RURAL HOUSING LOAN FUND

1. PUBLIC HEARINGS: BUDGET VOTE 30 24 March 2010 Presented to: PORTFOLIO COMMITTEE ON HUMAN SETTLEMENTS by: MR. JJ Fakazi –Acting CEO MR. H Potgieter - CFO RURAL HOUSING LOAN FUND

2. Outline • RHLF Mandate • Vision • Mission • Policy Context: BNG & Other Policy Priorities • Provincial Involvement • Partnerships with other Development Finance Institutions • Business Environment: Internal and External + Implications • Key Performance Areas • Financial Projections • Materiality Framework • Corporate Governance

3. MANDATE • To facilitate housing credit to low income rural households: including communal land, rural towns, small towns • To support the implementation of the Integrated Sustainable Rural Development Programme—Now Comprehensive Rural Development Programme • To support government’s effort to expedite housing delivery in rural areas through administering the delivery of the Individual Rural Housing Voucher Programme – once implementation is approved by MINMEC • Focus on low income market: upper limit increased from R7, 500 to R9, 800 per month • Takes into account inflation • Covers the gap market who can’t access mortgage (limited affordable housing product, and no title to land in communal land)

4. 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.

5. MISSION To empower people in rural areas to maximise their housing choices and improve their living conditions with access to: • Housing finance from sustainable retail lenders & • Government subsidy through the Individual Rural Housing Subsidy Voucher Programme

6. INCREMENTAL HOUSING FINANCE / HOUSING MICROFINANCE • Has a nice fit with the manner in which low-income people build • Incremental housing/Progressive build: traditionally poor people or people earning low income build their houses in a particular way: • First build a core house: could be one room or few rooms such as a subsidy (RDP) house • Over a period of time (could be 2yrs or so) they add another habitable space • Adding new space may not be done all at once:- • can start by stockpiling building materials • Saving little from own income or bonus • Borrow money from lenders (family, friends, or housing lenders, etc) • The process takes a little while, but is in line with access to building resources • Ultimately the desired house is achieved • HM enables low income earners to access loans for housing that they can afford to repay and access further loans (repeat loans) for the next stages in the building process • In essence, poor people “build their houses—one brick at a time”

7. RHLF Intermediary Distribution Channels

8. Policy Context: RHLF’s contribution to BNG Financial Services Market: Repeated access to credit for incremental housing and fixed home improvement for the rural working poor 2. Entry level credit – building credit history 3. RHLF scales-up using its venture capital investments to leverage additional debt funding from financial sector (Clients reaching maximum RHLF exposure) Incremental Housing: Existing core financing opportunity for RHLF business Enable borrowers to improve quality of their housing asset: especially during post occupancy (Subsidy houses)—progressive build method Rural Housing: Provision of loans for improving traditional houses in communal land Support indigenous housing (maximizing housing choices) Enable rural residents to drive their own building process

9. Policy Context: Implementation of Other Govt Priorities • Rural Development: IRSD • SMME Development: • Izwe • Bayport • Lendcor, etc • Job Creation (within intermediaries & local builders) • Addressing needs of the 2nd Economy: productive housing

10. Provincial Involvement • RHLF is a national wholesale housing finance institution • Has national reach through intermediary lenders who lend in all provinces • RHLF continues to engage with provinces on housing development issues • Need to ensure that RHLF programme helps in enhancing housing delivery in rural areas and small towns: • Improvement of basic core house and improvement of quality of traditional rural houses • Enabling people in the gap market to access housing finance, without need for collateral • Engage Traditional Leaders as partners in the improvement of quality and delivery of housing on communal land • Provincial government & Traditional Leaders will be RHLF’s key partners when Voucher Programme is implemented

11. Impact Per Province YTD FEB 2010 = 32,343 vs. total year budget of 35,000

12. RHLF – Strategic plan for 2010/2011

13. Business Environment: Internal Factors Internal factors affecting RHLF: • Funding: R49,5 million in 2010/2011 R49,5 million in 2011/2012 R51,9 million in 2012/2013 • Human Resources: Small but dedicated team • Vacant CEO position - receiving Ministerial consideration • Need to build capacity: make the current 2 interns full time employees and add an additional intern in the 2010/2011 year. • DFI review: RHLF is playing an active role in the ongoing DFI review process.

14. Business Environment: External Factors / Economic Climate • SA only starting to emerge from Recession – slow recovery over next 18 months • High level of job losses – Around 1 million. Seeing some improvement but re-employment in the formal sectors will lag the economic recovery • Inflation has moderated somewhat – Risk of oil price and effect of ESKOM price increase • Over indebtedness - household debt represents on average between 70% and 80% of their disposable income • Lower interest rates • Liquidity crunch - credit supply conditions remain tight

15. Implications of Environmental Considerations • Targets for 2010/11 are more realistic • Targets must be set in the context of these economic realities • 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

16. KEY PERFORMANCE AREAS • Rural Housing Finance Reach • Value of Loans in place and impairment provision

17. KEY PERFORMANCE AREAS • Rural Housing Finance Reach • Annual Disbursements • Actual Year to date Feb 2010 = R105 million

18. KEY PERFORMANCE AREAS • Rural Housing Finance Reach • Number of end user loans approved • Actual Year to date Dec2009 = 23,925 forecasted to 37,628 by March 2010

19. KEY PERFORMANCE AREAS • Rural Housing Finance Reach • Impact

20. KEY PERFORMANCE AREAS • Rural Housing Finance Reach • Number of Retail Intermediaries and Community Based Organizations

21. KEY PERFORMANCE AREAS • Rural Housing Finance Reach • Strategies to increase number of loans • RHLF plan to add at least 2 more community based organizations to its delivery channel. In this process we would give preference to organizations that are based in the provinces where our impact is currently on the low side, like Northern Cape • RHLF plan to add at least 1 intermediary with a foot print in the provinces where our impact is currently on the low side as well as rural provinces in general. • RHLF will be extending a facility to Elite Group – • UASA has members in all 9 provinces, but Elite has committed to use the new facility first in the Eastern and Northern Cape • RHLF will be increasing its facilities to Bayport finance – • SA Post Office used as a delivery channel • RHLF to introduce its low interest rate loans to all other clients who have capacity and distribution channels to on-lend the low interest rate product– • Will reduce rates by between 6% and 8%

22. KEY PERFORMANCE AREAS Statement of Financial Position

23. KEY PERFORMANCE AREAS Statement of Financial Position

24. KEY PERFORMANCE AREAS Statement of Financial Position • Capital Expenditure: • 8 * New Laptops in Feb 2011 = R120k • Upgrade Server = R 47k • Liquidity / DBSA covenant of 30%

25. KEY PERFORMANCE AREAS Statement of Financial Performance

26. KEY PERFORMANCE AREAS Statement of Financial Performance

27. KEY PERFORMANCE AREAS Statement of Financial Performance • 82% increase in Directors fees: no change in fee. Budget based on all directors at all meetings • Staff cost up 44% • CEO appointed • New positions: • Junior Risk Analyst • Marketing/Communications assistant • Intern for Client Executive team • Annual increase for current employees • Travel Expenses up 52% • Increase activity – new clients, monitoring low interest loans, risk reviews • Inflation increase • Consulting, up 86% • Inflation increase for internal and external audit • Increase in legal fees – new agreements for new clients and low interest loans • Impact audit at clients

28. KEY PERFORMANCE AREAS Cash Flow Statement

29. KEY PERFORMANCE AREAS RHLF high level organisational design

30. KEY PERFORMANCE AREAS RHLF high level organisational design

31. MATERIALITY FRAMEWORK Determination of financial materiality for 2010 Note Disbursements 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.

32. MATERIALITY FRAMEWORK Determination of qualitative materiality for 2011 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.

33. Corporate Governance • The 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 Board • The sub-committees of the board are as follows:

34. CORPORATE GOVERNANCE

35. CORPORATE GOVERNANCE

36. Thank You