HMF under the radar in South Africa

I’ve been here for over a month now and I’ve been asked a number of times (because of my accent) 1. If I’m American (and the answer is NO I am Canadian!); and 2. What I’m doing here. To simplify my response to the second question I reply with, ‘I’m doing research on housing microfinance’. This is generally followed by: ‘what’s that?’; and/or ‘well surely not in South Africa, we don’t have any of that here’. I’m always a bit surprised by the replies, though I should be used to it by now. I’ve travelled all this way to do research on a topic, that while new to me, I assumed would be well known here – I mean it’s everywhere. There are a number of MFIs who offer loans to individuals to use on what they want as well as loans to use on building materials offered through suppliers. Or all the advertisements you see for ‘cash loans’ or ‘credit loans’ – surely this isn’t all going towards vehicles and television sets. When even car mogul BMW here provides home loans to make home improvements, clearly there is a market and demand for housing microfinance.

Kihato has identified some indicators that demonstrate that there is a demand for HMF in not only South Africa, but across the continent. Most cities across Africa are experiencing rapid urbanization growth whereby residents prefer to remain in the city, close to services and employment, and improve their existing home, rather than leave the city where the cost of housing may be cheaper, but farther away. There is also a culture of building in Africa, where homes are constructed by local tradesmen and incrementally enlarged as the family grows. In addition, countries across sub-Saharan Africa have higher real estate interest rates compared to other low and mid-income as well as industrial countries globally, creating a barrier to secure a mortgage. The report also identifies South Africa to have the highest demand for HMF with a minimum of 1 027 355 borrowers after Nigeria with a demand from 2 039 355 borrowers.

An article on states: Only 15 percent of South Africa’s 14.45 million households earn enough to secure a mortgage, while 60 percent earn less than 3,500 rand a month and can qualify for state housing, government data shows. The remaining 25 percent, including most teachers, nurses, police officers and soldiers, have had access to neither. With so many households unable to secure a mortgage for housing, there is clearly a need to utilize some other lending mechanism to access and secure adequate housing. The new policy coming into place in September, which calls for upgrading of informal settlement, I think, will further increase the demand for housing microfinance as these properties will now be assets that can be used as collateral to access loans and improve homes. This will create an even larger opportunity for micro lenders to expand their portfolios and enter into the housing sector in South Africa.

According to Leon Kirkinis, CEO of African Bank Investments, “Unsecured loans enable countless ordinary South Africans to build their homes…” So why is it that when talking to locals here, including those who work in the microfinance, housing, or public sector, that they don’t realize that housing micro finance is has an important role across South Africa? Is there something I’m missing?

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