Investigating the performance of non-traditional lenders in the provision of end-user finance : a case study of the National Housing Finance Corporation and the National Urban Reconstruction and Housing Agency.

Abstract

"A significant number of households in need of housing in South Africa can afford to access housing credit, provided that this is available. Such credit is currently not readily accessible by most of such home seekers. Unlocking housing credit is therefore seen as a fundamental requirement in order to facilitate the ongoing improvement of the housing circumstances of such households" (Housing White Paper, 1994). Restricted access and unavailability of housing end-user finance is one of the critical challenges which faces the government in general, and the Department of Housing in particular. Access to end-user finance is limited due to many reasons which the study will identify. This study primarily looks at the access and availability of housing end-user finance to the low income earners. Basically it attempts to explore the impact of Non-Traditional Lenders in the provision of end-user finance to the poor. Non-traditional lenders refer to any lender who is not a traditional retail finance lender/company. The study looks at the National Housing Finance Corporation (NHFC) and the National Urban Reconstruction and Housing Agency's (NURCHA) attempts to mobilise housing credit. It closely pays special attention to the strategies used to mobilise the much-needed credit, their impact and the problems they encounter. This is done with the sole purpose of establishing whether or not it is possible to extend their scope to cater for the low income housing market. To realise this purpose, the study follows the path undertaken by these two institutions in terms of impacting to the poor. Agishana Credit Company's activities were investigated in order to determine Nurcha's impact, and Ithala Development Finance Corporation for the NHFC. Further, a path will be established to determine the impact of these retail lenders on the poor. Thus, Pioneer Park housing project is surveyed to determine Ithala's lending activities as well as Thembalihle (Glenwood 2) housing project for Agishana. It is paramount to indicate that both the NHFC and Nurcha do not lend to a man on the street, but deal with retail lenders. In essence, the NHFC attempts to open the floodgates of housing credit by funding intermediary lenders that on-lend to individual beneficiaries, while on the other hand, Nurcha guarantees activities by these intermediary lenders. This study is divided into five chapters. Chapter one broadly gives an overview of problems regarding access and availability of housing end-user finance and also outlines the research methodology employed. Chapter two identifies and discusses the different housing delivery systems, as well as gives a vivid picture on the functioning of non-traditional lenders. It provides both international and national experiences that proves that it is feasible to provide housing loans to the poor. Chapter three aims at offering historical background of the four institutions. It identifies their missions, sources of funds, nature of clientele, key activities and the strategies they employ with regards to defaults. Chapter four provides the finding and analysis of the surveys conducted. Firstly, a brief background of the case study areas is outlined. Then findings of the study reveal that it is safe to lend to low income households. This proves that there is a potential to successfully lend to this market without running at a loss. Chapter five is a summary of the research findings, conclusions and recommendations. The findings of the study point out that there is a place for provision of housing credit to the poor. To that end, the study recommends that, what is needed to significantly provide housing loans to this market is the amalgamation of the NHFC and Nurcha's activities; establishment of more lending institutions; encouragement of savings for housing purposes; as well as commitment to innovatively devise and introduce new lending products to cater for this market, which is equally met with strategies to level the play field in terms of legislation so that lending institutions can participate in this housing market at scale.