HLGC

This Entry has been submitted.

HLGC

South Africa
Project Stage:
Scaling
Budget: 
$1,000 - $10,000
Project Summary
Elevator Pitch

Concise Summary: Help us pitch this solution! Provide an explanation within 3-4 short sentences.

During a time of crude home repossessions after loan default and resulting widespread payment boycotts, Charlene developed a vital intermediary between hostile lenders and borrowers. Armed with deep insights into the concerns of both groups, her Home Loan Guarantee Company (HLGC) created innovative insurance and risk management products protecting against HIV/AIDS risks and a portion of the borrower financial risk while requiring all parties to bear some risk. These products attracted lenders back into a market that badly needed servicing as the desire for homeownership was ballooning with the impending decline of Apartheid. She is now spreading many of her core ideas to other parts of Africa.

About Project

Problem: What problem is this project trying to address?

South Africa in the mid 1980s was fraught with tension and upheaval. The housing market was no different. In fact, housing became hugely politicized throughout the anti-Apartheid struggle as those long denied access to basic human rights had no appetite for being told to give up their homes because of a defaulting loan, especially when many houses were built below standard and had serious faults, and service delivery for basic utilities and sanitation was not as expected. Several instances of entire property repossession - even though the outstanding debt was less than the value of the property - would in time lead to isolated boycotts of mortgage payments in various areas, and then more widespread boycotts of not only mortgage payments, but also payment for services and rent. Burning tires were placed on the roofs of the houses of repossessed properties; banks and sheriffs were being threatened; and eviction processes were all but non-existent. With the due process of the law all but collapsed, the task at hand was figuring out a way to entice lenders to provide loans in a market that was fraught with difficulty, from which most had migrated, and in which they had no appetite to increase their exposure. The increasing prevalence of HIV/AIDS, and the assumed risk it posed to borrowers being able to pay their bills only added further reason for lenders to shy away. More broadly, throughout Africa, low-income borrowers had and have little access to home loans.

Solution: What is the proposed solution? Please be specific!

Charlene believed that she could invigorate responsible home loan lending in South Africa by addressing directly the needs of borrowers and the fears of lenders. Essentially, her idea was to close the gap between the actual and the perceived credit risk of low income borrowers. Knowing that lending at scale would only occur when unwarranted lender fears were laid to rest, she and her HLGC developed a series of insurance and reinsurance products that gave them partial protection from defaults. Knowing at the same time that counseling first-time borrowers is key to their performance and that temporary assistance is sometimes needed, she also developed risk mitigation strategies. Her goal was not to become and remain a large lender, but to entice the lending and insurance sectors by showing that this could be a profitable business and to stay in the market only to fill remaining gaps. The need and the strategy for expanding to the rest of Africa are slightly different than what was relevant in South Africa. While the legal and regulatory environments differ in all countries, with some more advanced than others, most have well established and able lenders and insurers that can originate loans. What they do not have, however, is a robust reinsurance industry or adequate risk management for large scale lending to low-income homebuyers. Therefore, Charlene is taking the reinsurance and risk management aspects of HLGC and partnering with innovative, medium-sized insurance companies in other markets to facilitate bank financing to lower income people, and particularly those living with HIV and AIDS.