural households
• To support the implementation of the Integrated Sustainable Rural Development Programme
VISION
RHLF 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 with access to credit from sustainable retail lenders.
What we do: Illustration by photos
Policy Context: RHLF’s contribution to BNG
Financial Services Market:
1.Repeated access to credit for incremental housing and fixed home improvementfor the rural working poor
2. Entry level credit – building credit history3. RHLF scales-up using its venture capital investments to leverage additional debt funding from financial sector (Clients reaching maximum RHLF exposure)
Incremental Housing:
1.Existing core financing opportunity for RHLF business2.Enable borrowers to improve quality of their housing asset: especially during post occupancy (Subsidy houses)—progressive build method
Rural Housing:
1.Provision of loans for improving traditional houses on communal land2.Support indigenous housing (maximizing housing choices)3.Enable rural residents to drive their own building process
Policy Context: Implementation of Other Govt Priorities
• Rural Development: IRSD• SMME Development:
– Indlu– Norufin– Mafori– Lendcor, etc
• Job Creation (within intermediaries & local builders)
• Addressing needs of the 2nd Economy: productive housing & also local builders
Provincial Involvement
RHLF is a national wholesale housing finance institution Has national reach through intermediary lenders who lend in all provinces Need to ensure that RHLF programme augments housing delivery where
appropriate, e.g. improvement of basic core house and improvement of quality of traditional rural houses
Intensify efforts to ensure that RHLF is seen by provinces as value adding in housing delivery and in the improvement of quality of housing in rural areas
Business Environment: Internal Factors
Internal factors affecting RHLF: Limited financial resources available for growth remain
a challenge– No new DOH funding for 2009/2010– R50mil from DOH in both 2010/2011 and 2011/2012– No other outside funding– Applying the current DBSA covenant rules of 30% of capital employed
Business Environment: External Factors / Economic Climate
Start of a lower Interest cycle – smaller margin available to cover operating costs Liquidity crunch has reduced possible RHLF leveraging effect of private sector finance into
the housing microfinance market Economy in recession and retrenchments are real—reflection of domestic weakness and
global recession Food prices remain high and thus erosion of disposable incomes of the target market Oil price decline absolutely important to tame adverse economic situation and inflation—but
oil prices are generally volatile Overall economic outlook for 2009 is grim: falling consumer expenditure and global demand
—hopefully see slight improvements last quarter of 2009 into first quarter of 2010 Demand for micro finance high but not necessarily for housing Increases in rate of defaults
Implications of Environmental Considerations
Targets set in the context of these economic realities Targets for 2009/10 are more realistic – lower growth than 2008/2009 Intermediaries focus on improving portfolio quality and less growth: best
time to take stock—holding position Intermediaries to tighten credit evaluation Consumer protection critical: avoid pushing credit and then looking at
portfolio as “sub-prime” later Consolidation / mergers may be an option for some intermediaries—can’t be
ruled out in this climate
Challenges and Opportunities
Challenges:• Increased risk of bad debts – maintain balance of portfolio• Leakage in terms of: Non Rural and Non Housing – more focus on intermediaries who
are using building material suppliers• High Interest rate charged to end users – focus on community based origination
channels (2 new for 2010) and give interest rate of between 7% and 10%
Opportunities:• Direct government transfer in outer years—opportunity to explore lower interest rate
model• Individual Rural Housing Subsidy Voucher Scheme—currently being considered for
approval by the Executive—expand RHLF role in housing delivery
KEY PERFORMANCE AREAS:Rural housing finance reach
KEY PERFORMANCE AREAS:Rural housing finance reach
KEY PERFORMANCE AREAS:Rural housing finance reach
KEY PERFORMANCE AREASBuilding lending capacity
KEY PERFORMANCE AREASCost Revenue Ratio
KEY PERFORMANCE AREASImpairments
KEY PERFORMANCE AREAS
KEY PERFORMANCE AREASDisbursements and geographic spread
Target for 2010: 70% outside Gauteng
KEY PERFORMANCE AREASDisbursements by borrower income level
Actual for 2009: 59% earn below R3500Target for 2010: 58% earn below R3500
KEY PERFORMANCE AREASLoan Usage
Actual for 2009: 78% used on HousingTarget for 2010: 74% used on Housing
KEY PERFORMANCE AREASStatement of Financial Position
KEY PERFORMANCE AREASStatement of Financial Position
KEY PERFORMANCE AREASStatement of Financial Performance
MATERIALITY FRAMEWORKDetermination of financial materiality for 2010
NoteDisbursements made in terms of approved client facilities and approved equity investments shall be excluded from the materiality framework as these transactions are within the normal course of business of the Company.
a)10% of annual Interest income= 45 346 780 *10% 4 534 678
b)1% of total assets= 314 031 872 *1% 3 140 319
c) Average of (a) and (b) = Materiality value= 4 534 678 plus 3 140 319 /2= 3 837 498
d) Tolerable error = 10% of (c)= 3 837 498 *10% 383 750
MATERIALITY FRAMEWORKDetermination of qualitative materiality for 2010
Qualitative materiality refers to those transactions where by their very nature indicates that management should apply their minds with additional care.
The RHLF management shall consider all transactions, which contravene any regulation, law or statute as being material despite the size of the transaction.
CORPORATE GOVERNANCEThe board of directors retains full and effective control over the company, monitors management and ensures that decisions on material matters are in the hands of the board.The composition of the board of directors provides for a majority of non-executive directors, including a non-executive chairperson. RHLF MD is the only Executive Director on the BoardThe sub-committees of the board are as follows:
CORPORATE GOVERNANCEBOARD & SUB-COMMITTEES
INTERNAL COMMITTEES
BOARD OF
DIRECTORS
HR ETHICS &
REMUNERATION COMMITTEE
CREDIT
COMMITTEE
AUDIT
COMMITTEE
DEVELOPMENT
COMMITTEE
INTERNAL
AUDIT
Management Committee
Portfolio Committee
Sales Committee
Team
Meetings
CORPORATE GOVERNANCERHLF Board member name Rac
e
Gen
der
Ms TBJ Memela-Khambule B F
Mr L Mashaba B M
Ms G Mthethwa B F
Ms T Chiliza B F
Mr KR Oliver W M
Mr MP Silinga B M
Mr M Hathorn W M
Ms N Makiwane B F
Ms N Sihlwayi B F
Mr M Pule B M
Mr JJ Fakazi (acting CEO) B M
Demographics: Black 9 White 3
Female 5 Male 6
Thank You