FAQS

Select currently has loan book operations in five countries, including Kenya, Malawi, Eswatini, Lesotho and Uganda. Select’s operations are supported by a world-class administration hub located in Mauritius, which is responsible for loan book management, workflow administration, document management and finance functions. The loan book system enables loan officers to quickly and efficiently process loan applications, with the benefit of robust credit vetting policies and online document management capabilities. The advisory hub, Select Advisors, located in Johannesburg, plays an advisory role across the group, advising on all aspects of the business including operations, finance, funding and management.

Historically the penetration rate of financial services in African markets, in particular, the provision of housing finance, has been hampered by restrictive credit policies from traditional banks and other financial institutions, which in turn has inhibited the economic development of lower income individuals.

Select’s typical client is employed, yet unable to access personal or housing finance through traditional banking channels, due to the bank’s aversion to percieved higher risk clients, and the inability to mortgage or attach properties as security across many countries in Africa. Select primarily provides housing and housing related incremental loans.

Select’s incremental housing finance model involves the extension of multiple and successive micro loans to customers who intend building or renovating their houses, with each loan amount granted on the basis of the customer’s affordability – a further loan is granted as the loan preceding it is repaid or the customer’s affordability improves. This creates an opportunity for lower level income earners to “self-build” their homes incrementally, and in line with their affordability.

Many initiatives claiming to be the solution to Africa’s housing problem have been featured, but the majority rely on government assistance, support or intervention. In contast, Select’s housing microfinance offering represents a sustainable private sector solution to the economic development of low-income earning consumers throughout Africa, by providing appropriate housing finance and technical assistance. Select’s incremental housing finance model assists its target market in securing decent affordable housing, which provides stability and builds local communities.

Select does not take any form of security over the loans we extend. Many sub-Saharan African countries lack effective land title administration systems, making the registration of mortgages, specifically in rural areas, problematic. Banks are therefore unable to take any form of security over the property as would be the case with a traditional mortgage. Select’s collection mechanism of payroll deductions at source do however provide a form of security. By collecting loan repayments directly from payroll, Select is able to ensure consistent collection rates.

Payroll collections: Select has secured a payroll deduction code, issued by government in each of the countries that it operates in. A deduction code entitles Select to deduct customers’ monthly loan repayments from their salary at source, which is directly remitted to Select. Select’s client base therefore tends strongly towards public sector employees, typically being the largest and most stable formally employed base in markets across Africa.

A significant advantage of a payroll deduction facility is that it enables government regulation on payroll deductions, and the maximum deduction limit on an employees’ salary. This protects the employee from over-indebtedness and ensures that an individual is guaranteed a minimum take-home pay. In countries where regulations do not exist, Select has internal guidelines which are used to ensure that customers are not over-indebted.

Payday lenders: In contrast, payday lenders are institutions who provide salary advances to any individual who can provide historic payroll and employement records. Select is not a payday lender.

Responsible lending principles involve the lender:

• undertaking an understanding of the customer’s loan needs, financial situation, loan affordability, and ability to repay the loan;
• considering the suitablity of the loan for the customer given the factors above; and
• ensuring the loan applicant understands the loan terms and conditions.

Select adheres to the responsible lending principles detailed above.

Due to the nature of housing and housing related loans, Select’s products are generally of a longer term when compared to traditional MFIs. Our long term products increase the size of the loan our customers can access based on their affordability. Our customers are also more likely to roll (extend) their loans on or before maturity, in order to complete their building projects.

Furthermore, Select’s product offering, including building technical assistance provided to customers in partnership with Habitat for Humanity (“Habitat”) and Lafarge, differentiate Select with traditional MFI’s. Please refer to the section below for more detail on our partnership with Habitat.

Not only do our housing finance products provide our customers with access to funding, but through our customers use of local suppliers, our loan finance also contributes to the development of local small and medium-sized enterprises (“SMEs”). Due to the absence of wholesale retailers in rural areas in Sub-Saharan Africa, and the high costs involved in transporting materials form urban centres to rural areas, the majority of our customers procure materials produced by their local communities to “self-build” their homes.

Select’s current funding structure includes:

• Shareholder funding (debt and equity);
• Listed and unlisted Medium Term Notes (“MTN”) in local capital markets;
• Debt structures with Impact Investors and Development Financial Institutions (“DFI”), including Soros Economic Development Fund (“SEDF”) and Old Mutual;
• Other debt instruments with 3rd party corporates and sovereign wealth funds; and
• Various overdraft facilities with local commercial banks.

Select is an active issuer in local capital markets, which provide an important source of local funding, and simultaneously enhance the development of local capital markets. In January 2007, Select Africa registered an MTN programme on the Swaziland Stock Exchange (“SSX”). Since then, more than USD 45 million has been raised under the programme, which has been renewed three times.

All prospective new geographies for expansion of operations are assessed on a scoring framework, with each country given a score based on various factors, including:

• availability of a payroll deduction code;
• existence of a regulated microfinance environment;
• exchange control legislation;
• macro-economic climate;
• political stability;
• urbanisation rates and access to housing statistics; and
• size of the civil service.

The framework is continuously updated and monitored to ensure that Select is best positioned to enter prospective markets as and when the opportunity presents itself.

A further consideration is the availability of funding. Select will only enter a new country if it has sufficient funding, either at a group or in-country level, to start-up and grow the business to a sustainable level.