RURAL HOUSING LOAN FUND

1. RHLF Strategic Plan for 2009/2010 FY PORTFOLIO COMMITTEE ON HUMAN SETTLEMENTS 12 June 2009 Presented by: Mr. JJ Fakazi –Acting MD Mr. H Potgieter - CFO RURAL HOUSING LOAN FUND

2. 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

3. 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

4. MANDATE • To provide affordable housing credit to low income rural households • To support the implementation of the Integrated Sustainable Rural Development Programme

5. 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.

6. 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.

7. What we do: Illustration by photos

18. 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 on communal land Support indigenous housing (maximizing housing choices) Enable rural residents to drive their own building process

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. KEY PERFORMANCE AREAS: Rural housing finance reach

26. KEY PERFORMANCE AREAS: Rural housing finance reach

27. KEY PERFORMANCE AREAS: Rural housing finance reach

28. KEY PERFORMANCE AREAS Building lending capacity

29. KEY PERFORMANCE AREAS Cost Revenue Ratio

30. KEY PERFORMANCE AREAS Impairments

31. KEY PERFORMANCE AREAS

32. KEY PERFORMANCE AREAS Disbursements and geographic spread Target for 2010: 70% outside Gauteng

33. KEY PERFORMANCE AREAS Disbursements by borrower income level Actual for 2009: 59% earn below R3500 Target for 2010: 58% earn below R3500

34. KEY PERFORMANCE AREAS Loan Usage Actual for 2009: 78% used on Housing Target for 2010: 74% used on Housing

35. KEY PERFORMANCE AREAS Statement of Financial Position

36. KEY PERFORMANCE AREAS Statement of Financial Position

37. KEY PERFORMANCE AREAS Statement of Financial Performance

38. 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.

39. MATERIALITY FRAMEWORK Determination 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.

40. 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:

41. CORPORATE GOVERNANCE

42. CORPORATE GOVERNANCE Demographics: Black 9 White 3 Female 5 Male 6

43. Thank You