South Africa’s financial institutions may be sitting on an Aids-related time bomb, with billions of rands of loans, debts and bonds at risk of being defaulted on or just not being taken out because of the HIV epidemic.
On the other hand, they may not. So little research has been done into the likely extent and impact of HIV/Aids that the financial institutions don’t know what the implications are for them. One school of thought says the impact of HIV will be largely at the lower end of the market, and thus financially manageable. Another predicts potential financial meltdown.
They may not know the full extent of the HIV/Aids risks, but financial institutions do know that they are under financial, political and even moral pressure.
One of the first publicly released risk-containment programmes was announced this week by two Section 21 companies. It provides insurance to institutions to underwrite home loans against HIV and access to treatment for HIV/Aids for affected borrowers who might otherwise be unable to afford it.
The programme is a joint venture between the Home Loan Guarantee Company (HLGC), which guarantees home loans to low-income earners, and Right to Care, an NGO that uses an Internet system to provide knowledge on treating HIV/Aids by Aids doctors.
Targeted at people with salaries of less than R7 500, the scheme, if it works, could mean that home loans of people with HIV are protected, which also makes banks happy — and makes it more likely that HIV-positive people will obtain home loans in future. It also has the advantage of focusing on lower-income people — the employed socio-economic group most heavily affected by HIV/Aids, and most vulnerable financially.
In particular it is likely to help people such as single parents, nurses, teachers, police and so on — who can not afford proper medical care yet are essential for the smooth running of society.
The HLGC/Right to Care programme is not unique. Other groupings are planning similar products. And there have been other suggestions on how to minimise the effects of HIV on the financial sector — such as the recent call for a Sasria-type fund (a special risks reinsurance fund) that would almost totally remove HIV-related risks from the banks. The costs of such a scheme would be likely to come from borrowers in the form of an additional premium or levy, or from taxpayers.
The HLGC/Right to Care programme will take a premium from lending institutions and in return guarantee to make the montly repayments — or pay off the whole loan depending on which is cheaper — of people defaulting as a result of HIV/Aids. As a result the financial institutions do not sell the house, or access the borrower’s pension or provident fund if that is signed as a guarantee for the home loan.
For the borrower, accessing the scheme involves going for an HIV test and then accepting appropriate medical treatment under the guidance of Right to Care. Where the borrower does not have a medical aid, or the medical aid funds run short, the shortfall will be paid for by a United States-based foundation.
The programme will enable Right to Care, which is linked to the Wits Health Consortium, to provide treatment to a range of people who cannot pay for it.
Ian Sanne, a co-director of Right to Care, says this not only has humanitarian implications, but will also provide data on mass treatment for HIV/Aids, including anti-retrovirals. This will help researchers tailor treatment for HIV/ Aids to a country like South Africa.
Charlene Lea, CEO of the HLGC, says the aim of the programme is to use a business risk-management approach to deal with HIV/Aids. Once the borrowers have access to treatment, they hopefully become healthy enough — or stay healthy enough — to return to work. At which point they start making bond repayments, but remain on the treatment plan.
”The programme avoids risk, and avoids moral dilemmas. The borrower gets to keep the house and is part of a treatment programme. The idea is to return people to health. We are a risk-management company and realise that you can treat the symptoms of a problem or treat the cause. The cause is the disease here, so treat the disease.”
At the moment the HLGC is guaranteeing about 1,1-million loans, at a cost of about R23-billion. It estimates that HIV incidence is 25%, and that it is likely to face claims of between 10% and 20%.