SITUATION BEFORE THE INITIATIVE BEGAN
The Kuyasa Fund grew out of a need for additional financing for South Africans who had qualified for the state housing subsidy. Implemented to address the structural inequalities of apartheid spatial planning and the backlog in low-income housing provision, the subsidies were intended for use in conjunction with finance from the formal banking sector. The failure of these institutions to service low-cost housing led to a need for alternative sources of finance. Access to credit was particularly constrained for vulnerable groups such as single mothers, pensioners and the informally employed, groups that were more likely to be informally housed in shacks. The Fund works in townships across the Western and Eastern Capes, all characterised by informal housing and shacks, low and erratic incomes, a high percentage of women-headed households and poor service delivery.
ESTABLISHMENT OF PRIORITIES
An emphasis on microfinance lending – Kuyasa has always explicitly focused on micro-lending as our core competency, preferring to form partnerships with housing support organizations such as NGOs, local government and CBOs.
The need for household sustainability over institutional sustainability – to develop a microfinance programme that is able to prioritise client sustainability and well-being whilst at the same time working towards institutional financial sustainability.
A focus on women and pensioners – these traditionally vulnerable groups make up the majority of Kuyasa borrowers.
Savings as collateral – unlike formal banks, we use existing savings as collateral for loans, enabling the informally employed to access finance.
FORMULATION OF OBJECTIVES AND STRATERGIES
Kuyasa recently concluded a strategic review process in which we undertook an ambitious 5 year expansion plan to scale up service delivery across South Africa. The key objectives of this expansion phase include:
Strengthening Kuyasa for rapid and sustainable mainstreaming across South Africa, using Technical Assistance partnerships to implement systems and procedures for scaling up Delivering 300 000 loans to clients over the next 5 year in 6 provinces of South Africa
Improving the quality and accessibility of financial services to the poor and improving clients’ financial literacy skills
Kuyasa will maintain its commitment to providing appropriate financial services to the poor, but on a scale which makes a meaningful impact on the national housing problem and which leads to Kuyasa’s financial sustainability.
MOBILISATION OF RESOURCES
Our portfolio startup wholesale finance was funded by SIDA. Operational shortfalls and capacity building have been financed by grants from a variety of funders. Within the last 6 months, Kuyasa has signed two long-term technical assistance agreements to prepare the organization for expansion and to assist in the expansion process. Kuyasa also has entered into discussions with the formal financial sector in the last 18 months, and has negotiated wholesale finance to fund the next 18 months of portfolio growth.
This addresses Kuyasa’s two-pronged target of long-term financing and facilitating the integration of the low-income market into the formal financial sector. Kuyasa continues to harness local and international experts to assist staff and institutional development and the transfer of knowledge within housing microfinance. Additionally, client knowledge exchanges are encouraged between the regional offices to build client confidence and transfer life and community histories between groups in differing stages of their housing journey.
Challenges & Improvements:
Increasing Capacity: Kuyasa’s previous greatest challenge was around access to finance for its loan book. As the organization has grown over the last two years and built a reputation for delivery, sourcing finance has been replaced by the need to increase internal capacity to meet the demands of upscaling. Staff and internal processes have had to become increasingly formalized in order to manage the increase in growth. This challenge is being met through the implementation of technical assistance agreements with on-site international assistants.
Improving MIS: Over the last 18 months, the Fund has implemented a sophisticated mobile technology platform in which loans officers are able to originate loans in the field, receipt repayments and carry out credit checks on clients. Additionally, the MIS and financial management systems have been upgraded. The learning curve such system changes requires is steep, and the organization has benefitted from the external technical assistance.
On-going product methodology improvement: Refinement of the loan product is an on-going process. The original lending methodology drew its main strength from using traditional methods of saving and tying these into the loan process. The common hire purchase model, with which South African consumers are familiar, was also a foundation of the loan system. By drawing on these two well-known existing financial models, Kuyasa’s product was easily understood and managed by the communities we serviced. Our staff, which is drawn from the communities in which we operate, has a high degree of empathy and understanding of the context within which our product is used. This dual approach of self-regulating peer mechanisms and high staff visibility has created a successful model of microfinance. Continual improvements are made to ensure the loan product offered remains suitable for our client market.
Retaining community buy-in: While Kuyasa provides additional finance for housing, the communities we service provide their own savings and sweat equity. Control of the housing process lies in their hands, and while Kuyasa facilitates access to other NGOs and CBOs who play a role in housing support, it is the communities, their elected committees and individuals who motivate for and build their own homes. As with all empowering processes, this is one of negotiation and learning.
Managing growth: As Kuyasa expands, critical to our growth will be managing the transformation of the organization from a small, local microfinance provider to that of a national delivery agent, without compromising Kuyasa’s unique culture. Staff buy-in of the expansion is therefore a critical component of the process and is maintained through shared management and staff vision of the expansion process and the impact on clients.
In the space of eight years, the Kuyasa Fund has established a solid reputation as one of the leading housing microfinance institutions in sub-Saharan Africa and has begun a rapid upscaling process. Kuyasa measures success through both household and institutional sustainability, with a strong focus on our impact at the household level:
We have disbursed over R45 million to 8 500 clients, 74% of which are women
All our clients earn under R3 500 a month, with 60% earning under R1 500
The average family size of our clients is five people, meaning that our loans have impacted positively on the lives of 42 500 people
Our outstanding loan balance is R14 million, with write offs currently at 5%
Using our loans, our clients build houses ranging in size from 36m2 to 60m2 in Kuyasa projects. This is in contrast to contractor-build subsidy housing which averages 23m2.
Our research shows that our clients use their loans for new homes (60%), extensions (21%), for improving thermal efficiency (15%) and for finishes (4%).
As well as these tangible results, our clients have reported positive results from home ownership that are not limited to physical security, but include:
Greater household cohesion
A decline in the stress placed on marital and familial relationships by poor living conditions
Increased good health
An increased sense of well-being and dignity
Greater engagement with their community.
Kuyasa is firmly committed to using microfinance as a tool not only for housing delivery but to create sustainable communities. To this end we recognize the continued need to not only build houses but to create the appropriate social, economic and environmental conditions for dynamic communities, drawing on a wide range of institutional stakeholders. Kuyasa believes that we have also contributed a model for using microfinance to integrate social delivery, challenging existing microfinance and banking paradigms, and providing a link between formal finance and low-income populations
Financial: The financial sustainability of our clients is our major concern and Kuyasa’s departure point was to develop a microfinance strategy and product that met the needs of our clients while ensuring the best possible repayment rates. This means that Kuyasa’s clients pay interest on their loans which is set at levels below the rates of formal banking institutions for comparable loan sizes in less risky loan markets. Kuyasa’s great strength is our strong contingent of field workers that follows up and ensures good repayment rates. Therefore our approach has been to develop the products, strategy and institutional capacity required to serve this market, and then to drive the volumes necessary to serve this market cost effectively.
Kuyasa uses wholesale loan finance to finance loans to clients, rather than using grant funding. This method ensures that Kuyasa is financially sustainable, reducing our dependency on donors and ensuring our ability to continue financing low-cost housing into the foreseeable future by accessing commercial loans from the banking sector. Our current expansion modeling predicts Kuyasa will reach financial sustainability in 2010.
Social: Our target population includes women, female-headed households, pensioners and those who are not formally employed, in the knowledge that they are able to manage microfinance when given the opportunity. As such, we continue to open up and develop new markets, tapping into the large un- and under-banked population and bridging the gap between the low-income market and formal finance service providers.
By providing finance to otherwise excluded groups to use for housing and home improvements, we contribute to the sustainability of households and communities. Through integrating personal savings and sweat equity into housing, we bypass the state and contractor-delivered housing, increasing the value of housing and prompting the establishment of a housing market in the township areas.
Loan product: over the past five years, our loan product has been refined from the initial concept. Providing continuous feedback from the field in order to adapt and refine the loan model has been key to creating the successful product currently in use. While we have built on existing financial models and our own experience, we recognize that as we expand and move into different cultural contexts, our product will have to evolve. We anticipate that the geographical and/or product type expansion we are currently planning will benefit from the lessons learned to date, but will inevitably require further refinement.
Repayment rates: a large part of our learning curve has been to do with our high repayment rates and repayment collections in the field. This is a direct result of our relationship building with clients and the extensive fieldwork undertaken to promote Kuyasa within the townships in which we operate. Kuyasa is justly proud of our high repayment rate and this is due almost entirely to the constant presence of our field staff in the communities we service.
Institutional Capacity: the third major learning process for Kuyasa has been the need to develop and refine existing operation and management information systems, so that we are best able to support our fieldworkers. Two major lessons in this field have been the need for integrated MIS systems and the development of the internal capacity of Kuyasa’s staff to manage the changes within the organization as it grows.
Kuyasa drew original inspiration for its product from the pre-existing rotating savings groups that were the predominate mechanism among the low-income population for saving money where formal banking was unavailable. As such we have drawn on local savings practice. With over 4 000 clients currently receiving loans, our product has been successfully replicated in the peri-urban townships of three major South African metropolitan areas.
Our five year expansion plan includes making significant regional expansion, diversifying to new urban areas and potentially expanding our product from housing finance to microenterprise finance in selected pilot sites. This will test the replicability of our model on a larger scale, and under a different organizational culture context.
As a successful microlender, Kuyasa is keen to share its expertise and we have participated in a number of regional and international exchanges. These include hosting delegates from Morocco, India and Madagascar, attending international microfinance conferences in Bangkok, Cape Town, Dar es Salaam and the USA in order to exchange best practice experience, and running workshops with delegates from across sub Saharan Africa.
In particular, Kuyasa has been involved in knowledge sharing with the Small Enterprise Foundation (SEF), another South African microlender which is based in the Limpopo Province. SEF’s focus is on poverty alleviation through income generation, job creation and social empowerment, and there is significant scope for an even greater exchange of knowledge should Kuyasa diversify from housing-related loans to micro enterprise lending.
Kuyasa is currently initiating a dialogue process with several microfinance institutions in Central America, with an aim to setting up knowledge and staff exchanges in order to strengthen the historically weak ties between Latin American and African MFIs. The Latin American housing microfinance experience has many parallels to the South African one.
Kuyasa is also providing input to a provincial government task team on understanding the secondary housing markets of the Western Cape townships. We are also a case study for the University of Stellenbosch’s MBA programme in a module focused on sustainable enterprise development. Kuyasa has also been the subject of two doctoral theses and two MBA dissertations.