SOUTH AFRICA-HABITAT: Township Dwellers Find it Hard to get Loans

By IPS Correspondents Reprint | | Print |

Gumisai Mutume

SOWETO, Apr 22 1997 (IPS) - Last week, Moses Majola and hundreds of other people living in a suburb within this sprawling township could not walk into a bank and get a loan for a house, simply because of where they lived.

Meadowlands, an area within Soweto, was considered a no-go lending area by the banks under a system known as ‘red-lining’, whereby banks demarcate some areas as too high risk for housing loans.

“At some point while we were negotiating with the banks we were told that we had been red-lined all along, yet we had never been told about it,” says Majola. “That means we cannot get loans and we cannot move to another area.”

By the end of last year, thousands of residents in 65 predominantly black low-income areas, or townships, across the country fell into the same category as the residents of Meadowlands. Majola claims many of these people are not even aware this.

But it is not only the commercial banks which look askance at township residents seeking housing loans. The Mortgage Indemnity Fund (MIF) created in 1995 to facilitate new funding for housing, especially in areas where banks had withdrawn their operations during the apartheid era, also has not been forthcoming with loans for housing.

It took a protest outside the MIF offices last week to clear the way for Majola and other Meadowlands’ residents to receive loans.

“We only cover particular risks,” says Nkululeko Swazi of MIF. “And because of that some areas are still deferred (put on a waiting list) as we continue to assess them.”

This “deferment” by the MIF further hampers residents’ credibility for loans as the commercial banks often take this as a signal that their ‘red-lined’ policy is justified. Meadowlands residents found themselves “deferred” and “red-lined”.

But despite evidence to the contrary, Swazi argues that “deferment does not mean a bank cannot grant a loan or that owners are prevented from selling their houses…”

Historically, South Africa’s housing sector has been characterised by bond, rent and service boycotts, and a lack of private sector financing.

Banks stopped giving loans to people in the townships as far back as 1989 due to violence, crime, repayment boycotts and other “political” risks. Repossessing houses from defaulters in the townships proved impossible, says Lance Edmunds of the Council for South African Banks.

MIF was established as an interim measure to create a condition conducive for the banks to re-enter the townships. According to Swazi, it is expected that by the end of the year no more areas will be classified as “deferred”.

However, the life of MIF comes to an end next year and government is still to announce new provisions for disadvantaged home seekers.

It is estimated that between 1.5 and 3 million houses need to be built in South Africa to cater for the backlog. According to a discussion paper by the National Housing Forum (NHF) “… the majority of the population rely on the state for housing assistance…”

NHF argues that in the housing debate, too much emphasis is placed on the “bankable” sector of the community, which only accounts for 31-60 percent of the population. The other 70 to 40 percent of South Africa’s 43 million people does not benefit from such provisions as they earn less than 340 U.S. dollars a month.

“Even if it is a small proportion of the population that can access funds, you have to make sure they are taken care of. Government resources can concentrate on the other sector,” says Metsi Makhetha an adviser in the Department of Housing.

“There remains a reluctance within the banks to be more innovative and produce schemes for people who are informally employed, (and) for people who are self employed who cannot afford the present packages,” says Swazi.

But carrying the burden of housing is a tall order for the government alone. In Gauteng, the capital province for example, it is estimated that the government will need about 16 years to meet the provincial housing backlog given present funding.

Banks have recently started to assist and have committed to providing 50,000 loans annually under an agreement with the state known as the Record of Understanding.

Last year they failed to meet this target and critics say such institutions remain reluctant to grant bonds to low income earners, still preferring to pour money into the affluent, predominantly White areas.

“Banks do not build houses, if they did, then 50,000 would have been put up,” says Edmunds. “The bottom line is that those who could afford to buy houses in the (income) brackets within which banks give out loans were not adequate.”

During the apartheid government’s era, only one percent of the national budget was allocated to housing, compared to five percent in nations with the same economic profile as South Africa. In its housing white paper, the new democratic government commits itself to reaching this target within five years.

Housing Minister Sankie Mthembi-Mahanyele has also promised that government will build one million houses by the end of her term in 1999. So far, between 1994 and the end of last year, only 123,000 houses had gone up.