An independent survey done in Swaziland in 2008 operations revealed that 38% of Select’s loans were used for housing linked purposes; comprising items such as roof repairs, plastering, painting, extensions and even construction of new homes on a room-by-room basis. It is this fact, coupled with the African continent’s shortage of housing, which sparked a more focused approach from Select to create housing products and services that would add value to the end user beyond the extension of credit.

Many Select clients use their loans to improve their homes, sparking the development of a unique, proprietary Home Product. Select Home represents a sustainable, private sector solution to the continent wide shortage of housing across Africa.

CONVENTIONAL MORTGAGE VS INCREMENTAL HOUSING MICRO-LOAN

The myth of mortgage finance always being cheaper
A comparative example:

Conventional Mortgage Incremental Housing
Total Capital Borrowed USD 10,000 USD 10,000
Annual Intrerest Rate 25 percent 50 percent
Loan Structure Single 10-year loan of USD 5 Back to Back two-year loans totalling USD 10.000
Monthly Installment USD 277 USD 133
Total Interest Charge USD 17,299 USD 6,011

A traditional mortgage home loan of US$10,000 at 25% interest per annum over 10 years will require a monthly instalment of US$227 per month, equating a total amount of US$27,299 paid for the loan. With an incremental housing microfinance loan, five loans for 24 months and US$ 2,000 each at 50% interest will require a monthly instalment of US$133 per month, equating the total amount repaid over the same period of US$16,011.

Incremental housing microfinance:

  • Extends relatively small loan amounts (compared to a traditional mortgage) based on repayment capacity
  • Incremental loans that offer affordable repayment terms
  • Are usually not collateralized
  • Allows the borrower to achieve scale by self-build
  • Reduces overall cost of the loan for the borrower
  • No title deed required for a loan
  • Entertains various land use forms
  • Enables asset generation
  • Select assists with the development of an asset rather than just consumer finance
  • Incremental building is a process whereby people build 1 room at a time – Select Home provides
  • clients with template plans for each room in the incremental process
Conventional Mortgage Incremental Housing
Security Title None due to prevalent traditional/tribal land tenure
Deposit Five percent to 30 oercent of house value Typically Nil
Construction Require formal plans singe staging process Informal Incremental building process (“as and when affordable)
Income Bracket Typically top one percent or less of the population USD 125 to USD 1,000 per month

HOUSING RELATED LOANS FOR WATER PROVISION:

The UN Environment Programme report concluded that “Africa is not water scarce…the rainfall contribution is more than adequate to meet the needs of the current population several times over”

Home water harvesting systems are low cost, simple to deploy and require very little maintenance-
1mm of rain allows you to harvest 1 litre of water per square meter of roof area
Attractive products are available for the housing microfinance market:
Basic rain water tank;
Installed tank with gutter collection;

Select’s home loan products can be used for purchasing and installation of water harvesting set-ups.

HOUSING RELATED LOANS FOR THE PROVISION OF SOLAR POWER UNITS

Similar to above, certain solar products such as basic installed solar power systems can be funded through Select home loan products.

  • Solar energy is abundant in much of Africa
  • Solar electricity offers important benefits:
  • Provides electricity to communities that cannot afford or do not have access to grid electricity
  • Can meaningfully enhance quality of life by enabling children to study , providing media access (TV and radio) and ensuring connectivity (charging mobile phones)
  • Avoids fire and health hazard caused by the use of paraffin or kerosene lamps
  • Attractive products are available for the HMF market:
  • Portable solar batteries;
  • Solar water heaters;
  • Installed solar home systems