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longer supplied loan guarantees, ex-
cept for residual commitments. There
were a number of innovations that
shaped NURCHA’s product offerings.
NURCHA’s financing model changed
with the business model, including
credit assessments for contractors,
lending systems and risk mitigation.
BNG - INFRASTRUCTURE
As government introduced the Break-
ing New Ground (BNG) policy of sus-
tainable human settlements in 2004,
NURCHA’s mandate expanded to
provide finance to contractors build-
ing infrastructure such as schools
and clinics.
“NURCHA created a Special Pur-
pose Vehicle (SPV) with the Nether-
lands Development Finance Com-
pany (FMO) to roll out these projects,
which were approved by National
Treasury and the Department of Hu-
man Settlements. To date NURCHA
financed 283 community facilities
built by emerging contractors.
BNG – HOUSING
The Overseas Private Investment
Corporation (OPIC), the United
States government agency, had
provided First National Bank with a
R180 million guarantee to partner
with NURCHA.
These funding structures over-
lapped for 10 years. Gqwetha proudly
says the OPIC funding was the first of
a new generation of funding models:
“This has been a significant structure
that allows us to lend to contractors
for a period of 12 years.”
AFFORDABLE HOUSING
At the same time government provid-
ed funding for NURCHA to establish
an Affordable Housing Programme
that ran concurrently with the RDP/
BNG subsidy programme. NURCHA
financed contractors and developers
in these market segments to meet
the ever increasing housing chal-
lenge. More development finance
institutions were established to ad-
dress other housing aspects. These
include the National Housing Finance
Corporation and the Rural Hous-
ing Loan Fund. Over time NURCHA
has attracted more funders to the
affordable housing sector such as
PIC R100 million, Cadiz R75 million
and FNB R85 million. These were
leveraged on the back of a R300 mil-
lion grant provided by government
and an OPIC guarantee. As a result
of this NURCHA rolled out R6,7 billion
of projects.
RISKS
“As a DFI leveraging finance we were
willing to take considered risks much
more than the private sector could
tolerate. Our financing partners
included grants from international
communities willing to support the
developmental agenda, Swedish
grants and a loan from Soros’ Open
Society Foundations (OSF).”
BITING THE BULLET
NURCHA used various instruments
to leverage additional finance from
the private sector and international
community such as Junior lender
status, guarantees, co-funding and
risk sharing, as well as SPVs to ring
fence risks. Over and above this it
applied close monitoring processes
to safe guard investment and ensure
completion of projects. From time
to time, NURCHA adjusted lending
roles in response to environmental
risks such as delayed payments and
construction risks.
NEW FUNDERS
“On sustainability, there has been a
significant shift with financiers. Our
funding partners require repayment
of their facilities and sometimes a re-
turn on it,” Gqwetha explains. “While
we are willing to take considered
risks, it is a balancing act. A true DFI
cannot survive purely on an expecta-
tion to make a profit.”
Asset managers expect a return
on their investment for their share-
holders and this has to be achieved
by a DFI regardless of innovations or
losses incurred.
From a lending point of view it
is important to test new products.
Gqwetha says: “This is the dilemma.
It is not all about the balance sheet.
DFIs are created to play a role in the
sector and not sit with funds but work
to provide housing opportunities,
developer funding and assist govern-
ment with delivery goals.”
He notes that South African finan-
ciers, particularly those that created
social infrastructure funds such as
Cadiz, Future Growth and PIC were
far more willing to take risk and lend
in the development sector. “We are
financing subsidy housing on our
balance sheet and need government
to replace the OPIC funding so that
we can play a bigger role amid the
high risks.”
INCLUSIONARY GROWTH
“There is a demand for inclusion of
the youth and women contractors in
the delivery of housing and we want
to be a catalyst in this inclusionary
growth. This requires a fund and an
institution that understands the nitty-
gritty of the risks - andwe are looking
at ways inwhichwe can collaborate.”
With a background and expertise
in strategic and transformational pro-
grammes, operations and financing,
he offers some suggestions to kick
start youth and women initiatives
in the construction sector. “Most big
companies like WBHO have healthy
balance sheets to raise finances for
their operations. Small contractors
will not play gainfully without similar
financial instruments in place. For
marginalised groups like women to
participate in this sector, it requires