The International Finance Corporation (IFC) and Absa Bank have partnered to support the expansion of housing finance targeting lower- to middle-income households in South Africa.

The financial institutions are endeavouring to increase access to affordable housing in South Africa, considering the large affordable housing gap in South Africa.

The housing shortage is estimated to be 3.7-million homes currently.

The companies recognise that formal housing solutions are often too expensive for South Africans with low incomes owing to high costs of construction, limited access to financing, high levels of inequality, poverty and job insecurity.

The IFC’s local currency loan of up to R2-billion will help expand Absa’s affordable housing mortgage portfolio in South Africa, reaching thousands of home buyers.

Absa will deploy the entirety of IFC’s loan to affordable housing mortgages in line with the Banking Association of South Africa’s definition for the segment.

Absa deems “inclusive finance” as an important impact area, as per its environment, social and governance strategy, including for affordable housing financing, financing of small- and medium-sized enterprises and financing of youth- and women-owned businesses.

“Access to affordable housing is key for achieving inclusive and sustainable economic growth in South Africa. The IFC’s longer-term local currency loan to Absa will help address inaccessibility by expanding access to affordable housing finance for lower- to middle-income households in South Africa,” says IFC country manager for South Africa Adamou Labara.

The IFC’s funding marks the first “social” loan in South Africa made by any lender that complies with the Social Loan Principles published by the Loan Market Association.

The principles aim to establish best market practice for syndicated loans in Europe, the Middle East and Africa.

A social loan finances eligible projects that address social issues or achieves a positive social outcome.

The IFC loan is expected to contribute to the development of South Africa’s sustainable finance market by introducing a novel, replicable instrument to raise additional financing for affordable housing and other social issues, in a transparent and credible manner, Labara says.