5) Description of housing product/service offering: The Kuyasa Fund is a South African microfinance institution which provides credit for use in improving the housing situation of households in the Cape Town metropolitan area that qualify for the state housing subsidy. It is a non- profit organization funded by a mixture of wholesale finance and donor grants, which aims to be financially sustainable by 2006 year end.

Given the failure of the South African banking sector to extend suitable credit facilities to the low-income population, microfinance provides a valuable tool for enabling the poor to improve their housing condition. To date the Kuyasa Fund has provided over R25 million in housing loans to over 5000 clients, who have used the money to improve their homes through extension or improving the quality of the existing structure. Our clients build houses between 36m2 to 60m2 using a mixture of the state subsidy, their savings and a Kuyasa loan. This compares well to the 23m2 average size of contractor-built houses.

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. Clients are required to participate in savings groups for a minimum of six months in order to qualify for a loan. The maximum loan they can be granted is limited to three times their savings, up to a maximum of R10, 000. Interest is set at 32% and the longest repayment period permitted is 30 months. Clients are able to take out subsequent loans after successfully repaying their first. Experienced field officers maintain close relationships with clients and ensure good repayment rates.

6) Description of innovation: The Kuyasa Fund was set up in light of the failure of formal finance to reach low-income clients. Recipients of the state housing subsidy were unable to consolidate and take full advantage of their housing potential due to the lack of available finance. Kuyasa’s innovation lay in providing microfinance in a manner that was easily understood by, and accessible to, the clients we hoped to service. By using two popular pre-existing models of finance – rotating savings groups and the hire purchase systems of the furniture industry – Kuyasa developed a product familiar to our target population.

Kuyasa has developed a niche position made possible through the existence of a state housing subsidy and an array of housing support organizations which allow us to focus primarily on providing credit. In this way, Kuyasa’s sole objective is the provision of finance through a unique methodology suited to our clients’ situation.

To date, Kuyasa remains a unique and innovative model, combining successful micro lending with a mandate to improve the housing situation of Cape Town’s low-income population. Our model takes micro-lending and applies it to housing finance, traditionally a long-term and expensive credit option from which the poor have been excluded. An integral component of our work is the mobilization of savings. People’s savings are used by Kuyasa as collateral for their loan. Saving in groups for a period of six months, clients build up a savings record and are able to invest their own capital as well as sweat equity into their house. Most importantly, Kuyasa offers finance through a loan, creating a culture of repayment and contributing to the financial education of consumers. We firmly believe that low-income populations are capable of managing credit and that these markets do not represent the high risk that formal banking institutions believe them to be.

7) Benefits to clients: Kuyasa lends to clients who are recipients of the state housing subsidy. The threshold for the lowest subsidy is a monthly income of R3 500, and Kuyasa takes this income level as the maximum monthly income for clients. There is no set minimum income, as Kuyasa evaluates each claim independently and includes informal employment and remittances in income calculations. We collect demographic information on all clients and as such are able to calculate the effectiveness of our delivery targeting, whereby with an average household size of five 25% of our clients live on under US$1 a day, 50% on under US$1.60 a day and 85% on under US$2.6 a day. We therefore believe that we are targeting the lower end of the microcredit market, combining institutional sustainability with our mandate to reach the poorest communities. Our profiling also breaks down the view of the poor as homogenous and we are able to address the requirements of different segments of the “poor” according to need.

Kuyasa is able to target the marginalised through three main conduits: those who have qualified for a housing subsidy; our loans officers, who are drawn from the communities we service and are ideally placed to mobilise savings groups and spread information about Kuyasa; and past and existing clients who notify their communities about Kuyasa’s activities. To date, these methods have been more than adequate in reaching our target market, and the main constraint has been Kuyasa’s access to loan finance to lend on to the poor.

8) Key operational partnerships: The two key partnerships to Kuyasa’s success have been those with our founding NGO, the Development Action Group (DAG), which saw the need for credit facilities for the low- income population and conceived of a micro lending institution to meet this need, and the Swedish International Development Agency (SIDA), for their provision of the initial wholesale funding which comprised Kuyasa’s start-up loan portfolio. Apart from this initial relationship with DAG, Kuyasa has operated independently. The link with government is, however, a fundamental one to Kuyasa’s existence. The state subsidy system has ensured low-income tenure, provided the means for communities to build and created momentum around the process of housing delivery, including through such enabling organizations as the People’s Housing Process. In the light of this environment, Kuyasa was able to concentrate on credit provision. The principal constraint to public involvement in replicating the kinds of projects Kuyasa undertakes is the belief of government that the provision of financial services to the poor is the responsibility of the private sector. The lack of interest by the private financial sector in providing such services is indicative of a fundamental market failure. Consequently, the gap in the market is currently only met by microfinance institutions.

9) Financial model: Kuyasa was established as a non-profit financial organization and as such our mandate is to target low- income and marginalized populations. The financial sustainability of our clients is our major concern and Kuyasa’s departure point was to develop a micro finance strategy and product that met the needs of our clients while ensuring the best possible repayment rates. The main mechanism by which we guarantee client affordability is through ensuring 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. Additionally, we do not require clients to be formally employed, to provide collateral in the form of physical assets or to be literate.

          • Costs as percentage of income: 65%

          • Financing: Kuyasa uses wholesale loan finance to finance loans to clients, rather than using grant funding. This ensures that Kuyasa will become 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. Kuyasa is engaged in discussions with the formal banking sector in South Africa, with the aim of securing long-term access to wholesale finance and to facilitate the integration of the low-income market into the formal financial sector. We anticipate reaching full sustainability by the end of 2006. Operational shortfalls, capacity building and research projects are financed by grants from a variety of international funders.

10) Effectiveness

          • Project outcomes: We have disbursed over R23 million to 5214 clients, 74% of which are women. 94% of our clients earn under R3 500 a month, with 50% earning under R1 500. The average family size of our clients is five people, meaning that our loans have potentially impacted on the lives of some 25 000 people. Our outstanding loan balance is R8.9 million, with write offs currently at 5%, cost recovery at 65% of total expenses and as at March 2006, we were meeting 84% of our operating expenses. Over R9 million worth of savings have been mobilised and added to the housing process, adding value to over R40 million worth of government subsidies. Our clients take loans for a variety of housing purposes, including New Homes: 57%; Extensions: 23%; Thermal Efficiency: 16% and Finishes: 4%.

          • Number of clients in past year: 1654 people received loans from Kuyasa in the period August 2005 – July 2006

          • Percentage of clients that are poor or marginalized: 94%

          • Potential demand: Conservative government estimates put the current housing backlog in the Cape Metropolitan area at 260 000 units, while to date, some 215 041 people have received a house (completed or under construction) in the Western Cape area, meaning there is a potential market for Kuyasa products of some 475 000 people. With an average loan of R5 000, this amounts to R2.3 billion in potential market worth within the Western Cape. Clearly the key constraint to Kuyasa’s expansion is access to commercial credit and not a limited market for our product.

11) Scaling up strategy

          • Stage of the initiative: Scaling Up stage.

          • Expansion plan: The Kuyasa Fund’s strategic goals over the next five years focus on consolidating in the Western Cape, while at the same time taking on the tasks of expanding our operations to other provinces. We also seek to develop the capacity and products for Kuyasa to provide microfinance services to our clients to enhance their income generating ability. Over the next three years Kuyasa intends to expand its operations into the Western Cape rural areas and to Johannesburg, Durban and Port Elizabeth. The intention is to manage the expansions as separate cost centres isolated from the costs and operations of the Cape Town office. This expansion will be funded with a mixture of wholesale and grant funding. The Kuyasa Fund is currently engaged in developing products to suit different housing needs and developing income- generating microloans to provide livelihood support.

12) Origin of the initiative: The Kuyasa Fund grew out of a need for additional financing for those who had qualified for the state housing subsidy. Implemented to address the structural inequalities of apartheid spatial planning & the backlog in low-income housing provision, the subsidies were intended for use in conjunction with finance from the formal banking sector. The sector's failure to provide credit for 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, characterised by informal housing and shacks, low and erratic incomes, a high percentage of women-headed households and poor service delivery. Now a fully autonomous NPO, we facilitate access to housing finance as a tool for improving wellbeing & supporting a financial sector for the poor.

Contact Information:
Olivia  van Rooyen
Executive Director
The Kuyasa Fund
(NGO)
3, Wrensch Road, Observatory, Cape Town 7925
South Africa
Tel: +27 (0) 21 4483144
Fax: +27 (0) 21 4473140
Email: olivia@kuyasa.org.za
Website: www.thekuyasafund.co.za