Can you build 1,000 houses? Here’s the deal...

Shelter Afrique Managing Director Andrew Chimphondah.

Stung by non-performing loans, Shelter Afrique has changed tack to focus on large scale projects and partnerships. The Pan-African lender’s Managing Director Andrew Chimphondah talks to Home & Away on their new direction.

You have been very vocal about affordable housing, is this an area Shelter Afrique will be going into more?

We had to go back to the drawing board as Shelter Afrique because (after 2015/2016) we ended up with a very big non-performing loan book. In excess of, about $100 million (Sh10.3 billion today).

The lesson learnt was that for us to be able to satisfy our shareholders, we needed to engage in large scale delivery of affordable housing. But the mode now to deal with the supply side was to do it through public private partnerships.

This was a deliberate change in the business model, instead of just funding small developers doing 100 units. We are now saying we will only work with established developers who can do atleast more than 1,000 units.

We believe that good, developers who can produce at scale are bankable, they can get funding from local markets. But if they have challenges putting in some sort of sweat equity, we are can put in (say) 10 per cent of the project or so to catalyse the whole project.

Are non-performing loans what influenced your move from working with smaller developers?

It’s part of the reason. We went through a process, when we stopped lending, we wanted to, to create a better and well governed institution by looking at the lending policies, changing those policies, so that we strengthen our underwriting controls.

What we found is that in the past - when we were supporting the smaller developers - when it came to them putting in the equity contribution, there was a challenge, and in some cases we just continued to lend.

So we we took a step back and said even though we are struggling with these small developers, let us commit to be training them and get them to partner the bigger developers, so that there is proper learning, you cannot also ignore the local developer.

There are few developers who can put up more than 1,000 units. Won’t this restrict you to government partnerships?

Yes, there are very few developers that have that capacity. We have created a centre of excellence, which was launched on the April 24, 2019. In the centre of excellence, we bring in local developers, and we take them through a master training to be able to capacitate them. And when we work with these big developers they can work with other developers and this way you get skills transfer.

Are you involved in any of the Big Four housing projects?

Where we’re were involved in the Big Four is; if you look at the Kenyan market, the challenge has been that there’s not a lot of mortgages.

You’ve got about 26,000 mortgages, so what we’ve done is we’ve invested equity, $2 million (Sh207 million), into KMRC (Kenya Mortgage Refinance Company), and we will sit on that board as well.

The reason for that is for us to be to stimulate the retail banks to be able to provide longer term loans at an affordable price.

Developers need to have a comfort level that there is going to be taken up, and the beneficiaries need to be able to get access to funding.

What are other African countries doing to make affordable housing a reality?

We’ve looked at Kenya we’ve seen that land can even be as much as 40 per cent of the cost of the house. It is probably the highest in Africa.

We go to different countries, and if the land is publicly owned, we asked that those governments provide that land for free. It could be their contribution into the project.

Then we ask that they also provide the infrastructure or to subsidise it. If they cannot subsidise it, they can introduce like tax incentives to encourage the developer to develop the infrastructure.

For instance, in Rwanda, what the government does is when the developer pays money for the infrastructure, the government, if you prove that it’s for affordable housing, they give you 100 per cent rebate back. So they pay for the infrastructure, but they’re doing it in arrears because they want to come inspect (to make sure it is affordable housing).

Where we’ve been able to partner with the city of Kigali on the land, the land was sold to us at a very concessional kind of rate.

What should we expect from Shelter Afrique moving forward?

You should expect Shelter Afrique to do a lot more lending to the 44 member states in, in Kenya our target is to lend Sh2 billion by end of 2019. You should expect, from 2020 onwards, a lot more large scale housing projects from the different countries at an affordable cost.