FINANCING HOUSING DELIVERY

A view from NURCHA

Presented By

Nhlanhla Mjoli-MncubeDeputy CEO

Wednesday, 26 March 2003

A view from NURCHA

1. The context

2. What NURCHA has achieved

3. Things we think about

4. NURCHA’s future: arranging sustainable finance.

THE CONTEXT

• 1995 Hope - Transformation• Sustantial resources: - massive inequality• Intervention required

– Reduce inequality– Normalise the market

• Politicised housing environment• Nervous banks• Many institutions formed

NURCHA’s ACHIEVEMENTS

BRIDGING FINANCE GUARANTEES SINCE 1996:

• Raised R 140 million in guarantees• Issued guarantees valued at R 264 million• For 510 loans totalling R .5 billion• Financing 113 000 houses• Valued at R 1,5 billion

CONCERNS

1. Banks lose their appetite

Losses Difficult business Banking shakedown Short term view

CONCERNS

2. The limitation of the guarantee Shares risk but provides no capital Only downside potential

3. A slowdown in new business Declining subsidy value Major new policies

4. The need to sustain ourselves

THE FUTURE1. DIVERSIFY PRODUCT RANGE

Not just Guarantees but

Full range of credit enhancements Wholesale and retail lending Equity or quasi equity

$50 million free credit enhancement from OSI

FUTURE

2. Diversify financing partners Capital markets Development finance institutions Donors

3. Reduce risks and improve risk management

4. Find the champions and fund them

NURCHA making the match

FINANCING CONSTRUCTION

NURCHA PACKAGES FINANCES

FINANCIERS DONORSCAPITAL MARKETS DFIS

CHAMPIONS FINANCIAL REQUIREMENTS

CONSTRUCTION: SUBSIDYCREDIT LINKED +

RENTAL +

NURCHA’s VISION

“ An organisation that is regarded as a partner of first

choice for those seeking innovative housing finance

solutions”

RESPONSE TO BUDGET

Budget amount is okay, however there are constraints to budget roll out: Policy on R2479 needs to be politically

popularised Municipal and official buy in Developer and contractor commitment and

role clarification Design of systems and procedures for the

management of R2479 Interim arrangements during transitional

period Local authority capatilisation

SOME ALTERNATIVES ON THE GROUND

Individual contractor-driven subsidy Rural subsidies as a mechanism of avoiding

R2479 People’s Housing Process redefined to allow

contractor participation Role of banks and other financial institutions

and need for support

AN EXAMPLE: THE OPIC FUND

RMB Revolving Credit Facility ± R 200 million

NURCHA Loans

Paymaster

Paymaster

Contractor

Contractor

R 20 million

first loss guarantee

OPIC & OSI

$ 20 million guarantee

THE COST OF FUNDS

RMB – Nurcha = Prime -2,3%

+ OPIC Fee = 2,5%

= Prime + 0,2%

Nurcha admin fee = R69 per house

Paymaster admin fee = ±R500 per house

THE PAYMASTER

1. Evaluates the loan

2. Approves on Nurcha’s behalf

3. Opens a project account

4. Pays material suppliers directly

5. Releases funds for labour costs

BENEFITS TO CONTRACTORS

1. Access to funds

2. Discounts from suppliers

3. More rapid payments from province

4. Tight financial control and monitoring

18%

76%

6%

Established

Emerging

Women

Contractors supported by Nurcha

Types of Contractors

17,759

26,611

16,888

10,736

6.657 83

24,623

14,046

5,269

0

5,000

10,000

15,000

20,000

25,000

30,000

Houses constructed through Nurcha’s intervention: February 2003

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No

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Western Cape

TOTAL NUMBER OF HOUSES SINCE INCEPTION = 122,672