Frequently Asked Questions
1. Who is Select Africa?
Select Africa Limited (“Select”) is a retail financial services group that extends unsecured microfinance loans, with a specific focus on housing and incremental housing. Select commenced operations in 1999 in Swaziland, and has since expanded its operations to five countries in sub-Saharan Africa.
2. Which countries do Select operate in?
Select currently has loan book operations in four countries, including Kenya, Malawi, Swaziland and Lesotho. Select’s operations are supported by a world class administration hub located in Mauritius, which is responsible for loan book management, work flow administration, document management and finance functions. The loan book system enables loan officers to quickly and efficiently process loan applications, with the benefit of robust credit vetting policies and online document mangement capabilities. The advisory hub, Select Advisors, located in Johannesburg, plays an advisory role across the group, advising on all aspects of the business including operations, finance, funding and management.
3. What is incremental housing finance?
Historically the penetration rate of financial services in African markets, in particular, the provision of housing finance, has been hampered by restrictive credit policies from traditional banks and other financial institutions, which in turn has inhibited the economic development of lower income individuals.
Select’s typical client is employed, yet unable to access personal or housing finance through traditional banking channels, due to the bank’s aversion to percieved higher risk clients, and the inability to mortgage or attach properties as security across many countries in Africa. Select primarily provides housing and housing related incremental loans.
Select’s incremental housing finance model involves the extension of multiple and successive micro loans to customers who intend building or renovating their houses, with each loan amount granted on the basis of the customer’s affordability – a further loan is granted as the loan preceding it is repaid or the customer’s affordability improves. This creates an opportunity for lower level income earners to “self-build” their homes incrementally, and in line with their affordability.
4. What makes incremental housing finance different from other housing initiatives?
Many initiatives claiming to be the solution to Africa’s housing problem have been featured, but the majority rely on government assistance, support or intervention. In contast, Select’s housing microfinance offering represents a sustainable private sector solution to the economic development of low-income earning consumers throughout Africa, by providing appropriate housing finance and technical assistance. Select’s incremental housing finance model assists its target market in securing decent affordable housing, which provides stability and builds local communities.
5. Does Select take any form of security over its housing loans?
Select does not take any form of security over the loans we extend. Many sub-Saharan African countries lack effective land title administration systems, making the registration of mortgages, specifically in rural areas, problematic. Banks are therefore unable to take any form of security over the property as would be the case with a traditional mortgage. Select’s collection mechanism of payroll deductions at source do however provide a form of security. By collecting loan repayments directly from payroll, Select is able to ensure consistent collection rates.
6. How do Payroll collections work, and how is it different from payday lenders?
Payroll collections: Select has secured a payroll deduction code, issued by government in each of the countries that it operates in. A deduction code entitles Select to deduct customers’ monthly loan repayments from their salary at source, which is directly remitted to Select. Select’s client base therefore tends strongly towards public sector employees, typically being the largest and most stable formally employed base in markets across Africa.
A significant advantage of a payroll deduction facility is that it enables government regulation on payroll deductions, and the maximum deduction limit on an employees’ salary. This protects the employee from over-indebtedness and ensures that an individual is guaranteed a minimum take-home pay. In countries where regulations do not exist, Select has internal guidelines which are used to ensure that customers are not over-indebted.
Payday lenders: In contrast, payday lenders are institutions who provide salary advances to any individual who can provide historic payroll and employement records. Select is not a payday lender.
7. What is responsible lending?
Responsible lending principles involve the lender:
- undertaking an understanding of the customer’s loan needs, financial situation, loan affordability, and ability to repay the loan;
- considering the suitablity of the loan for the customer given the factors above; and
- ensuring the loan applicant understands the loan terms and conditions.
Select adheres to the responsible lending principles detailed above.
8. How do Select’s product offerings differ from those of traditional MFIs?
Due to the nature of housing and housing related loans, Select’s products are generally of a longer term when compared to traditional MFIs. Our long term products increase the size of the loan our customers can access based on their affordability. Our customers are also more likely to roll (extend) their loans on or before maturity, in order to complete their building projects.
Furthermore, Select’s product offering, including building technical assistance provided to customers in partnership with Habitat for Humanity (“Habitat”) and Lafarge, differentiate Select with traditional MFI’s. Please refer to the section below for more detail on our partnership with Habitat.
9. What are the other benefits resulting from incremental housing finance?
Not only do our housing finance products provide our customers with access to funding, but through our customers use of local suppliers, our loan finance also contributes to the development of local small and medium-sized enterprises (“SMEs”). Due to the absence of wholesale retailers in rural areas in Sub-Saharan Africa, and the high costs involved in transporting materials form urban centres to rural areas, the majority of our customers procure materials produced by their local communities to “self-build” their homes.
10. Explain Select’s partnership with Habitat for Humanity?
Through our partnership with Habitat for Humanity (“Habitat”) in our Malawi and Lesotho operations, we are able to provide our customers with a value-added service in the form of housing construction technical advice. Habitat is a non-government organisation with a focus on improving housing conditions for the poor, with the goal of eliminating substandard housing by building adequate and basic housing, as well as, making housing a matter of conscience.
Habitat sought to partner with an institution that recognises the importance of extension of housing finance to the lower to middle income sector of the market, which historically has not been able to access housing finance. Through this partnership Select provides housing finance, whilst Habitat provides technical assistance in the construction of simple, low-cost housing or home improvements such as room additions, incremental housing, renovation or repair of an existing dwelling,
By collaborating with a reputable financial institution such as Select, Habitat is able to leverage its expertise, expand its reach beyond current channels, and ultimately assist more customers in obtaining finance in addition to technical assistance for housing.
11. How is the use of loan proceeds monitored? How does Select ensure that loans are used for housing finance?
Select is able to monitor that the use of loan proceeds is applied on housing and housing related loan products, via Select’s partnership with Habitat. Habitat provides independent verfication that the customer has used the loan proceeds for housing or incremental housing.
12. How is Select currently funded?
Select’s current funding structure includes:
- Shareholder funding (debt and equity);
- Listed and unlisted Medium Term Notes (“MTN”) in local capital markets;
- Debt structures with Impact Investors and Development Financial Institutions (“DFI”), including Soros Economic Development Fund (“SEDF”) and Old Mutual;
- Other debt instruments with 3rd party corporates and sovereign wealth funds; and
- Various overdraft facilities with local commercial banks.
Select is an active issuer in local capital markets, which provide an important source of local funding, and simultaneously enhance the development of local capital markets. In January 2007, Select Africa registered an MTN programme on the Swaziland Stock Exchange (“SSX”). Since then, more than USD 45 million has been raised under the programme, which has been renewed three times.
13. How are prospective new countries chosen?
All prospective new geographies for expansion of operations are assessed on a scoring framework, with each country given a score based on various factors, including:
- availability of a payroll deduction code;
- existence of a regulated microfinance environment;
- exchange control legislation;
- macro-economic climate;
- political stability;
- urbanisation rates and access to housing statistics; and
- size of the civil service.
The framework is continuously updated and monitored to ensure that Select is best positioned to enter prospective markets as and when the opportunity presents itself.
A further consideration is the availability of funding. Select will only enter a new country if it has sufficient funding, either at a group or in-country level, to start-up and grow the business to a sustainable level.
14. Select’s future prospects and funding requirements?
Select is experiencing rapid growth in the countries in which we currently operate in, and we plan to expand our operations to more countries in Sub-Saharan Africa over the next five years.
Select’s core business is unsecured, payroll deduction lending. However, as the underlying business matures, Select then considers other growth opportunties, including innovative financial products to expand into. This includes the Malkerns Square property development in Swaziland, which is an iconic, environmentally responsible, and resource-efficient lifestyle estate, which will provide 2,000 residential housing units, a retail shopping centre, and a school over the next 5 years. Select will develop the precinct and provide end-user housing finance.
To fund this growth, Select is looking to collaborate with local and international institutions, either at a country or group level, through equity, debt, guarantees, or a combination of these.