While there is strong demand for HMF in Africa, there remains a significant portion of its population that lives in inadequate housing. Prahalad argues that the demand for affordable housing can be met profitably. If this is so, why have financial institutions not supplied HMF to the extent or scale needed to satisfy this demand? The purpose of this report is to investigate the business models of selected African financial institutions in order to identify constraints that might limit the provision of HMF. Across Africa, practitioners are grappling with the challenge of creating an enabled housing finance environment. While these challenges may seem insurmountable, there is a growing track record of novel solutions and initiatives, pioneered by policymakers, financiers, developers and households themselves, suggesting that there are new opportunities for making the housing finance sector work for the poor in Africa. This case study is part of a broader series that CAHF has commissioned in order to support professional development and inform a broader research and dialogue process. The case studies vary, addressing themes as diverse as housing microfinance, mortgage liquidity facilities, cement block banking, home loan guarantees for the informally employed, and infrastructure financing, highlighting experiences from countries across the continent. We hope this series contributes to more precise and successful endeavors that realize the opportunities in this market.

In the case study approach, three cases were reviewed: Real People, Capitec Bank, and Select Africa. The first company, Real People, is a South African-based HMF provider that finances the purchase of building supplies at stores. A smaller portion of their business lends to other African markets. The second, Capitec, is a South African retail bank that supplies HMF not as a separate product but as an unsecured loan of longer maturity that their clients apply toward housing. And third, Select Africa is an African microlender that supplies HMF for incremental housing and home improvements and provides construction technical assistance (CTA) as part of the loan product. Data was gathered by analyzing the latest financial reports of Real People and Capitec (Select Africa did not make their financial information available) and by conducting semi-structured interviews with senior company representatives. The semi-structured interviews were organized around the business processes of the financial institutions, including loan origination, processing and approval, monitoring and payments, and capital raising. Financial models of the balance sheets and income statements of Real People and Capitec were built in Excel. The models were used to analyze the impact of identified constraints on the interest rates charged by the companies, given their target return on equity (ROE) percentages.