Rural housing got another boost this week with R125-million from a German development bank, KfW.
Its first donation of R50-million, in 1996, led to the establishment of the Rural Housing Loan Fund (RHLF), which helped improve the living standards of 34 000 rural households by providing loans to build houses or start up small business ventures.
The success of this initial phase prompted KfW to provide additional funds.
Alicia Mkiva of Sweetwaters near King William’s Town says a loan from the RHLF enabled her family to extend their one-room house and to build an additional room for a spaza shop.
“We were all cooking, eating and sleeping on the floor in one small room. So we borrowed money from an RHLF-approved lender and, with the help of a local builder, my husband and I managed to build two rooms on to our house … with income from the spaza shop and my husband’s income, we are managing to put our kids through school.”
Sylvia Daweti, a single mother from the same area, says: “I took a loan and paid some local builders to build on my new kitchen and porch. The house is now big enough for me and my kid … and we live safe and warm. I have a steady job now and I would like to borrow more money soon to plaster the kitchen.”
The challenge of financing rural housing and economic development is a daunting one, given the credit profile of rural people, who do not usually meet the criteria of established financial institutions.
“Many financial institutions do not serve the rural market because it is regarded as high risk. All RHLF does is to partner willing financial institutions and to share their risks. One such institution is Ithala Bank in KwaZulu-Natal,” says Nonhlanhla Mjoli-Mncube, chairperson of the RHLF.
Mjoli-Mncube says the lopsided socio-economic profile of the country’s population requires commitment from financial institutions to address the legacy of disparities between the urban and rural areas.
“Many people migrate to the cities in search of better economic opportunities, and this trend could be stemmed by stimulating some economic activities in these areas … that’s how we developed a niche market for ourselves … and so far it is working out successfully.”
Until this year the RHLF was managed by the National Housing Finance Corporation, but it is now independent and reports directly to the minister of housing. The RHLF is a Section 21 company and achieved a surplus of R3,8-million last year for the second year in a row.
The RHLF’s market is people in the lower-income group who earn less than R2500 a month. The average loan is R4500. It uses a range of intermediaries, in the form of micro-lending companies that provide loans to people who will not necessarily get them from the banks. It has established six retail lending operations, and coaching and advice offices to ensure that lendings are prudently supervised.
The RHLF also focuses on rural development and this has resulted in an increased interaction with a number of organisations, such as the Development Bank of South Africa, the departments of housing and finance, the Independent Development Trust, Eskom, the Land Bank and municipalities.
In her annual chairperson’s report Mjoli-Mncube said: “Funding of incremental housing in country areas and in small towns through intermediaries is highly specialised. RHLF possesses unique expertise in selecting, establishing, coaching and monitoring retail.
“Similarly, the retail lenders know their clients and are best positioned to persuade them to service and re-pay their borrowings. RHLF remains committed to forging partnerships with retailers, while ensuring that sound risk management is practised.”