HFGA is introducing innovative home loan protection products to new markets in conjunction with local insurance companies in order to stimulate local banks to widen access to finance. HLGC, who has set up HFGA based on their successful South African model, is a not for profit social enterprise and has not accumulated sufficient reserves to fully capitalise HFGA. HFGA therefore faced difficulty meeting regulators’ minimum capital requirements without backing from GuarantCo. Given the pioneering nature of HFGA’s work, such backing is not available from either commercial insurers or even dfi’s. The initial USD 5m facility may be increased depending on demand.
Additional technical assistance funds are being used for a capacity building programme with local insurers and banks and to help provide financial literacy training for borrowers. An output based aid programme is also being considered that will provide targeted subsidies to make Collateral Replacement Indemnities affordable to the lowest income quartile of households
Access to affordable home loans is a major obstacle to economic development for most low and lower middle income families in developing countries. Many families are unable to buy or improve a home because of limited access to finance. There is lender reluctance to enter this market due to the inability of borrowers to provide sufficient down-payments and resulting perceived default risk.
At the same time, few developers choose to build low cost housing because there is no prospect of potential buyers raising finance.
HLGC’s business model has worked well in South Africa for 20 years and HFGA, with GCo’s help, aims to replicate this success in sub Saharan Africa.