Select Financial Services Malawi: AUHF Seminar 13 April 2016 at Lilongwe Sunbird Hotel. Presentation by James Kajamu

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1 Select Financial Services Malawi: AUHF Seminar 13 April 2016 at Lilongwe Sunbird Hotel Presentation by James Kajamu

2 BACKGROUND OF THE GROUP Select Africa Limited (Select) is a subsidiary company of the African Alliance Group ( African Alliance ) Select provides financial products to the under banked and entry level retail credit market. The Group has been in operation since Select has focused its business on the extension of retail unsecured, incremental housing microfinance, education loans and consumer loans. The Group has operations in Kenya, Swaziland, Lesotho and Malawi with the holding company based in Mauritius.

3 BACKGROUND OF SELECT FINANCIAL SERVICES MALAWI Select Financial Services Limited (Select Malawi) is a wholly owned subsidiary of Select Africa and was incorporated in Select Malawi commenced disbursements in February Soros Economic Development Fund have subsequently invested in Select Malawi, directing their funding to housing based lending.

4 OPERATIONS Select Malawi has offices in Lilongwe ( January 2011), Blantyre (September 2011) and Mzuzu (August 2012). The company loan book is split as follows.

5 CORPORATE GOVERNANCE FRAMEWORK Select is committed to achieving the highest operational standards through its corporate governance framework. The Company adheres to best practice governance principles and where applicable, adopts the principles of Corporate Governance codes such as King III Corporate governance framework

6 KEY CORPORATE INFORMATION Select Malawi Shop 7 & 8 Registered office Havat Building, Kamuzu Procession Way Company Reg. No 8701 PO Box 2489 Primary Banker s Other Bankers External Auditors Lawyers First Merchant Bank Limited Standard bank (Malawi) Limited KPMG Naphambo Law Co.

7 BUSINESS PRODUCTS AND SERVICES Select Malawi focuses on providing financial products to a market that has previously been overlooked by the mainstream financial institutions. The products offered demonstrate the company s commitment to offering local, affordable and relevant financial solutions. Select Malawi s business can be divided up into four main credit products which have been designed to address both specific and the general needs of its customer base

8 PRODUCTS Products Description Repayme nt Period Loan Range Incremental Home Loan Facility Used for all building projects or land purchases Months MWK MWK Home Improvement Loan Designed for smaller home related projects such as painting, repairs and connection of municipal services Months MWK MWK Edu-loan Has been designed to help fund education expenses for a period of up to one year Months MWK MWK Kwik-loan A general purpose loan 3 24 Months MWK MWK

9 THE CASE FOR INCREMENTAL HOUSING LOANS VS CONVENTIONAL MORTGAGE An incremental housing loan involves the extension of multiple and successive micro loans to customers who are looking to build or renovate their houses. Each customer s affordability is assessed individually and the loan amounts are granted accordingly. The incremental housing microfinance product improves access to housing finance. The incremental housing microfinance products incremental aspect has the effect of breaking the overall cost of building a house into smaller more manageable chucks which in turn reduces the total interest paid, relative to a conventional mortgage. The table on the following slide summarizes and compares the nature of the two products and illustrates the difference in affordability.

10 THE CASE FOR INCREMENTAL HOUSING LOANS VS CONVENTIONAL MORTGAGE

11 THE SELECT BUSINESS MODEL The Select business model is predominately based on payroll-facilitated lending for housing, home improvements, education and other consumption purposes. This allows employers to deduct monthly loan payments from their employees salaries and then forward this directly to Select. In addition, Select offers construction technical assistance also known as CTA (through Habitat for Humanity) as a free, value added service to every housing loan product. Due to relatively low real levels of income and relatively high cost of construction, loan applicants in Malawi tend towards self-building or employing local labor to build their houses. Often, this results in poorer quality construction, which could be risky to the client and could ultimately compromise the repayment of the loan. The CTA provided by Habitat for Humanity addresses this.

12 SERVICES PROVIDED BY HABITAT FOR HUMANITY Off-Site On-Site Technical Information Professional Services & Training CTA Level A CTA Level B CTA Level C Technical Assistance General information about shelter-related issues provided to, or not linked to a specific construction project. Usually prepared beforehand, remotely or in bulk, and technically not customized for specific clients. Information, advice and services related to a specific construction project, but not involving site visits or direct support for construction. Provision usually requires skill and/or experience. Typically customized for specific clients. Advice and services related to specific construction projects, involving 1-2 site visits. Requires some skill and/or experience, but not advanced engineering skills. Typically associated with minor repairs, maintenance and minor home improvements. Advice and services related to specific construction projects, involving one or more site visits. Requires advanced construction skills but not structural engineering skills. Typically associated with repairs, extensive maintenance, more complex home improvements, non-structural renovations and extensions. Advice and services related to specific construction projects, involving more systematic site visits. Require structural engineering skills. Typically associated with major repairs, structural renovations and extensions etc.

13 SELECTS COLLECTIONS METHODOLOGY Select Malawi was issued a deduction code by Malawi Government. This deduction code enables Select to deduct the customer s monthly loan repayments from source. Select s client base is predominately public sector employees which are generally the largest and most stable formally employed base of people in Malawi. The deduction facility has a built in minimum affordability criteria limit, which provides protection from over-indebtedness to potential loan applicants.

14 CURRENT PARTNERS

15 SUCCESS STORY

16 SUCCESS STORY Mrs. Gertrude Hezekiah is employed by Malawi Police Services and resides at Waliranji in Mchinji. She saw a need to build her own house and with her current salary it was impossible to complete her house at once, thus the need to approach Select for housing finance. With the products offered at Select, she qualified for a Home Incremental Loan of MK185, over 24 months for roofing and finishes of her house. Select is delighted to have provided finance to our valued customer and we are looking forward to assisting Mrs. Hezekiah in the full completion of her house.

17 OPPORTUNITIES Expansion outside of the civil service will increase demand for financial assistance for house construction (especially the home incremental product). Cheaper sources of funding (impact funding or a blend of social and commercial funding) will translate to cheaper product offerings to our clients, thus expanding access. Establishment of the Hub by Reserve Bank of Malawi will increase access to finance for the unbanked communities The National Identification project which is about to be implemented will reduce the risk of ghost clients and ease the difficulties of identification currently being faced by loan seekers.

18 MAJOR CHALLENGES One of the major challenges faced by Select Malawi is the periodic late remittance by Government of payments duly deducted from the civil servants. This has led to suspensions of disbursements resulting in stalling of housing projects as borrowers cannot access finance Challenges in getting documentation (pay-slips, letters of introduction and IDs) from civil servants in support of loan applications. Very high real interest rates, inflation rates and severely depreciating local currency. Low real levels of income severely impacts the ability of applicants to borrow sufficient sums to purchase or build house.

19 Thank you for your attention