1. PRESENTATION TO THE PORTFOLIO COMMITTEE ON HUMAN SETTLEMENTS 14 October 2015 Rural Housing Loan Fund ANNUAL INTEGRATED REPORT 31 MARCH 2015 JABULANI FAKAZI – CEO BRUCE GORDON - CFO

2. Contents Mandate, vision, mission and values Value creation Operating environment Performance 2015 Governance Risks Looking ahead

3. Mandate, vision, mission and values To facilitate funding to enable rural low income earners to better their living conditions through improving their housing situation Mandate The Rural Housing Loan Fund is a world-class rural housing social venture capital fund that creates new financial arrangements and opportunities for rural families to improve their housing, economic and living environments Vision To empower people in rural areas to maximise their housing choices and improve their living conditions through access to housing credit and government housing subsidy funds MissionValues TransparencyPassion for developmentEmpowerment Integrity and honestyExcellenceRespect Accountability and responsibility

4. Contents Mandate, vision, mission and values Value creation Operating environment Performance 2015 Governance Risks Looking ahead

5. How do we create value for better living conditions? Capitals Finance People Intellectual Relationships Natural Activities Lending Verification Risk Management Outputs Incremental loans Outcomes Improved rural housing A better life for people in rural areas

6. What does the Rural Housing Loan Fund deliver? Rural Development Human Settlements Financial Services Rural Housing Loan Fund

7. Housing opportunities delivered since inception

8. Our commitment to the current MTSF

9. Performance against MTSF targets

10. Contents Mandate, vision, mission and values Value creation Operating environment Performance 2015 Governance Risks Looking ahead

11. Government development policy Government Development Policy Priorities as set out in the National Development Plan: ◦Sustainable human settlements ◦Rural development ◦Mining towns ◦Supporting Small Medium and Micro Enterprises

12. Economic conditions o Low economic growth—revised downwards throughout the year o High unemployment o Interest rates: REPO rate is still low, the interest rate for unsecured credit is still high, hence RHLF’s Pricing Policy designed to lower interest rate our borrowers pay o Inflation (CPI): although largely within the set target during the year, most relevant inflation indices for RHLF end users are: o Food inflation o Transport o Rural inflation

13. Interest rates Maximum microlending rate allowed by National Credit Act (2005) – REPOx2.2+20%

14. RHLF end user interest rates By ensuring that RHLF clients charge discounted rates we increase market competitiveness

15. RHLF client inflation compared to CPIX Source: StatsSA

16. Credit Industry o Collapse of African Bank put pressure on the microfinance business environment o Tightening of the credit granting criteria by lenders—RHLF lenders included o High levels of consumer indebtedness remains a concern o High rejections rates—ranging between 45% and 90% o Demand for housing loans is there, but affordability is a challenge

17. Contents Mandate, vision, mission and values Value creation Operating environment Performance 2015 Governance Risks Looking ahead

18. Stakeholder perspective: Broaden and deepen the reach of housing finance Housing opportunities delivered - 2015

19. Stakeholder perspective: Achieving visibility

20. Stakeholder perspective: Building lending capacity

21. Financial perspective: Real capital preservation

22. Business process perspective: Sharpen portfolio risk management

23. Business process perspective: Accelerate client acquisition

24. Business process perspective: Targeted positioning and branding

25. Learning and growth: Skills development and capacity

26. Contents Mandate, vision, mission and values Value creation Operating environment Performance 2015 Governance Risks Looking ahead

27. Audit outcomes Audit opinion of financial statements Comment on predetermined objectives Compliance with legislation Internal control Clean (no qualifications or emphases of matter) No material findings No material non-compliance No significant deficiencies

28. Governance BOARD OF DIRECTORS Human Resources, Ethics and Remuneration Committee – meets at least 3 times / annum Credit and Development Committee - meets at least 4 times and as needed Audit and Risk Committee – meets at least 4 times per annum Internal Audit has a comprehensive 3 year rolling work plan

29. Changes in Board Board memberRoles at 31 March 2014Changes since then Thembi Chiliza Chairperson of the Board and Member of Human Resources, Ethics, and Remuneration Committee Added Credit and Development Committee membership Adrienne Egbers Deputy Chairperson of the Board, Chairperson of Credit and Development Committee and member of Audit and Risk Committee No change but acted as Chairperson of Audit and Risk Committee for a period Knowles OliverChairperson of Audit and Risk CommitteeDeceased Molefe Mothibe Chairperson of Human Resources, Ethics and Remuneration Committee Added Audit and Risk Committee membership Reginald Hamman Member of Audit and Risk Committee Became Chairperson of Audit and Risk Committee Nancy Sihlwayi Member of the Human Resources, Ethics, and Remuneration Committee Resigned upon appointment as MEC in Eastern Cape Jabulani Fakazi Chief Executive Officer and member of Credit and Development Committee No change

30. Stakeholder engagement STAKEHOLDER Ministry Presidency – Performance Monitoring Parliamentary Portfolio Other departments (Treasury / Rural Development) Local government Intermediaries Funders Other DFIs Borrowers Employees TYPES OF ENGAGEMENTS Meetings and presentations Presentations Meetings and presentations Briefings Regular Meetings and submissions Consultations Interviews at their homes Various

31. Contents Mandate, vision, mission and values Value creation Operating environment Performance 2015 Governance Risks Looking ahead

32. Risks Risk descriptionCauseMitigationFuture Insufficient funding National budget constraints, lack of prioritisation of the Rural Housing Loan Fund Ongoing selling of the Rural Housing Loan Fund’s mandate to all stakeholders Integrated reporting, research into the Rural Housing Loan Fund outcomes, Selling of the benefits of the mandate Development Financial Institution merger Policy decision Protection of the Rural Housing Loan Fund’s mandate throughout the process Selling of the benefits of the Rural Housing Loan Fund’s mandate Debt levels of retail borrowers Overenthusiastic lending by consumption lending businesses Looking for intermediaries who can deliver in areas where indebtedness is lower Educating consumers on the management of their finances Inability to earn an adequate Return on Equity The need to reduce interest rates to retail borrowers Additional funding is required, ideally grant funds that can earn the Rural Housing Loan Fund additional funds Income tax exemption Relaxation of Development Bank of Southern Africa / KFW liquidity covenant Further relaxation of covenant Exemption from requirement to deposit spare funds with the Corporation for Public Deposits Inability to achieve success with community based organisations Lack of resources well skilled in successfully working with these organisations Using Junior Clients Executives to manage these KFW funds will be used to support community based organisations

33. Contents Mandate, vision, mission and values Value creation Operating environment Performance 2015 Governance Risks Looking ahead

34. o Development finance institution merger o Individual Rural Housing Voucher programme o Research projects: o New products to enhance sustainable rural human settlements and the size of the need o Impact assessment (the effect on peoples living conditions) o Building loan distribution channels: o Investing in start-up micro-lenders to enhance their sustainability o Continue targeting co-operatives

35. Concluding remarks o Marketing conditions remain a challenge o Economic growth, unemployment, indebtedness levels, etc. o Demand for incremental housing finance remains high, but affordability levels remain low o RHLF is an established working business model. o Builds self reliance by empowering people to incrementally realise their housing dreams (and right of adequate). o Room to scale up delivery of loans by: ◦Supporting emerging black owned housing lenders ◦Supporting Housing Co-operatives and other co-operatives involved in income generating activities (e.g. Co- operative Financial Institutions under Cooperatives Bank Development Agency) ◦=> Success in working with these new partners complements existing delivery channels and contribute to delivery of MTSF targets.

36. Thank you