Housing in Southern Africa July 2015

and FNB R85 million. These were leveraged on the back of a R300 mil- lion grant provided by government and an OPIC guarantee. As a result of this NURCHA rolled out R6,7 billion of projects. RISKS “As a DFI leveraging finance we were willing to take considered risks much more than the private sector could tolerate. Our financing partners included grants from international communities willing to support the developmental agenda, Swedish grants and a loan from Soros’ Open Society Foundations (OSF).” BITING THE BULLET NURCHA used various instruments to leverage additional finance from the private sector and international community such as Junior lender status, guarantees, co-funding and risk sharing, as well as SPVs to ring fence risks. Over and above this it applied close monitoring processes to safe guard investment and ensure completion of projects. From time to time, NURCHA adjusted lending roles in response to environmental risks such as delayed payments and construction risks. NEW FUNDERS “On sustainability, there has been a significant shift with financiers. Our funding partners require repayment of their facilities and sometimes a re- turn on it,” Gqwetha explains. “While we are willing to take considered risks, it is a balancing act. A true DFI cannot survive purely on an expecta- tion to make a profit.” Asset managers expect a return on their investment for their share- holders and this has to be achieved by a DFI regardless of innovations or losses incurred. From a lending point of view it is important to test new products. Gqwetha says: “This is the dilemma. It is not all about the balance sheet. DFIs are created to play a role in the sector and not sit with funds but work to provide housing opportunities, developer funding and assist govern- ment with delivery goals.” He notes that South African finan- ciers, particularly those that created

longer supplied loan guarantees, ex- cept for residual commitments. There were a number of innovations that shaped NURCHA’s product offerings. NURCHA’s financing model changed with the business model, including credit assessments for contractors, lending systems and risk mitigation. BNG - INFRASTRUCTURE As government introduced the Break- ing New Ground (BNG) policy of sus- tainable human settlements in 2004, NURCHA’s mandate expanded to provide finance to contractors build- ing infrastructure such as schools and clinics. “NURCHA created a Special Pur- pose Vehicle (SPV) with the Nether- lands Development Finance Com- pany (FMO) to roll out these projects, which were approved by National Treasury and the Department of Hu- man Settlements. To date NURCHA financed 283 community facilities built by emerging contractors. BNG – HOUSING The Overseas Private Investment Corporation (OPIC), the United States government agency, had provided First National Bank with a R180 million guarantee to partner with NURCHA. These funding structures over- lapped for 10 years. Gqwetha proudly says the OPIC funding was the first of a new generation of funding models: “This has been a significant structure that allows us to lend to contractors for a period of 12 years.” AFFORDABLE HOUSING At the same time government provid- ed funding for NURCHA to establish an Affordable Housing Programme that ran concurrently with the RDP/ BNG subsidy programme. NURCHA financed contractors and developers in these market segments to meet the ever increasing housing chal- lenge. More development finance institutions were established to ad- dress other housing aspects. These include the National Housing Finance Corporation and the Rural Hous- ing Loan Fund. Over time NURCHA has attracted more funders to the affordable housing sector such as PIC R100 million, Cadiz R75 million

social infrastructure funds such as Cadiz, Future Growth and PIC were far more willing to take risk and lend in the development sector. “We are financing subsidy housing on our balance sheet and need government to replace the OPIC funding so that we can play a bigger role amid the high risks.” INCLUSIONARY GROWTH “There is a demand for inclusion of the youth and women contractors in the delivery of housing and we want to be a catalyst in this inclusionary growth. This requires a fund and an institution that understands the nitty- gritty of the risks - andwe are looking at ways inwhichwe can collaborate.” With a background and expertise in strategic and transformational pro- grammes, operations and financing, he offers some suggestions to kick start youth and women initiatives in the construction sector. “Most big companies like WBHO have healthy balance sheets to raise finances for their operations. Small contractors will not play gainfully without similar financial instruments in place. For marginalised groups like women to participate in this sector, it requires

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