| Mon 20 Oct 2003, 9:38 | | African Bank looks to gaps in housing finance |
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African Bank looks to gaps in housing finance
Opportunity
Richard Stovin-Bradford
African Bank weathered the microlending and small-bank crises by adhering to its traditional risk management practices - in other words, by sticking to its knitting.
But as the financial-sector charter sets new targets for access to finance, the time has come for African Bank to consider moving beyond its consumer credit specialisation.
Apart from a foray into contractor finance, African Bank has not deviated from its narrow focus. But this is set to change under MD Tami Sokutu. Asked whether his bank has considered affordable housing finance, he says: "We're thinking about it."
He adds: "We have met the director-general of housing and we are developing a housing finance model. It will be an unsecured loan designed for this market."
The bank owes its existence to "a great need for credit". He recognises people need "access to a small amount of borrowing to incrementally put a house together or for education".
But, he says, the banking system does not cater for the vast majority of South Africans. Because the funding cost for providing credit to the mass market segment is high, the borrowing cost is similarly high. However, this is better than having no access to credit at all, he says.
Sokutu joined African Bank because he saw a greater role than just working for a credit bank: "In my view, African Bank is readily placed to broaden the horizons of the unbanked."
As he looks at ways of entering the housing finance fray, Sokutu is quick to point out that the mortgage bond solution does not work because it was designed for developed economies. "It does not work for the 60% of South Africans who are unbanked."
He attributes the bank's success in the credit arena to its expertise in unsecured lending to individuals, adding: "The house financing model that is successful will focus on the individual."
Though African Bank has yet to launch a purpose-designed housing finance product, Sokutu says 32% of borrowers already use their loans for incremental housing, but adds: "We're not talking about more than R5 000 here."
Its housing loan will be based on its existing microloan model. Borrowers must have proof of regular income, a bank account and a clean credit record.
African Bank does not impose a minimum salary requirement but borrowers must take home a minimum of R750 a month after servicing all existing debts, including the bank's loan instalment. This is checked on payslips and bank statements before loan approval.
But Sokutu, who sees housing loans as a new stream of growth for African Bank, says the product will require fine tuning to reflect the longer-term and higher risk involved for housing loans compared with straightforward consumer credit.
But he adds: "I'm quite confident that relatively soon we will get into that market."
Though he recognises that the big four could quickly become preferred banking brands if they rapidly roll out new low-cost products to the mass market in response to the charter, Sokutu sees a clear role for African Bank, saying: "Where have customers gone for their primary relationship until now?"
He adds that the major banks are positioned at the top end of African Bank's market, so it still has a role to play.
Sokutu's vision encompasses SMEs and the informal sector, which he sees as providing the next wave of growth for his bank, cautioning: "We could see instability in this country if we don't address this sector.
"Therein lies opportunity for us because of our history in this market and our appetite for risk. Our mission of giving individuals the opportunity to improve their lives is a winning formula."
Asked if African Bank would ever offer savings products to assist those setting aside money for a home, he acknowledges his bank should provide an incentive to save but has steered clear of savings accounts because of running costs. But it could seek partnerships with other banks to enable customers to save.
Sokutu's thinking indicates it is time to prepare for an African Bank that sees a world beyond pure consumer credit.
