Mainstreaming Incremental Housing The Case of Zambian Home Loans

Mainstreaming Incremental Housing The Case of Zambian Home Loans

putting it in perspective

Informal Settlement growth Circ. 65% of working Adults own land Informal Construction workers Most civil servants live in informal settlements Huge constraints on family budgets as they build own house Massive impact on child education, health, etc. Over 50% have either started building or looking to start building. 9 out of 10 have no title. They are building most houses Do not have certificates but their product is there to see They need to be managed. ZHL model provides them with some form of certification putting it in perspective

These systemic challenges have created a housing crisis that cannot be solved by conventional private and/or public sector development methodologies. MoreHome for your Money.

ZHL is a specialized mortgage institution owned by African Life Financial Services (Member of the Sanlam SA Group) and Sofala Capital (SA) that helps borrowers to build or complete their houses. How We Manage Our Risk Detailed plan analysis and bill of quantities Relationships with suppliers w/ direct disbursements Stage Disbursement Payroll deduction / MOU with Employer Semi Project Management model Robust system to manage approvals, disbursements and collections. Value We Provide Our Clients Selection of building plans and Title assistance Affordability analysis and detailed BOQ Building materials discounts Construction oversight and insurance Up to 20 years to repay and ability to refinance More affordable lending terms than microfinance what we are and how we do it.

We believe shelter is a basic human right, undeniable for human dignity. We believe housing improves the welfare of society and contributes to social and economic development of a country. Zambia has been facing a very critical shortage of housing since independence. Govt suggests a 1.5 million units deficit, and recommends an annual delivery rate of 150 000 units to meet demand in the next 10 years. UN estimate: 1 decent house every 2 minutes for the next 20 years. We appreciate the role of private citizens in building their own houses, but we recognise the BIG ELEPHANT IN THE ROOM THE LACK OF FINANCE. why we do what we do.

the process.

Clients typically reach completion of their home spending up to 40% less. resulting in: - huge LTV savings. - which gives client a lot of equity.. - and reduces risk on the part of both ZHL & the client.

Beyond lending: Customer Support We offer technical and professional advice Bill of Quantities Material lists We offer an intense monitoring programme to ensure quality and We provide Building Tips/workshops for first time house builders We provide training & guidance to construction workers Material sourcing assistance Financial literacy programmes Work place programmes Decide your own interest rate/pay off before time Sessions Active Building material supplier programme local and Int l. Material vetting Discounts negotiation

Circ. 30% Circ. Zmw50m ($5m) Raised $4m of debt 2 nd year Ops break even Average Portfolio LTV Financials Contractors /supplier Houses Built 25 informal contractors have been trained. 22 material suppliers enlisted. 201 houses financed ZHL 3 years since.

It is vital to recognize that the main housing supplier for the 60-90% majority in developing countries is the informal sector. The Housing Strategy must recognize that single artisans and small-scale building contractors are the key suppliers of housing to the majority; continuing to ignore them in favour of the relatively small formal sector supply would be perverse. :UN Habitat World Cities Report 2016 MoreHome for your Money.

Developing Africa s Mortgage Markets 20,000 New mortgages 5,000 Family homes built 5,000 SME s financed 10,000 Micro-mortgages 5 Countries of operation

80% of new homes in Africa are owner-built, rather than developer-built. People buy land and manage the home building process themselves. Construction is performed by a network of semi-formal contractors and labour. Banks do not finance these owner-managed building projects, because supervision requires specialized systems and staff. 8 years is the average time it takes an owner-managed building project to reach completion, in the absence of affordable finance. 20-30 million units is the estimated African housing backlog. Sofala Capital has pioneered an affordable mortgage financing model that unlocks this owner-managed building market and allows families and SME s to complete their projects quickly and effectively.

founded Zambian Home Loans to pilot its vision for a Pan-African building mortgage platform Zambian Home Loans at a glance Exclusively offers building mortgages and micro-mortgages to individuals and SME s Fastest growing mortgage provider in Zambia Partnership between Sofala Capital and the Sanlam Group (largest insurer in Africa) Clients spend 40% less by building through ZHL than buying from a developer 200 houses completed K50m ($5m) mortgage finance deployed Partnerships with multiple local building material suppliers for material disbursements Funded via K10m ($1m) equity and K40m ($4m) of mortgage-backed bonds issued to pension fund and DFI investors Average loan-to-value less than 30% Bespoke, online loan system used to originate and manage credit process. All loans jointly approved by local and offshore teams.

ZHL provides specialized building support that banks can t offer: 1. In-house Quantity Surveyor accurately costs project. 2. Project split into 5 phases (Foundations, Walls, Roof, Fixtures and Fittings, Complete.) 3. Mortgage disbursed in phases. 4. Supervisor checks each phase for progress and quality. 5. Larger loans disbursed directly to building material suppliers. 6. Use of in-house fintech to control supervision costs and provide scalability of model.

founded IBUILD Home Loans a South African micro-mortgage product for low income borrowers IBUILD Home Loans at a glance Renovate-to-rent micro mortgage Funding MUST be used to enhance borrower earnings through rental income Exclusively targets low income home owners and SME s (borrowers earning from $200 per month.) Only mortgage provider in South Africa to target low income borrowers. Partnership between Sofala Capital and Praesidium Capital Management Building materials distributed through Cashbuild Limited, SA s largest building material supplier Funded with own equity Average loan-to-value less than 40% Clients typically earn 1.5 times the mortgage repayment in rental income Significant growth potential. South Africa is home to 2.5 million, low income, title deed holders who cannot access mortgage finance.

Key findings from Zambian Home Loans and IBUILD Home Loans PRODUCT Mortgage products need to be relevant to local housing culture and practices, not based on traditional western models. PRODUCT SPECIALIZATION Product specialization allows us to compete with the banks through better service and faster approval times. FUNDING Local bond markets are ready to support well structured, long term bond issues. CREDIT RISK Registering mortgages materially changes borrower behavior, relative to unsecured loans, and allows for greater affordability. Sofala Capital s model is relevant and scalable to many African countries 60% 50% Mortgages to GDP (%) AFRICA VS UK Conclusion With the right product design, Africa s mortgage markets are ripe for development. 40% 30% 20% 10% 0% Zambia Tanzania Uganda Kenya South Africa UK

Sofala Capital is launching ibuild Africa to consolidate and grow its existing building mortgage operations as well as launch 3 new country operations in Tanzania, Kenya and Uganda Company name Legal Entity Equity raise Countries of operation Use of funds Onshore leverage Operations ibuild Africa Global Business Company Category 1, Mauritius Preference shares with equity participation Zambia, Tanzania, Kenya, Uganda, South Africa, Other Onward investment into local incorporated mortgage subsidiaries for provision of: 1. Building mortgages 2. SME mortgages and SME rent-to-own 3. Micro-mortgages No leverage at HoldCo level Target leverage at subsidiary level of 5 x Equity resulting in $300m of mortgages Local currency bond programmes ibuild Africa onshore subsidiaries to perform 1. Deal origination 2. Risk underwriting 3. Mortgage registration 4. Collections Centralised functions of: 1. Credit approvals 2. Loan administration system 3. Treasury 4. Group Marketing Centralised functions outsourced to Sofala Capital under SLA. Zambian Home Loans Limited Investor Syndicate ibuild Tanzania ibuild Kenya Preference shares ibuild Uganda ibuild Home Loans (SA) Sofala Capital (Pty) Ltd Service Level Agreement Equity per country

FOR FURTHER INFORMATION CONTACT Michael Waller +27 21 7017106 michaelwaller@sofalacapital.com Sofala Capital (Pty) Ltd Praesidium Capital Management Block G, Steenberg Office Park Cape Town, South Africa www.sofalacapital.com