RURAL HOUSING LOAN FUNDRURAL HOUSING LOAN FUNDPUBLIC HEARINGS: BUDGET VOTE 30PUBLIC HEARINGS: BUDGET VOTE 30

24 March 201024 March 2010

Presented toPresented to::

PORTFOLIO COMMITTEE ON HUMAN PORTFOLIO COMMITTEE ON HUMAN SETTLEMENTSSETTLEMENTS

by:by:MR. JJ Fakazi –Acting CEOMR. JJ Fakazi –Acting CEO

MR. H Potgieter - CFOMR. H Potgieter - CFO

Outline • RHLF Mandate• Vision• Mission• Policy Context: BNG & Other Policy Priorities• Provincial Involvement• Partnerships with other Development Finance Institutions• Business Environment: Internal and External + Implications• Key Performance Areas• Financial Projections• Materiality Framework• Corporate Governance

MANDATE

• To facilitate housing credit to low income rural households: including communal land, rural towns, small towns

• To support the implementation of the Integrated Sustainable Rural Development Programme—Now Comprehensive Rural Development Programme

• To support government’s effort to expedite housing delivery in rural areas through administering the delivery of the Individual Rural Housing Voucher Programme – once implementation is approved by MINMEC

• Focus on low income market: upper limit increased from R7, 500 to R9, 800 per month– Takes into account inflation– Covers the gap market who can’t access mortgage (limited affordable

housing product, and no title to land in communal land)

VISION

RHLF is a world-class rural housing social venture capital fund that creates new

financial arrangements and opportunities for rural families to improve their housing,

economic and living environments.

MISSION

To empower people in rural areas to maximise their housing choices and improve their

living conditions with access to: – Housing finance from sustainable retail lenders &– Government subsidy through the Individual Rural

Housing Subsidy Voucher Programme

INCREMENTAL HOUSING FINANCE / HOUSING MICROFINANCE

• Has a nice fit with the manner in which low-income people build• Incremental housing/Progressive build: traditionally poor people or people earning

low income build their houses in a particular way:– First build a core house: could be one room or few rooms such as a subsidy

(RDP) house– Over a period of time (could be 2yrs or so) they add another habitable space– Adding new space may not be done all at once:-

• can start by stockpiling building materials• Saving little from own income or bonus• Borrow money from lenders (family, friends, or housing lenders, etc)• The process takes a little while, but is in line with access to building

resources• Ultimately the desired house is achieved

• HM enables low income earners to access loans for housing that they can afford to repay and access further loans (repeat loans) for the next stages in the building process

• In essence, poor people “build their houses—one brick at a time”

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RHLF Intermediary Distribution Channels

Intermediary Head office Foot print Channel

Bayport Gauteng National National Branch Network and an agreement with the SA Post office

Izwe Gauteng National National Branch Network

Lendcor KZN Mainly KZN and Eastern CapeBranches in the Building Suppliers Stores

RPH Eastern Cape NationalNational Branch Network and Branches in the Building Suppliers Stores

Indlu Mpumalanga Mainly Mpumalanga and Limpopo Few branches and agents

Norufin Northwest Northwest and Limpopo Few branches and agents

Elite Gauteng National: But facility focused on Northern and Eastern Cape

Agreements with employers organizations - payroll deductions only. Use close loop debit card

Kuyasa Western Cape Mainly Western Cape Community based organization using agents

Mafori Gauteng National Few branches and agents

Vecto Western Cape Western Cape

Agreements with employers organizations - payroll deductions only.

NERPO Gauteng National

For NERPO members only - emerging farmers

Rhys EvansFree State Viljoenskroon - Northern Free State

Strictly for farm workers employed by Rhys Evans Group

Policy Context: RHLF’s contribution to BNG

Financial Services Market:

1.Repeated access to credit for incremental housing and fixed home improvementfor the rural working poor

2. Entry level credit – building credit history3. RHLF scales-up using its venture capital investments to leverage additional debt funding from financial sector (Clients reaching maximum RHLF exposure)

Incremental Housing:

1.Existing core financing opportunity for RHLF business2.Enable borrowers to improve quality of their housing asset: especially during post occupancy (Subsidy houses)—progressive build method

Rural Housing:

1.Provision of loans for improving traditional houses in communal land2.Support indigenous housing (maximizing housing choices)3.Enable rural residents to drive their own building process

Policy Context: Implementation of Other Govt Priorities

• Rural Development: IRSD• SMME Development:

– Izwe– Bayport– Lendcor, etc

• Job Creation (within intermediaries & local builders)

• Addressing needs of the 2nd Economy: productive housing

Provincial Involvement

RHLF is a national wholesale housing finance institution Has national reach through intermediary lenders who lend in all provinces RHLF continues to engage with provinces on housing development issues Need to ensure that RHLF programme helps in enhancing housing delivery in

rural areas and small towns: Improvement of basic core house and improvement of quality of traditional rural houses Enabling people in the gap market to access housing finance, without need for collateral

Engage Traditional Leaders as partners in the improvement of quality and delivery of housing on communal land

Provincial government & Traditional Leaders will be RHLF’s key partners when Voucher Programme is implemented

Impact Per Province

YTD FEB 2010 = 32,343 vs. total year budget of 35,000

RHLF – Strategic plan for 2010/2011

Business Environment: Internal Factors

Internal factors affecting RHLF: Funding: R49,5 million in 2010/2011

R49,5 million in 2011/2012R51,9 million in 2012/2013

Human Resources: Small but dedicated team Vacant CEO position - receiving Ministerial consideration Need to build capacity: make the current 2 interns full time employees and add

an additional intern in the 2010/2011 year.

DFI review: RHLF is playing an active role in the ongoing DFI review process.

Business Environment: External Factors / Economic Climate

SA only starting to emerge from Recession – slow recovery over next 18 months

High level of job losses – Around 1 million. Seeing some improvement but re-employment in the formal sectors will lag the economic recovery

Inflation has moderated somewhat – Risk of oil price and effect of ESKOM price increase

Over indebtedness - household debt represents on average between 70% and 80% of their disposable income

Lower interest rates Liquidity crunch - credit supply conditions remain tight

Implications of Environmental Considerations

Targets for 2010/11 are more realistic Targets must be set in the context of these economic realities Intermediaries focus on improving portfolio quality and less

growth: best time to take stock—holding position Intermediaries to tighten credit evaluation Consumer protection critical: avoid pushing credit and then

looking at portfolio as “sub-prime” later

KEY PERFORMANCE AREAS

Rural Housing Finance Reach Value of Loans in place and impairment provision

KEY PERFORMANCE AREAS

Rural Housing Finance Reach Annual Disbursements

Actual Year to date Feb 2010 = R105 million

KEY PERFORMANCE AREAS

Rural Housing Finance Reach Number of end user loans approved

Actual Year to date Dec2009 = 23,925 forecasted to 37,628 by March 2010

KEY PERFORMANCE AREAS

Rural Housing Finance Reach Impact

Actual Mar-09 Forecast Mar-10 Mar-11 Mar-12 Mar-13

Number of End-User Loans disbursed # 40 537 39 136 44 933 54 630 56 762

Average End-User Loan Size R 3 437 4 136 4 500 4 860 5 250

Qualifying Housing Use Target (% of loan instances) % 78% 78% 80% 80% 80%

% 19% 20% 20% 20% 20%

% 59% 65% 65% 65% 65%

% 81% 80% 80% 80% 80%

Percentage of female end-users. % 54% 52% 50% 50% 50%

Percentage of end-user loan instances going to households earning R9,500 p.m. or more.

Percentage of end-user loan instances going to households earning R3,500 p.m. or less.

Percentage of end-user loan instances going to non-metropolitan areas.

KEY PERFORMANCE AREAS

Rural Housing Finance Reach Number of Retail Intermediaries and Community Based Organizations

Actual Mar-09 Forecast Mar-10 Mar-11 Mar-12 Mar-13

Number of Retail Intermediaries # 10 10 11 12 13

Community Based Organizations # 1 2 4 6 8

KEY PERFORMANCE AREAS

Rural Housing Finance Reach Strategies to increase number of loans

RHLF plan to add at least 2 more community based organizations to its delivery channel. In this process we would give preference to organizations that are based in the provinces where our impact is currently on the low side, like Northern Cape

RHLF plan to add at least 1 intermediary with a foot print in the provinces where our impact is currently on the low side as well as rural provinces in general.

RHLF will be extending a facility to Elite Group – UASA has members in all 9 provinces, but Elite has committed to use the new facility first in the Eastern and Northern Cape

RHLF will be increasing its facilities to Bayport finance – SA Post Office used as a delivery channel

RHLF to introduce its low interest rate loans to all other clients who have capacity and distribution channels to on-lend the low interest rate product– Will reduce rates by between 6% and 8%

KEY PERFORMANCE AREASStatement of Financial Position

Assets Actual Mar-09 Forecast Mar-10 Mar-11 Mar-12 Mar-13

Non Current Assets

Gross Loans Receivable 227 911 016 255 809 203 296 746 827 369 996 469 417 693 915 Impairments (37 138 009) (55 642 509) (71 322 509) (90 067 509) (108 757 509)

Net Loans Receivable 190 773 007 200 166 694 225 424 318 279 928 960 308 936 406

Investments in Associates 2 427 598 2 552 598 2 802 598 3 052 598 3 302 598 Available for sale financial assets 7 363 943 1 481 590 1 481 590 1 481 590 1 481 590 Property Intangibles and Equipment 238 271 134 023 192 525 112 661 85 335 Deferred Tax Asset 7 044 071 8 724 070 12 016 870 15 953 320 19 878 220

Total Non-Current Assets 17 073 883 12 892 281 16 493 583 20 600 169 24 747 743

Current Assets

Trade and Other Receivables 3 474 022 1 845 661 1 845 661 1 845 661 1 845 661 Cash and Cash Equivalents 68 091 864 104 386 249 129 660 131 125 456 861 150 397 496

Total Current Asssets 71 565 886 106 231 910 131 505 792 127 302 522 152 243 157

Total Assets 279 412 776 319 290 885 373 423 693 427 831 651 485 927 305

KEY PERFORMANCE AREASStatement of Financial Position

Equity and Liabilities Actual Mar-09 ForecastMar-10 Mar-11 Mar-12 Mar-13

Capital and Reserves

Grant Capital 154 762 590 154 762 590 204 262 590 253 762 590 305 737 590 Reserves 4 167 060 22 899 235 25 995 803 27 984 089 31 545 032

Total Capital and Reserves 158 929 650 177 661 825 230 258 393 281 746 679 337 282 622

Non-Current LiabilitiesDBSA / Kfw Loan Facility 119 626 758 140 100 234 138 729 454 138 729 454 138 729 454

Total Non-Current Liabilities 119 626 758 140 100 234 138 729 454 138 729 454 138 729 454

Current Liabilities

Trade and Other Payables 1 503 360 1 340 922 1 340 922 1 340 922 1 340 922 Taxation (646 992) 187 904 3 094 924 6 014 597 8 574 308

Total Current Liabilities 856 368 1 528 826 4 435 846 7 355 519 9 915 230

Total Equity and Liabilities 279 412 776 319 290 885 373 423 693 427 831 651 485 927 305

KEY PERFORMANCE AREASStatement of Financial Position

Capital Expenditure: 8 * New Laptops in Feb 2011 = R120k Upgrade Server = R 47k

Liquidity / DBSA covenant of 30%

Actual Mar-09 ForecastMar-10 Mar-11 Mar-12 Mar-13Cash and Cash Equivalents 68 091 864 104 386 249 129 660 131 125 456 861 150 397 496

DBSA 30% Covenant 63 396 274 64 471 391 73 129 069 90 712 437 100 658 943 107% 162% 177% 138% 149%

KEY PERFORMANCE AREASStatement of Financial Performance

Income Statement Actual Mar-09 Forecast Mar-10 Mar-11 Mar-12 Mar-13

Total Financial Revenue 42 367 264 42 837 509 43 949 366 46 749 631 50 191 272

Financial Expense

Net Impairment of Advances and Investments (11 831 140) (18 504 500) (15 680 000) (18 745 000) (18 690 000) Interest Paid on Non-Current Liabilities (8 784 211) (9 825 919) (10 666 483) (10 666 483) (10 666 483)

Total Financial Expense (20 615 351) (28 330 419) (26 346 483) (29 411 483) (29 356 483)

Net Financial Income / Net Interest Margin 21 751 913 14 507 090 17 602 882 17 338 148 20 834 789

Total Operating Expenses (9 693 476) (9 355 774) (13 302 094) (14 576 640) (15 889 034) Total Non-Interest Income (1 538 450) 20 865 626 - - -

Net Income Before Taxation 10 519 987 26 016 943 4 300 788 2 761 508 4 945 754

Taxation (2 215 459) (7 284 768) (1 204 221) (773 222) (1 384 811)

Net Income After Taxation 8 304 528 18 732 175 3 096 567 1 988 286 3 560 944

KEY PERFORMANCE AREASStatement of Financial Performance

Actual Mar-09 Forecast Mar-10 Mar-11 Mar-12 Mar-13Operating Expenses

Non-Executive Directors' Fees (308 000) (201 880) (368 004) (397 444) (429 240) Staff Cost (5 667 688) (5 173 565) (7 470 636) (8 294 761) (9 180 308) Travel Expenses (450 995) (288 565) (437 904) (472 936) (506 042) Occupancy Expense (551 790) (586 318) (641 556) (699 099) (761 591) Communication Cost (220 475) (208 609) (253 128) (273 378) (292 515) Marketing Expenses (553 068) (779 339) (949 812) (1 025 797) (1 097 603) Depreciation Property, Plant and Equipment (139 307) (131 512) (108 498) (94 864) (77 326) Consulting, Legal and Audit Fees (501 699) (1 126 709) (2 091 904) (2 259 256) (2 411 164) Other Administrative Expenses (1 300 454) (859 278) (980 652) (1 059 104) (1 133 247)

Total Operating Expenses (9 693 476) (9 355 774) (13 302 094) (14 576 640) (15 889 034)

Cost Reven Ratio 24% 23% 30% 31% 32%

KEY PERFORMANCE AREASStatement of Financial Performance

•82% increase in Directors fees: no change in fee. Budget based on all directors at all meetings•Staff cost up 44%

•CEO appointed•New positions:

•Junior Risk Analyst•Marketing/Communications assistant•Intern for Client Executive team

•Annual increase for current employees•Travel Expenses up 52%

•Increase activity – new clients, monitoring low interest loans, risk reviews•Inflation increase

•Consulting, up 86%•Inflation increase for internal and external audit•Increase in legal fees – new agreements for new clients and low interest loans•Impact audit at clients

KEY PERFORMANCE AREASCash Flow Statement

Actual Mar-09 Forecast Mar-10 Mar-11 Mar-12 Mar-13

Beginning Cash 104 564 791 68 091 864 104 386 249 129 660 131 125 456 861

Cash Financial Revenue (w/o interest on investments) 30 497 624 32 611 143 37 575 299 38 667 417 41 669 582Cash Financial Expense (7 996 371) (8 455 140) (12 037 264) (10 666 483) (10 666 483) Cash Financial Income / Net Interest Margin 22 501 253 24 156 003 25 538 035 28 000 934 31 003 099

Cash Operating Expenses (11 094 598) (9 224 262) (13 193 596) (14 481 199) (15 811 093) Non-Operating Income / Expense (152 021) Reduction in Net working Capital (2 717 429) 1 465 923

Net Cash Before Disb. / Repaym. and Financing 113 254 017 84 337 507 116 730 688 143 179 867 140 648 867

Disbursement of Advances (85 792 298) (80 400 000) (112 000 000) (163 000 000) (178 000 000) Capital Repayments of Advances 33 919 084 52 501 813 71 062 376 89 749 780 130 301 938 Capital Expenditure (97 408) (27 264) (167 000) (15 000) (50 000) Proceeds on disposal of Property Intangibles and Equipment 11 405 Proceeds on disposal of Investements - 26 900 000 - - - DBSA Loan Facility Drawdown / Principal Payments - 19 102 697 - - - Grant capital injection DoHS - 49 500 000 49 500 000 51 975 000

Ending Cash Balance before Cash Investments 61 294 800 102 414 753 125 126 064 119 414 647 144 875 805

Interest Earned on Surplus Funds 9 189 038 7 409 099 6 124 067 7 832 214 8 271 689 Dividends Received 912 148 2 692 267 Cash Tax Payments (3 304 122) (8 129 871) (1 590 000) (1 790 000) (2 750 000)

Ending Cash Balance 68 091 864 104 386 249 129 660 131 125 456 861 150 397 495

KEY PERFORMANCE AREASRHLF high level organisational design

KEY PERFORMANCE AREASRHLF high level organisational design

Position African Coloured Asian White Total

F M F M F M F M

CEO -

CFO 1 1

COO 1 1

Risk Manager 1 1

Client Executive 1 1 2

Office Manager 1 1

Junior Accountant 1 1

Intern: Risk Analyst 1 1

Intern: Marketing 1 1

MATERIALITY FRAMEWORKDetermination of financial materiality for 2010

NoteDisbursements made in terms of approved client facilities and approved equity investments shall be excluded from the materiality framework as these transactions are within the normal course of business of the Company.

a)10% of annual Interest income= 43 949 366 *10% 4 394 937

b)1% of total assets= 373 423 693 *1% 3 734 237

c) Average of (a) and (b) = Materiality value= 4 394 937 plus 3 734 237 /2= 4 064 587

d) Tolerable error = 10% of (c)= 4 064 587 *10% 406 459

MATERIALITY FRAMEWORKDetermination of qualitative materiality for 2011

Qualitative materiality refers to those transactions where by their very nature indicates that management should apply their minds with additional care.

The RHLF management shall consider all transactions, which contravene any regulation, law or statute as being material despite the size of the transaction.

Corporate Governance

The Board of Directors retains full and effective control over the company, monitors management and ensures that decisions on material matters are in the hands of the board

The Composition of the Board of directors provides for a majority of non-executive directors, including a non-executive chairperson. RHLF MD is the only Executive Director on the Board

The sub-committees of the board are as follows:

CORPORATE GOVERNANCEBOARD & SUB-COMMITTEES

INTERNAL COMMITTEES

BOARD OF

DIRECTORS

HR ETHICS &

REMUNERATION COMMITTEE

CREDIT

COMMITTEE

AUDIT

COMMITTEE

DEVELOPMENT

COMMITTEE

INTERNAL

AUDIT

Management Committee

Portfolio Committee

Sales Committee

Team

Meetings

CORPORATE GOVERNANCERHLF Board member name Race Gender Date First

appointed toBoard

Years of Service

Ms TBJ Memela-Khambule - ChairPerson since 2006 - ##

B F 27-May-98 11

Ms G Mthethwa - ## B F 23-Feb-06 4

Ms T Chiliza B F 27-Jul-06 3

Mr KR Oliver W M 23-Feb-00 10

Mr MP Silinga - ## B M 27-May-98 11

Mr M Hathorn W M 27-May-98 11

Ms N Makiwane B F 27-Jul-06 3

Ms N Sihlwayi B F 27-Jul-06 3

Mr M Pule B M 27-May-98 11

Vacant

Vacant

Mr JJ Fakazi (ED) B M 05-Jan-09 1

## - Indicated that they would like to step down in the near future

Thank You