Access to housing micro finance (basic finance) in a Managed Land Settlement process

Transcription

1 Access to housing micro finance (basic finance) in a Managed Land Settlement process What is housing micro finance? Kecia Rust, FinMark Trust 30 November 2009 Housing microfinance is a small loan used for housing purposes. Sometimes referred to as a home improvement loan, housing microfinance may be used by the borrower to: Buy land (depending on the cost of the stand); build a home incrementally, starting with a basic core and gradually improving over time; add onto an existing unit, building additional rooms for residential purposes, for storage, sale or production related to home enterprises; or to rent to supplement income or host family members; improve fittings and fixtures, install a ceiling, geyser, new tiles, improve security through for instance, the installation of security bars and doors or building external walls; repair and maintain existing structures, such as walls, roofs and other areas; and finance the acquisition of municipal services such as water, sanitation, and electricity; or compensate for the lack of municipal services through purchase of tanks for water harvesting, pre fabricated ventilated pit latrines, solar panels and composting toilets. (This latter point is more common in rural areas in South Africa, and in other countries.) Daphnis (2004) defines housing microfinance as encompassing financial services that allow poor and low income clients to finance their habitat needs incrementally, through microfinance methodologies. Broadly: Loans are for relatively small amounts compared with mortgages, based on the clients capacity to repay; but are larger than general microloans; repayment periods, at about 36 months, are relatively short in comparison with mortgages, but longer than for general microloans; loan pricing is intended to cover the real long run costs of the operation; loans are generally unsecured, or at best, collateral substitutes are used critically, the property itself is not necessary to secure the loan, so formal title is not required; loans finance habitat needs incrementally, related to their size, payment periods and low monthly instalments; and often, housing microfinance grows from conventional microfinance lending, and this is often utilised to link the loan with past history of borrowing by the loan beneficiary. Housing related microloans are on average larger than general microloans but seldom exceed the size of the lowest level of readily available mortgage finance products. In South Africa, loan sizes vary from R800 to R , with some loans extending as high as R Interest rates are on par with microloans generally, within the National Credit Act limit. Because microfinance is generally not linked to a completed housing product because of the incremental nature of construction, loan sizes and terms are adapted to households individual circumstances and building processes. In certain cases, HMF products include additional financial and non financial service elements. For instance, some lenders have implemented savings schemes that establish the creditworthiness of a borrower prior to extension of a housing microloan. Another financial service relates to the 1 This is the upper level identified by the Micro Finance Regulatory Council for exemption from the Usury Act provisions. This is no longer enforced by the National Credit Act, but remains a definitional benchmark for microfinance in South Africa. Centre for Affordable Housing Finance in Africa (a division of the FinMark Trust) Page 1

2 automatic re extension of subsequent loans a kind of roll over facility. From a non financial perspective, services such as housing related information, design and building advice and technical assistance for homebuilders are sometimes offered by HMF lenders, or by a partnering development NGO. In certain cases, housing microlenders institute systems and procedures to assist with procuring materials, in part to ensure that the loan is used for housing purposes. Such additional services generally require more complex systems and administration. The outputs of successful HMF loans include better, improved more habitable and sometimes income generating homes. It is also possibe that these improved homes become mortgageable through this investment process, offering a financial asset (as highlighted by de Soto) to the household. Further, the loans create a credit history for the borrower, important for incorporation into the financial system and further access to financial services. An example of incremental bulding through HMF: Select Africa, Swaziland Mr. Esau Maxwell Kunene is a 52 year old Swaziland government employee and the breadwinner of his family. He is employed as a teacher in one of the rural settlements in the Western Hhohho Region. He previously lived in a government house, and harboured the dream of owning his own home. In 2005, he began to search for a small plot of land on which to construct a house. He quickly encountered the problem of obtaining finance for this endeavour, as conventional loan products were too costly for him on a monthly salary of E3, (approximately US $ 530). He then approached Select, a housing microfinance institution in Swaziland, where he qualified and was approved for a loan of E (about US $ 3 000). This he chose to repay over a period of 24 months. He used this first loan to build a foundation and to purchase some building materials such as cement. The loan was not enough at the time to finish his house, and once he had finished paying the loan off in August 2005, he rolled over the loan, which he did repeatedly a total of ten more times, making the grand sum of money borrowed E57, (about US $ 8 500). With this, he has finished building the walls, roofing, and wired and connected his five roomed home to the electricity grid. A further loan in July 2008 of E9, (about US $ 1400) was used to purchase fencing materials, build a gate and plant trees around his home. Mr. Kunene is very pleased with the housing product and intends to borrow more to complete tiling his home and also a one room flat he intends to rent out. Source: Select Africa presentation Broadly, there are two kinds of HMF lenders (Merrill, 2006): housing niche market lenders, and more general microlenders offering an HMF product. The first type provides HMF on a stand alone basis, independent of other microfinance services or housing finance products. This kind of lender has an explicit expectation that the loan will be used for housing purposes, and in many cases is an evolution from a housing or development NGO. Generally, the lender does not rely on prior borrowing history as an assessment of capacity to pay. Instead the borrower is assessed on eligibility criteria such as financial profile and habitat needs; for some, also savings capacity. The second category of HMF lender is one that offers the loan as part of a wider suite of products, not all of which are housing related. In this case, housin loan eligibility is often a reward for a good borrowing track record. This track record also serves as a risk assessment for loan performance (Daphnis, 2004). How widespread is HMF in South Africa? The diversity of the HMF sector in South Africa is explored in detail in the attached Annexure. In summary, the HMF sector comprises Micro lenders explicitly focused on housing: these include the non bank housing microlenders that are supported by the National Housing Finance Corporation and the Rural Housing Loan Fund Micro lenders that offer general microloans that borrowers choose to use for housing purposes: these include banks as well as non bank lenders this is the largest component of the HMF sector in South Africa, although it doesn t recognise itself as such. For example, African Bank Centre for Affordable Housing Finance in Africa (a division of the FinMark Trust) Page 2

3 estimates that 20 30% of its microloans are used for housing purposes and estimates that it has a housing related loan book in the FSC market of about R2billion. Informal money lenders, stokvels, savings and credit cooperatives, etc., whose loans are then used by the borrower for housing purposes It is estimated that the total housing related microfinance portfolio in South Africa is between R3.2 billion (about US$339 million) (assuming 10% of all microloans are applied to housing) and R10.7 billion (about US$1.1 billion) (assuming 33% of all microloans are applied to housing). Between January 2004 and December 2008, members of the Banking Association together disbursed an estimated 315,952 unsecured loans for housing purposes to the FSC target market (households earning between R1 600 and R9 080 (about US$171 and US$971). This was worth just over R3billion. Application of general microloans to housing purposes There is not yet any definitive answer on what proportion of standard microloans are used for housing purposes, except that this proportion is significant. The MFRC, in its final statistical bulletin in August, 2006 calculated a figure of 10.1% of all microfinance disbursements for housing. This was 1.1% short of the proportion used for educational purposes, and over double the amount applied to SMME needs. Collins (2006), in a Financial Diaries Focus Note includes a figure of 13% of significantly sized borrowed or saved amounts were used for housing. African Bank estimates that 24% of its entire microfinance portfolio is used for housing purposes. This figure is based on an annual survey of a statistically representative sample of borrowers (Interview: Johan De Ridder). A recent study into the use of, and demand for, financial services among low income people in urban areas in South Africa (DIG, 2007) finds that of the 13% of respondents who had accessed loans from formal financial institutions over the last three years, 33% of these loans were applied to housing improvements, and a further 2% were used to buy housing. Microfinance is an established industry in South Africa, and is effectively regulated by the National Credit Regulator. Housing micro finance is a sub set of this, and is also growing and developing effectively. For this reason, MLS processes need not create the HMF opportunity independently. Rather, they will only need to highlight the opportunity of a new market to the microlenders, possibly to explain how it works and allay lender fears about risk, and the market will then operate as normal. The following section explores how HMF might be brought into the MLS process. Linking HMF into the MLS process Researchers have long argued that households with a secure sense of tenure (not necessarily legally recognised) are more likely to invest in improving their housing conditions than those who fear the risk of removal. The more secure the tenure, the more confident the household is in making the investment. In providing access to secure tenure, therefore, the MLS process is likely to also stimulate households interest in investing in their own housing. That said, a critical barrier to the growth of HMF in South Africa has been the dominant role of the housing subsidy in the housing process for low income people. Ultimately, the promise of a fullysubsidised house crowds out demand for other intermediate housing products and is a disincentive for households to invest in housing independently, even though the housing waiting list for subsidised housing is so long. Given that a housing product costing around R (including topstructure, land and services) is given free to subsidy beneficiaries, households are reticent to address their own housing needs in such a way that might make them ineligible for this benefit. It will be critical for any MLS process to explicitly address this issue at local level. In preparation for such a discussion, the MLS team may consider the following: Centre for Affordable Housing Finance in Africa (a division of the FinMark Trust) Page 3

4 While the current subsidy policy persists (although there is some hinting that it may change), perhaps an MLS process could negotiate with the local or provincial authority to provide the subsidy in retrospect. In this way, the housing micro loan becomes bridging finance for the borrower as they wait for their eventual subsidy entitlement. Receiving the subsidy in retrospect may only be possible, however, if it is used for further housing improvements and is not just a cash payment. The experience of the utshani Fund would be worth testing. The subsidy allocation procedures in the Informal Settlement Upgrading section of the National Housing Code may be adaptable to the MLS process, and this should be investigated. The subsidy complication aside, HMF could be integrated into the MLS process from the very beginning, as follows: Phase 1: Implementation Capacity o Identify local providers of microfinance and discuss the MLS process with them. Identify any concerns they might have (they may require written government confirmation of tenure security). Inform RHLF or NHFC of the MLS project and identify any housing specific microlenders. This would be the role of the developer. The approach would be the same whether the MLS process is state driven, community driven or private driven. o For community driven MLS (although possibly also with state or private driven, depending on capacity and interest), initiate local savings groups and begin the process of housing education the incremental building process; the relationship of loan size to affordability and to housing outcome; the opportunity for income generating home improvements, such as small scale landlordism and home based enterprises. o Work with municipality to develop sample plans that fit within municipal by laws and expectations establish advance approvals and negotiate for fees to be waived. Phase 2: Bulk Land o Carry on with savings groups and housing education o Negotiate with the community, regarding standards of services expected. Identify shortfalls with government budgeting and debate extent to which community wishes to finance the shortfall themselves. Phase 3: Basic Settlement Development o Carry on with savings groups and housing education o Introduce selection of sample plans and recommended approaches to housing development o Split housing vision into affordable phases: cost the steps in terms of total cost, monthly repayment requirements, time to be taken. o Invite microlenders to advertise their products. Phases 4, 5 and 6: Self build, upgrading and ongoing maintenance and improvement o Carry on with savings groups and housing education o Carry on with building process o Introduce opportunities for income generating home improvements o Introduce opportunities for community development: greening, garden competitions, home gardening, property maintenance, etc. Residents first housing will most likely be informal. This should not be destroyed with the first formal construction. Rather, the developer should negotiate with the municipality for a longer timeframe for the replacement of shacks with formal structures. Sample plans should explicitly Centre for Affordable Housing Finance in Africa (a division of the FinMark Trust) Page 4

5 propose ways to use existing building materials for formal construction purposes (i.e. corrugated iron could be used for roofing, and for a stoep). Key success factors The following factors will contribute towards a quality housing investment for borrowers in an MLS process: Savings groups provide not only a basis through which community members can demonstrate their affordability for regular payments, but also a support network of others involved in the same process. The experience of the cement savings groups of CEMEX in Mexico, and the support provided by Patrimonio Hoy, provides a useful example. In South Africa, the Kuyasa Fund s experience with savings groups could be drawn upon. Municipalities can provide a lot of support and direction through the preparation of sample plans that are well designed to an affordable, incremental housing delivery process. Further, municipalities can waive the plan approval fee, and provide housing inspectors that also double as housing construction advice officers. Various housing support services, such as those recommended for provision by the municipality, as well as building advice, access to the right building materials, architectural advice, and so on, should be provided. The savings groups offer a useful target for such support. Key challenges The MLS process should resolve the following: How does the MLS house building (and self financing process) align or engage with the housing subsidy scheme and the various entitlements this creates? Who should support and engage with savings groups? Who can provide housing support services, and how will this be financed? (FinMark Trust is currently doing research into this area, in cooperation with Rooftops Canada. This should be available for dissemination early in the new year). Centre for Affordable Housing Finance in Africa (a division of the FinMark Trust) Page 5

6 ANNEXURE: How widespread is HMF in South Africa? Within South Africa s microfinance sector, a range of different entities provides HMF (see below). This includes first tier institutions (regulated as banks), second tier institutions (regulated as nonbanks), which incorporate MFIs and HMFIs, and third tier entities, which are generally unregulated mutual societies and various kinds of informal moneylenders. Overview of housing microfinance institutions in South Africa TIER AND CATEGORY DESCRIPTION First Tier (regulated as banks under the Banks Act) 8 registered with NCR Commercial banks offering general microloans among other financial services Microfinance banks Deposit taking institutions provide a wide range of conventional housing finance products including bonds, pension backed loans and general microloans. None provide housing focused microfinance at present. Estimated 10% to 33% of microloans used for housing purposes. Registered banks focused on the provision of banking services and microfinance only. Estimated 10% to 33% of microloans used for housing purposes (See Box) Second Tier (regulated as non banks via the National Credit Act) registered with NCR Non bank microfinance institutions (creditonly) Housing focused MFIs. Co operatives and credit unions (Saccos) Purely commercial origins, not focused on housing lending. Estimated 10% to 33% of microloans used for housing purposes. Origins in microcredit for small, medium and micro enterprises (SMME); housing the next progression. Individual loans for those with secure tenure. Only used for housing if related to enterprise. Commercial origins, but facilitated by housing focused DFIs such as the Rural Housing Loan Fund (RHLF) and National Housing Finance Corporation (NHFC). Generally a high proportion of loans focused on housing Origins in developmentally focused housing delivery / shelter Nongovernmental organisations (NGOs) that saw HMF as the next progression. Many are non profit. Small in scale yet important in impact as they pilot piloting successful methodologies of extending HMF to low income borrowers. Co operatives governed by co operatives legislation, regulated by NCR providing credit facilities to members. Individual loans for housing often a coincidental focus. Third Tier (generally unregulated / outside formal system) Numbers unknown Mutual entities, community based shelter funds Informal moneylenders Informal, locally established savings groups Usually donor supported, formally constituted largely collective loans, targeted at most poor. Generally do not comply with governing legislation, not targeted at housing. Has been used by 25% of respondents (DIG, 2007). Average loan size of R (about US$12 779) day term, generally no or low interest. Only 1% of such loans applied to home improvements or repairs, and 1% to home purchase. Group savings based, locally defined approach and use of funds, either individual or collective loans. Has been used by 31% of urban respondents participate in such groups (DIG, 2007). Members typically contribute an average monthly amount of R156 (about US$17), and each member of a typical 15 member group takes the full quota of nearly R3 000 (about US$320) on a rotating basis. Use for housing unknown. EXAMPLES IN SOUTH AFRICA (National Credit Regulator registrations for May, 2007) Includes Absa, Standard Bank, Nedcor and First National Bank (FNB) Includes African Bank, Capitec and Teba Bank More than institutions. Includes Blue Financial Services and Mafori Finance Quantity unknown About 10 institutions. Includes Lendcor, Norufin Housing Finance and Indlu Housing Finance, 19 Section 21 companies (nonprofits) and 70 trusts registered with NCR. The Kuyasa Fund is the only MFI NOG explicitly focused on housing 27 registered with NCR. Extent of housing lending unclear Stokvels 2, SA Homeless Peoples Federation, utshani Fund, Fedup Informal loans sourced from friends, family, informal moneylenders and employers. Many informal revolving savings and credit associations e.g. Stokvels/Saccos and burial societies The following table summarises the key microfinance product types that are used to extend housing microcredit. Regulated and normal terms of such finance are indicated, as well as the estimated proportions of credit extended via each instrument that is applied to housing purposes. The status quo in respect of each of the key types of housing related microcredit is discussed below, and examples of their application in South Africa are outlined. 2 A stokvel is a rotating and credit scheme, similar to a ROCSA (Rotating Savings and Credit Association) in other countries Centre for Affordable Housing Finance in Africa (a division of the FinMark Trust) Page 6

7 Specification of housing-related microfinance products TYPE DESCRIPTION EXAMPLES SIZE TERM MAXIMUM INTEREST RATE Repo Rate = 12% (Sep 2008) Secured loans Finance fully or partially secured by attached Pension and Unregulated: Unregulated: Governed by NCA: assets, e.g. accumulated pension / provident provident fundbacked >R5000 (about 1 to 30 years (Repo rate x 2.2) +10% = 36.4% fund withdrawal benefits, title deeds, fixed or housing loans US$535) per annum movable property or joint signatories. (all major banks, Generally provided at prime or many MFIs prime +/ 1 2% Unsecured credit facilities Housing specific developmental credit Low income housing loans Small and medium SMME Loans Savings backed housing microloans Most common form of microfinance. Unspecified use. No constraints on application to housing. Estimated that between 10% and 33% of all household microfinance is applied to housing related purposes (see Box). Use is limited to housing purposes, including purchase, development and renovation of housing. Majority applied to housing, small leakage into other categories of expenditure. Up to 100% applied to housing purposes, some leakage expected. As above, except loan is preceded by a specified savings period to demonstrate ability to repay. Savings may be held as collateral during the term of the loan. Close to 100% used for housing purposes (RHLF, 2007). Provided by almost all credit providers in one form or another, including banks, MFIs and community groups. (e.g. personal unspecified use microloans) Housing focused MFIs (e.g. Lendcor) & housing specific MFIs (e.g Blue Dot Housing, Indlu Finance Company & Norufin Housing Finance). Kuyasa Fund savingsbacked housing microloan, requiring a 3 to 6 month savings period. Unregulated, Unlikely to exceed R15 000(about US$1604) Avg of all microcredit was R1 800 (about US$193) in 2007 (MFRC) Unregulated. Avg of R7000 (African Bank estimate) to R12000 (about US$ 1283) (FSC, 2008). Unlikely to exceed R (about US$3208). Unregulated, Unlikely to exceed R Unregulated: 7 60 months Unregulated: 7 60 months Unregulated: 7 60 months Governed by NCA: (Repo rate x 2.2) +20% = 46.4% per annum Generally provided at 40% to 50%. Effective interest (incl. fees & charges) up to 80% Governed by NCA: (Repo rate x 2.2) +20% = 46.4% per annum Governed by NCA: (Repo rate x 2.2) +20% = 46.4% pa (unsecured) (Repo rate x 2.2) +10% = 36.4% pa (secured) MAXIMUM INITIATION FEES Governed by NCA R % of amount greater than R1000 Maximum of R1 000 Governed by NCA : R % of amount greater than R1000 Maximum of R1 000 Governed by NCA : R500 (hsng) / R250 (about US$53/US$26) (SME) + 10% of any amount greater than R1000 (about US$106) Maximum of R2 500 (about US$267) Governed by NCA : R % of amount greater than R1000 Maximum of R2 500 Short term loans Credit facilities / cards Debit cards Informal loans Loans of up to 6 months in duration, Unspecified use. Low proportion (2%) used for housing upgrading, extension or purchase (DIG, 2007). Credit cards, store cards with predetermined credit limit on a revolving credit basis. Between 10% and 33% applied to housing (See Box) Mechanism for accessing capital in bank account, such as balance of approved loan or salary. Relies on positive balance in account. Loans from family & friends, informal lenders & employers. Very little spent on housing. Low proportion (2%) used for housing (DIG, 2007). Small cash loans from Banks and MFIs e.g. Lendcor loans to pensioners if less than 6 months term Credit Cards, store cards Lendcor Maestro Debit Card Various consumption loans Regulated by NCA: Not to exceed R8000 (about US$855). Unregulated. No Limits N/A Not Regulated. <R2000 (about Regulated by NCA: < 6 months Unregulated. <12 months Variable depending on agreement Unregulated: days Governed by NCA: 5% per month Governed by NCA: (Repo rate x 2.2) +10% = 36.4% per annum Depends on underlying credit or overdraft agreement (if any) Unregulated. Often interest free from kin up to % monthly interest from moneylenders Governed by NCA : R % of amount greater than R1000 Maximum of R1000 Governed by NCA : R150 (about US$16) + 10% of amount greater than R1000 Maximum of R1000 Depends on underlying credit or overdraft agreement Unregulated. Generally included in interest rate. Centre for Affordable Housing Finance in Africa (a division of the FinMark Trust) Page 7

8 US$213) Centre for Affordable Housing Finance in Africa (a division of the FinMark Trust) Page 8

9 ANNEXURE: Affordability for HMF A gap in the logic of the subsidy approach is that many low income households do, in fact, have capacity to finance all, or a part of their housing themselves. The following table illustrates the degree of affordability for different housing finance products among lowincome households. The table considers household income in R500 increments, illustrates how many households in SA fall into this category, and then using a simple calculation of between 20 30% of income that may be available for loan repayments, determines a monthly repayment affordability. Using this monthly repayment affordability, the table then considers affordability for a micro loan, pension backed loan (if the household is a member of a pension fund that allows such loans) and mortgage. Household income (R/month) (R500 increments) No. households in SA Data source: IES 05/06 Number % of total population % of income towards repayment Monthly payment affordability Micro loan affordability NCA specifications Rands Kuyasa data estimate Pensionbacked loan affordability Mortgage affordability FSC market = prime (13%) + 1%; regular market = prime; 20 yrs R 15,000 45, % 30% 4500 R 10,000 R 218,587 R 384,098 R 14,500 49, % 30% 4350 R 10,000 R 211,301 R 371,295 R 14,000 73, % 30% 4200 R 10,000 R 204,015 R 358,492 R 13,500 70, % 30% 4050 R 10,000 R 196,729 R 345,688 R 13,000 58, % 30% 3900 R 10,000 R 189,442 R 332,885 R 12,500 64, % 30% 3750 R 10,000 R 182,156 R 320,082 R 12,000 68, % 30% 3600 R 10,000 R 174,870 R 307,278 R 11,500 58, % 30% 3450 R 10,000 R 167,584 R 294,475 R 11,000 83, % 30% 3300 R 10,000 R 160,297 R 281,672 R 10,500 75, % 30% 3150 R 10,000 R 153,011 R 268,869 R 10, , % 30% 3000 R 10,000 R 145,725 R 256,065 R 9, , % 30% 2850 R 10,000 R 138,439 R 243,262 R 9,000 92, % 30% 2700 R 10,000 R 131,152 R 230,459 R 8, , % 30% 2550 R 10,000 R 123,866 R 217,656 R 8, , % 30% 2400 R 10,000 R 116,580 R 204,852 R 7, , % 30% 2250 R 10,000 R 109,294 R 192,049 R 7, , % 30% 2100 R 10,000 R 102,007 R 168,875 R 6, , % 30% 1950 R 10,000 R 94,721 R 156,813 R 6, , % 30% 1800 R 10,000 R 87,435 R 144,750 R 5, , % 30% 1650 R 10,000 R 80,149 R 132,688 R 5, , % 30% 1500 R 10,000 R 72,862 R 120,625 R 4, , % 30% 1350 R 10,000 R 65,576 R 108,563 R 4, , % 30% 1200 R 10,000 R 58,290 R 96,500 R 3, , % 25% 875 R 10,000 R 51,004 R 84,438 R 3, , % 25% 750 R 10,000 R 43,717 R 72,375 R 2, , % 25% 625 R 10,000 R 36,431 R 60,313 R 2, , % 25% 500 R 10,000 R 29,145 R 48,250 R 1,500 1,364, % 20% 300 R 7,626 R 0 R 0 R 1,000 1,771, % 20% 200 R 5,084 R 0 R 0 R 500 1,738, % 20% 100 R 2,542 R 0 R 0 R 1 959, % 0% 0 R 0 R 0 R 0 Contrary to popular (and policy) belief, households earning above R500 per month are in principle able to afford some level of housing finance. From R1500 per month, a household can afford as much as R7 626 in the form of a housing micro loan. Repayable over three Centre for Affordable Housing Finance in Africa (a division of the FinMark Trust) Page 9

10 years, this can serve as a roll over loan which the household can use to improve their home (or backyard accommodation) incrementally, step by step. Households earning more than R2000 may repay the R housing microloan more quickly (thereby accelerating their house building process), or they may even take out a larger housing microloan as is on offer currently by some of the larger SA banks. If the household is formally employed and a member of a pension fund, there is the possibility that, once they earn R2000 per month, they may be eligible to borrow a pension backed loan of as much as R Critically, by making the investment themselves, the home or backyard dwelling improvement process is done to the owner s own specifications. Of course, affordability cannot be determined by income alone. Melzer (2009) has found, for instance, that even within the FSC target market (defined in 2007 as households earning between R1600 R8200 per month) there were some households who were too poor to take on credit. Still, there were many other households who had housing affordability not for a loan to buy a full house, but certainly for a loan to undertake home improvements. The access strand, below, illustrates the proportion of the population with loan accessibility across the FSC target market in According to Melzer (2009), from a population of about 5.1m households, (8.7%) are too poor to afford credit and a further (16.5%) cannot access the product because their existing financial obligations are already equal to or greater than 70% of the household s disposable income. This leaves the remainder, 74.8% of the FSC target market population who can afford some form of housing finance. Earlier research done by the FinMark Trust for the Department of Housing and the Banking Association of South Africa into savings levels also found that while some households would struggle to save, many are trying to save regularly and even more have a savings account. Centre for Affordable Housing Finance in Africa (a division of the FinMark Trust) Page 10

11 Household income Total households Try to save regularly Would struggle to save Use a savings account R6 000 R % = % = R5 000 R % = R4 000 R % = % = R3 000 R R2 500 R R2 000 R % = % = % = R1 500 R Total (43%) (22%) (62%) A household s capacity to improve their housing with a loan or savings is not necessarily a factor of income but is rather related to a much more nuanced understanding of affordability. It is inaccurate to assume that all landlords would struggle to afford the costs of improving the quality of their backyard rental accommodation. Centre for Affordable Housing Finance in Africa (a division of the FinMark Trust) Page 11