South African microfinanciers can use HMF to grow lending and improve flagging reputations

In South Africa, HMF forms a very small part of the government’s housing policy interventions, the rest largely driven by state subsidised housing built for the poor who qualify.  The potential for HMF in the country is therefore still largely un-recognised and gets little attention in housing policy and practice.

What has been getting a lot of (albeit unflattering) attention, however, is the wider microfinance sector. Recent portrayals are of an industry guilty of reckless and unethical lending to the poor and financially vulnerable. The high levels of unsecured debt among households in the country is seen as an ominous dark cloud over the economy. There has even been a recent flurry of credit rating downgrades to larger microlenders. Regulators have likewise taken notice, sounding the alarm bells and rushing in – not without controversy –to propose a raft of regulatory responses, from those reforming the garnishee system to strengthening regulatory oversight. It has even become a campaign issue for next year’s elections. The recent debt amnesty proposal announced by the government has been interpreted in many circles as an electioneering ploy. These high levels of credit have also been portrayed as a social time bomb. There is opinion that the violence at Lonmin’s Marikana mine was precipitated by frustration among strikers caused by severe indebtedness from reckless lending by microfinanciers.  On this issue, the National Planning Minister commented that “micro lenders were driving the wage demands of miners in Marikana.” The level of attention and interest on this issue is unprecedented!

Does this create an opportunity for South Africa’s HMF sector? HMF potentially provides a new frontier for lending, which can expand micro-financiers businesses towards developmental outcomes. There are echoes here from a previous blog where we reported on the potential for HMF to expand “saturated” microfinance markets. Secondly, HMF promotes productive lending that can build asset wealth – quite different from the consumption lending associated with the current microfinance market. Thirdly HMF can make regulators happy. The National Credit Act of 2005 provides for a category of lending known as developmental credit. This credit includes educational loans, small business loans, loans to provide for the acquisition, rehabilitation, building or expansion of low income housing and any other loans to promote socio-economic development and welfare of disadvantaged and low income persons. It is good credit in other words, credit which if done properly should be encouraged. HMF falls in the category of lending for “building and expansion of low income housing”. The Act provides a number of exemptions for lenders to encourage more lending. For example, developmental credit providers are exempt from a number of provisions relating to reckless lending.

HMF lending provides wins all round. It has the potential to generate new business for microfinanciers, creates wealth for households and makes regulators happy. More attention from microfinanciers and policy makers is deserved, now more than ever.