Chairperson's Report

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					RURAL HOUSING LOAN FUND ANNUAL REPORT 2010




                                             15
                                                    Report
                                                  Chairperson’s
CHAIRPERSON’S REPORT




                           I AM PROUD OF THE RESULTS THAT WE HAVE ACHIEVED ON THE
                           BACK OF A VERY CHALLENGING YEAR- A YEAR IN WHICH THE SOUTH
                           AFRICAN ECONOMY EXPERIENCED ITS FIRST RECESSION IN 17 YEARS.
                           WHILE THE NUMBERS ARE IMPRESSIVE, NOTHING SPEAKS TO ME AS
                           CLEARLY AS THE PICTURES OF BENEFICIARIES IN THIS REPORT AND
                           THE PERSONAL FEEDBACK WE RECEIVE WHEN WE HAVE A CHANCE
                           TO GO OUT INTO RURAL AREAS AND MEET RHLF BORROWERS AND
                           THEIR FAMILIES.



                           The photographs in this report are            loans averaging R4,865 after disbursing
                           a true representation of our end              over forty thousand loans the year
                           user customers. These are proud,              before. It is obvious that low-income
                           independent, hard working individuals,        households prioritise putting food
                           who are taking matters into their own         on the table and providing essentials
                           hands and are determined to make              over making housing investments in
                           a better life for themselves and their        times of economic hardship. The last
                           children. These people can make it            thing we would want is to push loans
                           without hand-outs. A small loan from          on people that they cannot afford and
                           RHLF provides the encouragement to            make them poorer in the process. As
                           keep striving towards their dreams, and       incomes recover from the recession this
                           it may get our clients to their housing       year and beyond, so will our housing
                           goal a little faster and with more dignity.   microfinance business.


                           The small improvements in people’s            I commend the Executive Leadership
                           homes and lives are what motivates            under the stewardship of Jabulani
                           me, my colleagues on the RHLF board           Fakazi, our Acting Chief Executive




“
                           and our very talented and dedicated           Officer, and the team for the prudent
                           staff at the Rural Housing Loan Fund.         management of the RHLF retail partner

we stuck by our mission
                           This is why we stuck by our mission and       network during this difficult period.
                                                                                                                    16
                           continued to make thousands of new            They kept additional impairments of
                                                                                                                    RURAL HOUSING LOAN FUND ANNUAL REPORT 2010




and continued to make      housing microloans even under the             our wholesale portfolio to a minimum
thousands of new           difficult economic conditions that we         and delivered another excellent set
                           experienced throughout the 2009/2010          of financial results. The operating
housing microloans
                           fiscal year.                                  profit came in above prior year results
even under the difficult                                                 at R13,7 million. This is a remarkable
economic conditions        Because the rural low-income families         achievement against the backdrop
                           we serve were particularly impacted by        of a major recession, falling market
that we experienced
                           retrenchments and shrinking disposable        interest rates and a slow-down in
throughout the             incomes, we had to slow down the              disbursements. In this environment,
2009/2010 fiscal year.”    pace of new lending to just 33,112            cost control is very important, and RHLF
                                             CHAIRPERSON’S REPORT (Continued)




                                                                      is indeed a very lean operation with        the government in its efforts to address
                                                                      only 10 staff and a tight lid on general    the informal settlements households’
                                                                      operating cost. As the highlight of         needs. Over the years, RHLF has assisted
                                                                      the 2010 financial statements, I am         borrowers in many informal settlements
                                                                      absolutely elated to announce the           around small towns to incrementally
                                                                      successful sale of our stake in Bayport     improve their housing conditions.
                                                                      Financial Services that delivered an        However, in supporting government’s
                                                                      exceptional profit of R20.6 million. This   informal settlements eradication efforts,
                                                                      is welcome fresh funding that will allow    RHLF will continue to play a critical
                                                                      us to scale up outreach into deep rural     role in addressing the needs of rural
                                                                      areas.                                      households, especially on communal
                                                                                                                  land and prioritised rural nodes.
                                                                      Over the course of the current
                                                                      business year, RHLF’s balance sheet         Of course, RHLF is but one element
                                                                      will be further strengthened by a           in the national housing and human
                                                                      R49,5 million capital increase from our     settlements delivery effort. Most of the
                                                                      owners, the Department of Human             credit is due to our current network of
                                                                      Settlements. We see this investment as      ten retail lenders who intermediate the
                                                                      an endorsement of RHLF’s contribution       wholesale funding provided by RHLF
                                                                      to human settlements delivery and the       to the individual end borrowers in all
                                                                      relevance of our housing microfinance       nine provinces. On behalf of the entire
                                                                      methodology to the rural target market.     Board, I would like to thank all of our
                                                                      We will do everything in our power to       retail partners for their dedication and
                                                                      turn this additional capital into greater   skill in enabling RHLF to deliver on its




                                             “
                                                                      rural human settlements impact.             mandate.


                                                                      The Board and staff of RHLF are proud to    After many years of service, Board
                                             The Board and staff      serve under the energetic leadership of     members Mr. JH de V Botha, Mr. L
                                             of RHLF are proud        the new Minister of Human Settlements       Mashaba and Ms. G. Mthethwa resigned

17                                           to serve under the       Mr. Tokyo Sexwale. We share his             over the course of the reporting year.
                                                                      vision of making human settlements          We are greatly indebted to them for
                                             energetic leadership
RURAL HOUSING LOAN FUND ANNUAL REPORT 2010




                                                                      delivery a national priority. This would    their competent strategic guidance and
                                             of the new Minister of   be a challenge not unlike that of the       lasting contribution to the success of

                                             Human Settlements        World Cup, which will galvanise our         RHLF.
                                                                      collective efforts and give us the
                                             Mr. Tokyo Sexwale.       momentum to tackle this formidable          Our important work in the rural housing
                                             We share his vision      task. The urbanisation challenge that       space is made possible only by the

                                             of making human          government faces is daunting indeed         dedicated support of our stakeholders:
                                                                      as evidenced by the mushrooming of          the National Department of Human
                                             settlements delivery a   informal settlements around urban           Settlement as the owner of RHLF, the
                                             national priority.”      areas of South Africa. We fully support     German Government who contributed
CHAIRPERSON’S REPORT (Continued)




Number Loans Disbursed as %            the original equity endowment of                            leadership in the delivery of human
                                       the Fund, as well as KfW and DBSA                           settlements.
                                       who provided concessionary debt
  0.4%          5.4%
         4.3%                          funding. This year we also received the                     Furthermore, the RHLF Board fully
                                       commitment for a second €500,000                            appreciates the oversight role that the
     7.7%               23.3%
                                       accompanying grant from the German                          Parliamentary Portfolio Committee on
  4.5%                                 Government via KfW. RHLF stands to                          Human Settlements exercises on RHLF
                                3.5%   benefit greatly from this generous grant                    as a public entity. In this regard, we as
                                       once the South African government                           the RHLF Board appreciate this role as
                        12.0%
                                       fulfils the KfW requirements in                             it keeps our organisation focused on
                38.9%
                                       order to enable RHLF to access the                          achieving its mandate.
                                       grant. We are very grateful for the
                                       continued generous support from                             On behalf of the Board, I would like to
                                       our stakeholders and will use these                         thank each and every member of the
   Eastern Cape                        resources wisely for strategic initiatives                  RHLF staff for their commitment to
   Free State                          that directly contribute to resolving the                   the course of rural development and
   Gauteng                             housing backlog in rural communities.                       the impressive professionalism they

   Kwa-Zulu Natal                                                                                  bring to the task. Together with the
                                       We look forward to working even more                        entrepreneurial talents of our retail
   Limpopo
                                       closely this year with the Minister of                      partners, you are the ones who keep
   Mpumalanga
                                       Human Settlements and the Deputy                            RHLF going and make it possible to
   Northern Cape
                                       Minister who provide us with very                           deliver on the promise of rural housing
   Northwest                           valuable guidance on strategic issues.                      finance, year after year.
   Western Cape                        On behalf of the Board, I would like to
                                       welcome the new Director-General
                                       of Human Settlements, Mr Thabane                            ______________________
                                       Zulu; and we at RHLF pledge our full                        Totsie Memela-Khambule
                                       support to him in his task of providing                     Chairperson



                                                                               ANNUAL DISBURSEMENTS                                            18
                                                                                                                                               RURAL HOUSING LOAN FUND ANNUAL REPORT 2010




                                                                                                                           161,133
                                                                                                       139,313
                                                                                         118,310
                                            R000s
                                                                            89,930
                                          180,000           81,549
                                          160,000
                                          140,000
                                          120,000
                                          100,000                                    106,310
                                           80,000                                                   85,792
                                                        81,549                                                   57,000
                                                                      77,930
                                           60,000
                                           40,000
                                           20,000
                                               -
                                                     2006            2007            2008           2009            2010



                                                             Disbursements           Disbursements including mezzanine funding
RURAL HOUSING LOAN FUND ANNUAL REPORT 2010




                                             19
                                                  Chief Executive
                                                    Officer’s Report
CHIEF EXECUTIVE OFFICER’S REPORT




                          RHLF’S MANDATE IS TO FACILITATE HOUSING MICROFINANCE FOR
                          THE RURAL WORKING POOR. THE BUSINESS ENVIRONMENT FOR
                          RURAL MICRO-LENDING IN SOUTH AFRICA REMAINS EXTREMELY
                          CHALLENGING, AS THE DISPOSABLE INCOME OF THE LOW INCOME
                          HOUSEHOLDS IS SEVERELY STRETCHED. HOW TO EFFICIENTLY
                          REACH THE RURAL WORKING POOR IN ALL PROVINCES WITH SMALL
                          LOANS ON TERMS THAT THEY CAN AFFORD, WHILE APPROPRIATELY
                          PROVIDING FOR RISK AND EXPENSES, IS THE CENTRAL CHALLENGE
                          THAT RHLF FACE ON AN ONGOING BASIS.



                          As a wholesale finance institution, RHLF   selected sites with a vision of creating
                          has a national network of intermediary     vibrant rural communities. RHLF is
                          retail lenders through which we are able   well positioned to play a critical role
                          to achieve our mandate. We take great      in enhancing human settlements
                          pride in support we receive from our       conditions of people in these targeted
                          retail partners. However, we concede       rural areas.
                          that more still needs to be done to
                          increase lending in provinces where
                          there are currently less RHLF loans.
                                                                     BUSINESS ENVIRONMENT
                                                                     Economically speaking, the year under
                                                                     review was the toughest year since the
                          GOVERNMENT POLICY                          advent of democracy in South Africa
                          ENVIRONMENT                                in 1994 as the economy entered into a
                          The new government was elected in          recession early in the 2009/10 financial




“
                          April 2009, and pursuant to this a new     year – the first since 1992. In 2009
                          Ministry of Human Settlements was          alone close to 1 million job losses were
                          announced by the State President.          reported, and a little over 171 000 job
                          Accordingly, the Department of
...the South African                                                 losses were further reported in the first
                          Housing was changed to Human               quarter of 2010. Of particular concern      20
Reserve Bank
                                                                                                                 RURAL HOUSING LOAN FUND ANNUAL REPORT 2010




                          Settlements and this entails that the
                                                                     to RHLF is the fact that the core of its
responded by              mandate goes beyond just housing.
                                                                     target market constitutes people at the
aggressively reducing     Likewise, RHLF as a Human Settlements
                                                                     low end of the market, who in most
                          Development Finance Institution (DFI)
interest rates and this   has to think beyond just housing and
                                                                     instances are vulnerable to economic
                                                                     shocks.
reduced interest income   make a concerted effort to make a

that RHLF earns on        broader contribution to the creation
                          of vibrant and sustainable rural human     When South Africa entered recession,
new loans extended to                                                the South African Reserve Bank
                          settlements. In this regard, the new
clients...”               Comprehensive Rural Development            responded by aggressively reducing
                          Programme is being piloted in              interest rates and this reduced interest
                                             CHIEF EXECUTIVE OFFICER’S REPORT (Continued)




                                             income that RHLF earns on new loans           The “CR Credit Bureau Monitor”              The gross loan book grew marginally by
                                             extended to clients and importantly           published by the National Credit            0, 8% (29%: 2009) from R227 million in
                                             on surplus funds that RHLF is required        Regulator offers a grim view of how         2009 to R230 million. This was largely
                                             to maintain in compliance with the            difficult the lending climate has become:   a result of the stagnant economic
                                             liquidity covenant of its funders. The net    By December 2009 only 40.5% of the          conditions that resulted in significant
                                             result was lower than budgeted interest       over 18 million credit active consumers     job losses in our target market. These
                                             income for the year.                          in South Africa were current on their       realities resulted in clients being
                                                                                           accounts. The rest were in various          prudent in their credit assessment since
                                             The liquidity crunch, brought on by           stages of arrears on their instalments      many people were already over exposed
                                             the worldwide economic downturn               or had adverse entries including            to debt due to shrinking disposable
                                             was a major challenge during the year         judgments and administration orders         incomes – a phenomenon that began
                                             under review. The limited funding in          against their name. The proportion of       to show even in the last financial year.
                                             the capital markets had a detrimental         borrowers in good standing has been         It was therefore inevitable that growth
                                             effect on at least three of our retail        in consistent decline since the height of   of the book would be modest as our
                                             intermediaries in their efforts to            the consumer boom in mid 2007.              clients reject large proportions of loan
                                             diversify their sources of funding.                                                       applications in efforts to ensure quality
                                             Inevitably the lack of funding had            These numbers also illustrate the           of the new loans.
                                             a negative impact on the quality of           complexity of our mandate: the job

                                             their loan books. This resulted in RHLF       of RHLF and our retail lenders is to        During the 2009/2010 financial year
                                             exceeding its budgeted impairment             facilitate small incremental housing        RHLF received the final drawdown
                                             provision for the year.                       credit for the rural low income market.     of R 20,1 million on its loan facility
                                                                                           But we have to do so responsibly and        with Development Bank of Southern
                                                                                           affordably, without pushing already
                                                                                                                                       Africa (DBSA) and Kreditanstalt für
                                                         13.3%                             overstretched households over the
                                                                                                                                       Wiederaufbau (KfW).
                                                                                           financial edge.

                                                  14.6%                   40.5%
                                                                                                                                       I am pleased to report that despite the

                                                                                           LENDING ACTIVITIES AND                      adverse market conditions during year

                                                    17.3%                                  FINANCIAL RESULTS                           2009/10, RHLF achieved a record surplus
                                                                                           Given the tough economic conditions         for the year. RHLF recorded a net surplus
21                                                              14.2%                      during the year under review, it            after tax of R28,9 million (R8.3 million:
RURAL HOUSING LOAN FUND ANNUAL REPORT 2010




                                                                                           came as no surprise that budget cash        2009). This exponential growth in the
                                                                                           disbursements fell below the set target.    surplus is attributed to the profit RHLF
                                                                                           RHLF budgeted to disburse R75,9 million     realised on the disposal of its shares
                                                  Judgement and
                                                  administration orders                    during the year, but only made cash         in Bayport Financial Services (Pty) Ltd,
                                                  Adverse listings                         disbursements of R57 million. However,      which was approved by the Minister of
                                                  3+ months in arrears                     including mezzanine funding to less         Human Settlements in January 2010.
                                                  1-2 months in arrears                    risky clients, total disbursements of       However, even without this additional

                                                  Current                                  R161 million was achieved. RHLF retail      profit of R20,6 million, RHLF’s net surplus
                                                                                           partners turned these funds into 33, 112    after tax attributable to operations still
                                             Credit Standing of South African Consumers,
                                             Dec 2009. Source NCR Credit Bureau Monitor.   loans (40, 537: 2009).                      reached a record level of R11.1 million.
                                                                                                                                       The surplus RHLF achieves is re-invested
CHIEF EXECUTIVE OFFICER’S REPORT (Continued)




“
                                                                     Annual surplus from operations after taxation

However, even without
                                                                                                                     11,164
                                                            12,500

                                                            11,000
this additional profit of                                    9,500                                         8,430



R20,6 million, RHLF’s                                        8,000
                                                  R'000
                                                                                              5,867
                                                             6,500

net surplus after tax                                        5,000
                                                                                     4,616




attributable to operations                                   3,500

                                                             2,000

still reached a record                                        500
                                                                         2,103


                                                                       2006      2007        2008       2009       2010
level of R11.1 million.”


in the business as we do not distribute       provisions during the year under review.       THE YEAR AHEAD
profits to the shareholder.                   This has increased the total impairment        In foreseeable future, we expect to
                                              provision to R47,6 million (2009: R37,1        see a slow but steady improvement
Another key factor in RHLF’s profitability    million) or 21% (2009: 16%) of gross           in the economy. However, economic
is that RHLF has consistently kept            advances.                                      improvement is unlikely to lead to an
operating costs at relatively low levels.                                                    immediate and significant increase
Over a five year period, operating costs      No other assets or investments were            in employment since, in general,
have remained below R10 million per           impaired during the 2009/10 financial          employment lags economic growth.
annum. This is largely enhanced by the        year.                                          Therefore, while we expect to achieve
RHLF wholesale model, which enables
                                                                                             higher levels of loans disbursed in
RHLF to have a national footprint via its
                                              DEVELOPMENT IMPACT                             2010/11 fiscal year, it is still appropriate
retail intermediary partners who use
                                              The effect of difficult economic               to exercise caution during this fragile
various distribution channels to achieve
                                              conditions can also be seen in the             economic recovery.
the RHLF impact.
                                              decrease in the number of end user
                                              loans extended by RHLF intermediaries.         RHLF plans to make greater strides in
The share of earnings on investments in
associates was significantly down from        The total number of end user loans             reaching markets in those provinces            22
                                              financed with RHLF funding amounted            where it currently lends very little
                                                                                                                                            RURAL HOUSING LOAN FUND ANNUAL REPORT 2010




the prior year to R0,7 million (2009: R1,6
                                              to 33,112 down from the record number          such as the Northern Cape and Free
million). This is due to the fact that RHLF
currently has only two associates and of      of 40,537 reported in 2009.                    State. Such provinces present RHLF

these only one is profitable.                                                                and its intermediary retail partners
                                              Despite the decrease in the number of          with a base from which to improve

As mentioned above the difficult              loans, RHLF is pleased to report that the      loan disbursements and growth. The
economic conditions, resulted in a            impact quality of the loans remained at        additional government funding of
deterioration in the quality of the           satisfactory levels. Please refer to the       R49.5 million will give RHLF sufficient
underlying loan book at three of              Sustainability report for further details      financial resources to scale up housing
RHLF’s clients. This forced RHLF to raise     on the RHLF’s development impact for           microfinance in general and in such
R10,5 million of additional impairment        the year.                                      provinces in particular. The challenge,
                                             CHIEF EXECUTIVE OFFICER’S REPORT (Continued)




                                             “
                                                                                  therefore, is to work with our retail           Human Settlements. We appreciate
                                                                                  partners to establish loan distribution         the oversight role played by the
                                             The additional                       channels in these provinces.                    Parliamentary Portfolio Committee on
                                             government funding of                                                                Human Settlements over RHLF and we
                                                                                  The RHLF team will intensify its                take cognisance of the Committee’s
                                             R49.5 million will give
                                                                                  efforts to identify alternative business        support to the RHLF mission—that of
                                             RHLF sufficient financial            channels in efforts to achieve                  enabling the rural working poor in all
                                             resources to scale up                higher development impact. In this              provinces to access finance so that they
                                                                                  regard, we will target community                can improve their housing conditions.
                                             housing microfinance in
                                                                                  based organisations and rural based
                                             provinces and regions                employers such as farming operations,           I also would like to convey our sincere
                                             where it has achieved                who are able and willing to contribute          gratitude to our funding partners, KfW
                                                                                  to the improvement of quality of life           and the DBSA. RHLF is immensely
                                             less lending impact.”
                                                                                  of their employees. For these types of          grateful to these partners and look
                                                                                  channels, the impact is high, albeit at         forward to a continued partnership in
                                                                                  a small scale. However, this is RHLF’s          addressing development needs of the
                                                                                  concerted effort to address housing             working poor.
                                                                                  needs of the rural employees, who
                                                                                  currently find it difficult to access           I am thankful to our retail intermediary
                                                                                  housing finance.                                partners who enable RHLF to be a truly
                                                                                                                                  national finance institution by ensuring
                                                                                  APPRECIATION                                    that RHLF funding reaches all nine
                                                                                  We are grateful for the support                 provinces of South Africa. Together, we
                                                                                  we continue to receive from the                 can do more to have more impact in
                                                                                  Ministry and the Department of                  the provinces where we currently lend



                                                                                                                                                    Number of loans
                                                                                      Rural Nodes
                                                                                                                                                    Value of loans disbursed

                                                                18000                                                                                           R 100,000,000
23                                                              16000
                                                                                                                          16376
                                                                                                                                                                R 90,000,000
RURAL HOUSING LOAN FUND ANNUAL REPORT 2010




                                                                14000                                                                                           R 80,000,000
                                                                                                                                            12264
                                                                                                                                                                R 70,000,000
                                              Number of Loans




                                                                12000
                                                                                                                                                                R 60,000,000
                                                                10000                               9340
                                                   R'000




                                                                                                                                                                R 50,000,000
                                                                8000
                                                                                                                                                                R 40,000,000
                                                                6000           5029
                                                                                                                                                                R 30,000,000
                                                                4000    2881                                                                                    R 20,000,000
                                                                2000                                                                                            R 10,000,000

                                                                    0                                                                                           R-
                                                                        2006   2007                 2008                  2009               2010
CHIEF EXECUTIVE OFFICER’S REPORT (Continued)




                    less such as the Northern Cape and Free     Lastly, but not least, I would like
                    State Provinces.                            to thank the RHLF team that I am
                                                                privileged to lead. The common thread      24
                                                                                                           RURAL HOUSING LOAN FUND ANNUAL REPORT 2010




                    It will be a remiss if I do not thank the   that runs through the team is passion
                    RHLF Board of Directors for the support     for development and professionalism in
                    they have given to management over          what we do. With these attributes of the
                    the year in review. The RHLF team           team, RHLF can only go from strength
                    as a whole is able to focus on RHLF’s       to strength.
                    core business precisely because of the
                    support and encouragement that it
                    gets from the Board. I greatly appreciate
                    the wise counsel and support that           __________________________
                    I have personally received from the         J. J. Fakazi
                    Chairperson of the Board.                   Acting Chief Executive Officer

				
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