JOHANNESBURG, SOUTH AFRICA, April 3, 2000
—IFC has broken new ground in signing an agreement to take a 10 percent shareholding in SA Home Loans, South Africa's first home loan securitization company, recently established to refinance existing home mortgages at significantly lower costs to home owners.
Home loan finance in South Africa has traditionally been the domain of large retail banks. However, SA Home Loans is now purchasing existing home loans which it then securitizes by packaging them into a discrete pool of investment assets. Each pool is then credit rated and sold to investors, such as pension funds, mutual funds, and insurance companies. By avoiding the use of banks as intermediaries and using state-of-the-art software—which SA Home Loans has developed in-house to keep loan processing costs to a minimum—the company is able to offer significant interest savings to home owners. At the same time, it will also offer returns over and above what investors in the securitized asset pools would otherwise receive on equivalent high quality classes of investments, such as SA Government Bonds.
The other shareholders are Peregrine Holdings of South Africa, International Bank of Southern Africa (a joint venture of Dresdner Bank and Banque Nationale de Paris) as well as executives of SA Home Loans. IFC's experience with securitization in emerging markets is expected to make a valuable contribution to the company.
Cesare Calari, IFC's Director for sub-Saharan Africa, said that the introduction of securitized home mortgages is an important innovation for the South African market. Home owners will benefit from cheaper financing and institutional investors will profit from a new range of fixed income higher yielding quality investments being offered. The company's operations will initially service the higher income segment of the market but, as securitization becomes established, it will make home ownership more affordable for all segments of society.
The mission of IFC, part of the World Bank Group, is to promote private sector investment in developing countries, which will reduce poverty and improve people's lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, and provides technical assistance and advice to governments and businesses.
