Access to finance and affordable home loans is a major obstacle for most low- and many middle-income families in Africa and most developing nations. The high cost of finance and the difficulty borrowers have in accumulating the large down-payment required by lenders exacerbate an already fraught position which also suffers from a dearth of available housing stock.

The economic impact of home ownership in the middle to lower income sectors has significant social and financial impact. If end user home loans are available, property developers are given incentive to expand production into a new demographic group. Not only does this increase choice, and thus competition, for residential accommodation, it has the near term impact of ensuring that housing price inflation is minimised as the sector develops.

The social impact of home ownership is far reaching.

HFGARe builds on the South African experience of guarantees to lenders against default by borrowers specifically in the lower-income market. HFGARe is utilising the Home Loan Guarantee Company NPC’s tested business and product model, appropriately modified for each country. While established as a non-profit organisation, it is a sustainable reinsurance business.

The bank buys CRI cover from the insurer, to take the place of the 20-30% deposit the borrower would otherwise have had to pay in cash to access the home loan. The bank is the insured party, as it is its risk that is covered. The banks can therefore make 100% loans to qualifying borrowers who can afford the instalments and strictly comply with the credit policy requirements.

The fundamental principle underlying this product is that everyone is at risk – from the borrower to the retrocessionaire. This ensures that it is in everyone's interest to apply the rules and abide by the processes.

The indemnity offered in terms of the agreement is premised on banks' mortgage advances in terms of established and acceptable lending criteria. These criteria form part of the insurance agreements, as does the debt management process to be followed in the event of default.

Proficient risk management in all its' facets is the key component of the business. This includes due diligence of lenders to ensure that they have the capacity and processes to both write and manage loans in the lower income market; a borrower education requirement at the time of loan grant and immediate interaction with a defaulting borrower in an attempt to rehabilitate the loan. HFGARe has created the Guarantee Management System (GMS), a web-based system specifically to manage the CRI in all its facets. Banks and insurers have access to the system at various levels and are comprehensively trained on it, as it is the engine room of the entire programme. Training on all levels, is an integral part of the implementation of the CRI. Borrower education is sacrosanct, as is the training of trainers to provide the service. The need to ensure that home-buyers are appropriately educated in the rights, duties and obligations of home-ownership is crucial.