Journal of Social Development in Africa (1997), 12,1,83-91 
Formal Private Sector Housing Finance 
Institutions and Low-Income Groups in 
Zimbabwe: Peculiar Requirements, 
Operations and Realities 
AMIN Y KAMETE * 
ABSTRACT 
Private sector housing finance institutions have a mandate given to them by 
investors. They have to make a profit This means safeguarding against risks and 
avoiding decisions that endanger profitability and investors' funds. In pursuing 
this mandate, housing finance institutions are often seen as unrealistic, inflexible 
and insensitive capitalist organisations which do not understand the special 
circumstances of the low-income groups, most of which cannot meet their stringent 
eligibility criteria and rigid lending terms. This study wishes to highlight the 
situation in Zimbabwe by focusing on the peculiar needs and circumstances of 
private sector housing finance institutions and appraising their lending performance 
so far. 
Introduction 
The conditions of low-income groups and the requirements of formal housing 
financiers are said to be incompatible. On one hand, low-income groups cannot 
meet the (reasonably?) stringent requirements for eligibility and loan terms; on the 
other, finance institutions cannot appreciably compromise and bend over backwards 
to accommodate these groups since doing so would unnecessarily increase 
risks and jeopardise profitability (Bourne, 1981). 
In Zimbabwe, the issue has assumed racial overtones with local pressure groups 
accusing the private financiers of racism and bias against black persons, who after 
decades of discrimination cannot satisfy the financiers' demands. Repossessions 
and evictions in low-income areas, which normally come after a breach of contract 
(usually failure to pay), are viewed in this (racial) light. 
This situation has been compounded by politicians joining the condemnatory 
choruses against formal finance. The complaints against formal finance include 
* Lecturer, Department of Rural and Urban Planning, University of Zimbabwe, 
P O Box MP 167, Mount Pleasant, Harare. Fax: 263 (4) 333407/335249; 
Email: akamct@zimbix.uz.7.w
84 AYKamete 
exorbitant interest rates, tough eligibility criteria, difficult lending terms and 
insensitivity to the circumstances of defaulters. These terms and conditions are 
seen as maladies. It is alleged that they limit the access of low-income groups to 
formal institutional finance, thereby depriving them of a chance to improve their 
socioeconomic situation in the urban areas. 
The Structure of the Formal Housing Finance System 
By developing world standards, Zimbabwe has a well developed housing finance 
system (Mafico, 1991). There are four building societies, three of them well 
established (Kamete, 1994). These institutions mainly practice the deposit-taking 
system (Boleat, 1987) where voluntary deposits are used to make loans available 
to those who need them. The two processes (deposit-taking and lending) are done 
at variable interest rates. The newest building society, can, according to current 
terminology be described as indigenous, a term that denotes predominantly black 
(Zimbabwean)-owned businesses. This institution practices something that is 
close to the contractual system where prospective house builders and buyers have 
to have accounts with the bank in order to qualify for a housing loan. 
Public sector funds from the Treasury are channelled through the National 
Housing Fund (NHF), which on-lends to local authorities at concessionary interest 
rates. Government also operates Housing Guarantee Funds which give full and 
partial guarantees to public servants and private sector employees, respectively. 
The guarantees are used to cover the need for downpayment At the time of writing 
the Fund was literally broke due mainly to reduced government allocations, 
defaulting local authorities and decapitaJisation as a result of uneconomic lending 
rates (Mafico, 1991; Kamete, 1994). 
The situation just described means that, outside the informal market, it is only 
to private sector sources that house builders and buyers have to look for housing 
finance. The situation goes against the three tier scenario put forward by Renaud 
(1987). According to Renaud a typical housing finance situation should have an 
upper income segment served entirely by the private sector, a middle group and 
civil servants group whose needs are addressed by the public sector and at the 
bottom of the pyramid there is "...a large and private incremental housing market 
which has no access to formal finances..." (1987:183). 
Without formal public funding sources to serve their needs, the low-income 
groups are forced to source funding from formal private sector finance institutions 
where they have to compete with high and middle income groups for the same 
funds. It is against this background that observations have been made that detail the 
poor chances of low-income groups to get access to private housing finance. In the 
light of this, it is advisable to sketch the relationship between the low-income 
groups and private sector housing finance institutions.
Housing Finance & Low-Income Groups in Zimbabwe 85 
The Relationship Between Low-Income Groups and Formal 
Private Sector Housing Financiers 
How the low-income groups relate to financiers has a bearing on their access to 
private funds. Obviously, this relationship is strictly business and impersonal 
Prospective home-builders and buyers apply for loans. The applications and 
applicants are then assessed and interviews held. The decision reached can be one 
of the three indicated below: 
• The application is rejected outright; 
• The application is approved in whole; 
• The application is approved with modifications on some details, usually the 
amount requested. 
Assuming that the application is approved, lending terms are then drawn up mostly 
on standard agreement forms with differences only in name, amounts, dates and 
some other minor details to 'individualise' the agreement. This means that the 
terms of lending are impersonal apart from names, addresses and amounts. 
If the applicant accepts the terms, which is invariably the case, agreement forms 
are signed. The business relationship thereafter continues with the borrower being 
expected to meet the monthly mortgage payments. Failure to do so results in 
warnings and reminders. If the borrower continues to fail to meet his/her part of the 
contract, a final reminder is sent and thereafter the house or building under 
construction is repossessed, evictions are effected and the fixed asset is auctioned 
to recover the costs. 
Changes can be made to the original agreement if, for example, interest rates 
change. In the past three years, mortgages have been increased and reduced 
following corresponding changes in interest rates and the withdrawal of a government 
subsidy on the rates. 
The Peculiar Circumstances of the Financiers 
Private financiers for housing purchase or construction have certain demands, both 
external and internal, placed upon them. The former type of demand comes from 
borrowers, the government and investors. 
Borrowers 'demand' loans to finance the construction or purchase of a house. 
They are the market. To satisfy them the financier has to have the money. This 
group is made up of the weakest stakeholders, if indeed, they may be called 
stakeholders. Since they are not direct stakeholders they cannot control the 
financier nor substantially influence him. They can merely negotiate, which in a 
typical situation of scarcities, like that within Zimbabwe, is literally translated into
86 AYKamete 
begging. If the borrower is from the low-income group the financier can afford to 
ignore anyone from the group without major inconvenience. 
The government places demands on the building societies through a wellstructured 
regulatory environment. This is done in the name of the national (public) 
interest, which includes raising of revenue and controlling inflation. Even after the 
onset of macro-economic structural adjustments in 1990, the financial system in 
Zimbabwe is still heavily regulated. Apart from their profits being subject to the 
usual taxation, building societies face controls in areas such as deposit and lending 
rates as well as reserve and liquidity ratios. A proportion of their funds has to be 
invested in government bonds. They still operate within the 1965 Building 
Societies Act. 
The most influential external demands emanate from investors who are normally 
shareholders and depositors. This group wants a reasonable return from 
money invested in the institutions. By the nature of their operations building 
societies are very sensitive to the needs of this group because they constitute the 
most important stakeholders in the enterprise. It is the investor who makes the 
finance institutions a reality by putting in some funds as shares or deposits. Indeed 
if these people were to withdraw their contributions the institution would collapse. 
Even governments appreciate the importance of this group. Some of the controls 
on building societies are designed "...to ensure that they are run...with little risk 
to investors" (Rakodi, 1995:205). 
It is, therefore, the external demands from the investors that translate themselves 
into the internal demands which comprises mainly the goals that the institution sets 
in order to continue existing. The overriding demand is profit This indeed is the 
reason for their existence. In pursuing this overall goal, the institutions adopt 
objectives that maximise benefits while minimising costs. This superior goal 
demands efficiency and effectiveness in the mobilisation, disbursement and 
recovery of funds. The three processes will now be discussed. 
Mobilisation of funds 
This process involves the accumulation of funds through shares and deposits. 
Investors and depositors need to be assured that they get a good - though not 
necessarily the best - return for their investment. This is assured through competitive 
rates of interest In Zimbabwe, these rates are controlled by government The 
current rate of 16 percent is not competitive considering that the POS B offers rates 
of 17 and 20 percent, tax free, on Savings and Fixed Deposit accounts, respectively. 
Commercial Bank Savings accounts also offer higher rates. The competitiveness 
of the building societies was improved in 1986 with concessions in the Paid Up 
Permanent Shares (PUPS) accounts where higher tax-free interest rates are offered 
(MPCNH, 1991; Mafico, 1991). This concession also required that the building 
societies devote a quarter of the funds raised from the PUPS to low-income 
housing.
Housing Finance & Low-Income Groups in Zimbabwe 87 
Disbursement 
In disbursing funds for loans, the financiers have to ensure favourable interest rates 
and security. The Zimbabwean government, in an effort to 'protect' the (lowincome) 
borrowers, controls the lending rate on mortgages. Up to 1994, there was 
a state subsidy on mortgages. In 1994 this was as high as three percent This meant 
that of the eighteen percent interest rates payable then, the borrower actually paid 
fifteen percent. The effect of the controls on mortgage interest rates was to make 
money relatively cheaper than it would been. 
In keeping with the risk minimisation concept there is a need for security against 
the loan. Collateral and/or sureties are a necessity. The government-funded 
Housing Guarantee Fund guaranteed a portion or all of the loan for non-public and 
public servants, respectively. The long nature of the loan requires that the product 
be sufficiently durable to last the loan period. In Zimbabwe, the period is fixed by 
legislation to a maximum of 35 years. 
This means, therefore, that funds will be allocated to people who are deemed to 
be suitable in keeping with the goals of the institutions. This suitability is 
determined by assessment of the application forms and in the personal interviewing 
of the applicant. Eligibility criteria have to be set up to ensure proper accountability 
and rational decisions. All four building societies adhere to these stringent 
procedures and practices. Eligibility criteria include gainful employment, fixed 
assets or acceptable guarantors, proper title deeds, a minimum income and 
acceptable building standards for the house being bought, or approved plans 
(meeting minimum standards) for the house to be constructed. These conditions 
have the effect of ensuring that the financiers have something to fall back on and 
recover their investment in the event of a default. 
Even after approval of the application, lending terms have to be agreed on. 
Normally the terms revolve around repayment amounts and period. This introduces 
an element of certainty and predictability which is essential to the smooth 
and efficient running of any organisation. Sanctions and rewards are built into the 
agreement to act as incentives and disincentives. 
The terms in most cases include the following: fixed period (usually 25 years) 
[i] and fixed monthly instalments. The mortgages are usually calculated as a 
percentage (normally 25%) of the borrower's monthly income. 
An element of legality is essential to protect (principally) the institution, hence 
the contractual nature of the whole agreement This stipulates the outcomes should 
anypartyfloutthe terms. Usually failure to pay results inevicuonsandrepossessions. 
This is all necessary for good management, for continued existence, for getting 
depositors' confidence, and for promoting investors' interests.
88 AYKamete 
Recovery 
The recovery of money from borrowers ensures the continued survival of the 
institutions. Money is lent on the understanding that the borrower eventually pays 
up the capital plus interest Almost all items in lending terms have to do with 
repayments. Hence the instalments, the payment period and the recovery factors 
are all intricately linked to the recovery of funds. Evictions and repossessions show 
the force behind recovery and its importance to the financier. Zimbabwean 
financiers are strict on repayments. The increasing number of evictions and 
repossessions is evidence of this. Almost every month, an appreciable number of 
houses are auctioned, sometimes at ridiculous prices. 
Rigid, Uncompromising and Unrealistic? 
In the light of strong criticism against them, the attitude of formal private sector 
housing finance institutions needs to be appraised. 
In describing two of the building societies, Rakodi referred to one as "the most 
innovative" and another as "the most conservative" (1995:214). The third 
established building society at one time received a letter of protest about racism 
from indigenous pressure groups. It appears, therefore, that Zimbabwean lowerincome 
households have a choice among the reluctant conservative, the enterprising, 
and the racist 
Of the 30,000 houses financed by building societies by 1985, there was hardly 
any lending for low-income housing (World Bank, 1985) Rakodi lists the "mixture 
of more or less valid reasons" (1995:214) for this as: lack of security of tenure due 
to the absence of title deeds; low building standards; the high cost of administering 
a large number of small loans; fear of a high default rate and lack of resources and 
experience. Taking the low-income housing sectoras a whole, these reasons appear 
to be perfectly valid. 
Building societies did not have enough money due to their inability to mobilise 
deposits, which failure was caused by uncompetitive and controlled interest rates. 
What little they could mobilise was allocated to the only sensible destination, highand 
middle-income housing and commercial property development. For private 
institutions with private agendas, this was perfectly sensible and realistic. 
The aversion to unnecessary risks forced building societies to avoid untested 
ground, that is, low-income housing. The risk was complicated by their lack of 
experience and fear of the (largely) unknown. In private enterprise, this is perfectly 
reasonable. To compound the risk was the lack of traditional means of surety, that 
is, security of tenure and acceptable standards of construction. In such uncovered 
situations the fear of default becomes more intense since there would be nothing 
to pounce on in cases of defaults.
Housing Finance & Low-Income Groups in Zimbabwe 89 
It seems, then, that there were good grounds for the building societies' 
disinterest in investing in low-income housing. Some attention was paid to these 
details. Statutory Instrument 308 of 1986 permitted building societies to issue nine 
percent tax free Paid Up Permanent Shares (PUPS) for two years. The PUPS were 
designed to mobilise private sector funds for housing by enhancing building 
societies' competitiveness in attracting deposits. There were conditions attached 
to these apparent concessions. At the end of each financial year each building 
society was required to make up to a quarter of the money invested in these shares 
available for low-income housing. By the end of the first quarter in 1986, the total 
capital balance in all these shares was Z$ 254 million (MPCNH, 1991). This 
constituted about a quarter of their total shares and deposits. In a way this addressed 
the building societies lack of competitiveness in mobilising funds. 
An improvement was noted in the period 1987 to 1989 in loans advanced to lowincome 
housing. During this period 14 355 loans valued at Z$ 118.5 million were 
disbursed for the purchase or construction of houses in the low-income areas. 
Since then the participation of building societies in low-income housing has 
been on the rise, especially with the coming in of international finance which 
started with an experiment by the United States Agency for International Development 
(USAID) and the United Nations Development Programme (UNDP) in 
Gutu and KweKwe (Mutizwa-Mangiza & Rakodi, 1989). The Urban I Project 
managed to get building society support to develop lending for low-income 
housing (Rakodi, 1995). The two largest building societies are now involved in the 
internationally funded projects in many urban centres of the country. 
Despite this apparent change of perspective, several observations can be made 
on the conduct of building societies as far as low-income housing is concerned. 
Rakodi observes that there has been little change in the lending instrument. The 
criteria for eligibility and lending terms are basically the same. The change is more 
notable on the part of the environment than the lender: the mobilisation of funds 
has improved, the same also goes for gainful employment There is more formal 
sector employment in Zimbabwe than anywhere else in Sub-Saharan Africa, 
construction standards for low-cost housing have "improved," security of tenure 
is now ensured, and, most important, there is someone (the public sector and/or the 
international agent) to share the now greatly reduced risks. Moreover the fear of 
defaults proved to be unfounded (Rakodi, 1995). 
However, the reluctance of building societies to finance low-income housing 
can still be noted. The amount disbursed to low-income housing is still much 
smallerthan "thefunds available and the scale of the problem" (Rakodi, 1995:216). 
This amount has never reached 20% of the total loans (MPCNH, 1991).
90 AYKamete 
Conclusion 
The formal private sector housing finance institutions have peculiar requirements 
and realities most of which are largely plausible. Their reluctance to lend to lowincome 
householders for the purchase and construction of housing is understandable. 
It has been noted that the attitude is changing. This change, however is more 
due to improvements in the lending environment than to a change in the perspective 
and operations of the financiers. 
The kindest remark one can make is that while the reluctance to get seriously 
involved has no apparent racist connotations, and is full of business sense, it is 
unfortunately ridden with conservatism. It has can be traced to inordinate fear, 
overcautiousness and lack of an innovative and enterprising spirit. This can be 
attributed to the regulated environment the private financiers have been working 
in for decades. However, this excuse is cancelled out when it is pointed out that they 
only take the "risks" in certain special cases, for example: 
• when they are forced to, as demonstrated by their acceptance of the condition 
to finance low-cost housing attached in the PUPS; 
• when someone has guaranteed them safe risks, which is shown in their readiness 
to participate in private-public partnerships; 
• when the environment improves, as shown in their lending to low-cost housing 
after the construction standards were improved and security of tenure was 
introduced after independence; 
• and after their fears have been proved wrong, which is demonstrated by the 
relatively few defaults among low-income groups (Rakodi, 1995). 
In actual fact, conservatism still reigns. This does not make any sense since besides 
profits, business is about risks and innovations. It is also about getting political and 
public approval. 
Notes 
[I] Building societies compete for deposit with the Post Office Savings Bank (POSB), 
a source of government funds. Some of the controls, such as those on taxation and 
interest rates are meant to improve the competitiveness of the POSB. 
12] The Building Societies Act (1965) restricts the loan period to 35 years.
Housing Finance & Low-Income Groups in Zimbabwe 91 
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Settlement and Development, Allen and Unwin, Boston, pp 171-178. 
Bourne, L (1981) The Geography of Housing, Edward Arnold, London. 
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Housing in Zimbabwe: A Critical Analysis of Accessibility and 
Replicability," unpublished Msc Dissertation, Department of Rural and Urban 
Planning, University of Zimbabwe, Harare. 
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