The Department of Human Settlements (DHS) met with key players of the South African financial sector on Monday to discuss strategies towards the implementation of the R1-billion guarantee fund aiming to bridge the middle-income bracket gap in housing loans.

Earlier this year, President Jacob Zuma announced a R1-billion guarantee fund to encourage banks to finance affordable housing.

Speaking at a media conference in Johannesburg, Human Settlements Minister Tokyo Sexwale pointed out that a large sector of the South African economy did not qualify for home loans from the commercial and private banking sector, while also not qualifying for State-funded reconstruction and development programme housing.

The gap exists with people earning between R3 500 and R9 000 a month, such as nurses, teachers, and middle management.

Sexwale told Engineering News Online that the fund would mainly be used as insurance for financing home loans and not for part financing. He said that the initial fund would act as a guarantee for loans of up to R10-billion.

Further, he said that additional funding from government would be an option, once the market took-off.

Sexwale noted that the round table meeting with the CEOs of the country's financial institution and representatives of the Banking Association of South Africa was held to share experiences and to identify obstacles in the legislative, policy and financial environment on housing delivery.

He said that the department and the different financial institutions would work together to tackle the different human settlement challenges. However, Sexwale assured that the fund would not be used as an excuse for irresponsible lending.

"The fund is there to provide banks with the assurance to take certain risks in providing finance to the gap market and to provide incentives for the private sector to supply housing units at lower prices and at shorter delivery times. All loans would still have to go through the Credit Act."

Sexwale pointed out that South African banks had proven "very responsible" in hindsight of the recession, compared to the rest of the world's banks.

Currently, a backlog of 2,1-million housing units exist in the country, which roughly amounts to about 12-million South Africans in need of housing facilities.

The Banking Association of South Africa MD Cas Coovadia said that the middle income market was a great economic driver in South Africa and should be seen as an area for economic growth and a job creator.

He noted that this partnership with government, and the DHS in particular, was an ideal opportunity to bridge the financing gap in the middle-market sector.

Coovadia said that all parties were committed to identify the blind spots, which could impact on current and future initiatives.

"We have new demands and new targets, and we therefore need a new approach. A massive effort is required and we all need to change up a gear if we are to meet the demand and meet our objectives," concluded Sexwale.

More detail around the issue would be given at the Human Settlements Budget Vote on Wednesday.