GuarantCo supports the sub Saharan African expansion plans of HFGA, an affordable housing mortgage insurance company - September 2010
In September 2010 GuarantCo provided a $5m facility to support the establishment of Home Finance Guarantors Africa (HFGA), a not-for-profit mortgage insurance company currently focusing on Kenya, Ghana, Rwanda and Uganda. The establishment of HFGA has been supported by Home Loans Guarantee Company (HLGC), which is seeking to replicate the business model it successfully pioneered and ran in South Africa for 20 years.
Access to affordable home loans is a major obstacle to economic development for most low and lower middle income families in developing countries. Many are unable to buy or improve a home, the most essential form of infrastructure for most families, because of limited access to finance. There is lender reluctance to enter this market due to the inability of borrowers to provide sufficient down-payments and resulting perceived default risk. At the same time, few developers choose to build low cost housing because there is no prospect of potential buyers raising finance.
HFGA aims to widen access to mortgage finance by enabling families to obtain finance that don’t have adequate financial resources to provide the required deposit towards purchasing a home. To do this, HFGA will offer innovative home loan protection products to local mortgage providers by working in conjunction with the local insurance market but also ensuring appropriate lending practices are followed including borrower education.
In order for HFGA to meet its regulatory requirements for capital reserves, it either required further capital or to offset/reinsure some of its risk. Given that HFGA has no track record combined with the pioneering nature of the products, it was unable to secure additional backing from commercial insurers. GuarantCo’s facility allows HFGA to meet necessary capital requirements to launch operations, and the initial $5m facility may be increased in future if the programme is successful.
Additional technical assistance funds are being used to support the capacity building programme with local insurers and lenders and to help provide financial literacy training for borrowers.