NURCHA

January 2003
U.S. Trade Representative Robert Zoellick and South African Minister of Housing Sankie Mthembi-Mahanyele today signed a loan guaranty enabling OPIC to provide $15 million to help build 90,000 homes for low-income families in South Africa. The homes will provide shelter for up to half a million people. (OPIC press release.)

The problem, OPIC Vice President Robert Drumheller recalled, was financing. South Africa’s ambitious program to construct homes for low-income citizens – “taking people who were in large part squatters and making them legitimate homeowners with a stakeholder’s interest,” he said – had bogged down because homebuilders were finding it difficult to obtain affordable short-term financing for construction projects.

“That was the request South Africa’s housing minister put to us when she visited OPIC in February 2002: could we do something to support the homebuilders who were withdrawing from the effort because of the high local cost of financing,” Drumheller said.

“OPIC had been in early-stage negotiations with U.S. nonprofit organization Open Society Institute (OSI) about housing projects, but they hadn’t come to a conclusion. After meeting with the housing minister, we went back to OSI and they agreed to work with us on this project,” he said.

In the space of 11 months, OPIC and OSI arranged a $15 million loan guarantee to support South Africa’s housing initiative. The OPIC/OSI supported loan guarantee in turn enabled Rand Merchant Bank, a leading South African financial institution, to on-lend funds to private homebuilders through an affiliate of the country’s National Urban Reconstruction and Housing Agency (NURCHA). At the February 2003 signing of the OPIC loan guaranty, it was estimated that the project would help build 90,000 homes for low-income South Africans.

Three years later, the initiative is well on track, according to NURCHA Managing Director Cedric de Beer, who monitors its output precisely.

As of March 2006, the OPIC-OSI-NURCHA partnership had generated 167 million Rand ($23 million) in loans for 111 housing projects throughout six of the country’s nine provinces. Those projects had produced 22,500 homes already, of 47,000 planned. The total value of the projects was 1 billion Rand – $140 million.

As for the 90,000-home goal, de Beer said, “it’s achievable, in the next two to three years.”

Important as its primary benefit of shelter is, the project’s catalytic effect on South Africa’s nascent black homebuilding industry may prove even more lasting. The majority of loans have gone to black-owned construction companies, many of them small businesses with little capital or lending experience. Drumheller said the project had brought down interest rates on housing construction loans from 35-to-40 percent annually to approximately 20 percent.

“And for these companies with little security, the program has not only provided funding, but mentoring and support in financial management,” de Beer said. “What the project has done is squeeze nearly all of the risk out of the lending business. In that regard, it is a very successful business venture. Of all the loans made so far, we’ve incurred only 5 million Rand ($700,000) in losses, of which we expect to recover 4 million Rand ($560,000).”

“Overall, what OPIC is doing in South Africa – a country with substantial resources and a sophisticated financial sector – is use its financing to build a bridge that has enabled a South African bank to enter into a financial opportunity that it wouldn’t otherwise. In effect, by repricing risk and demonstrating what works and what doesn’t, OPIC has opened a door,” de Beer added.

For Drumheller, the project had an equally transformative effect on OPIC.

“This was the project which showed us we could use our financing products for projects that were highly developmental in nature,” he said. “After this, we increasingly redirected our efforts toward more low-income beneficiaries, and were able to involve more nonprofit organizations and microfinancing entities. It led to a whole different kind of developmental activity for OPIC – and the private sector took notice.”

July 2006
The OPIC loan, to U.S. nonprofit organization Open Society Institute, has enabled Rand Merchant Bank to make 111 loans worth $23 million to housing projects in six of South Africa’s nine provinces. Of the 47,000 homes designed by those projects, 22,500 have been built.