Customers will suffer because hard cash from banks costs more than soft funding from non-governmental organisations or government institutions. I wonder how true the assertion really is. The focus of the article is on lending in the inner city - an area that has previously been redlined by the banks for being too risky. However, in the midst of the property boom that has taken the rest of South Africa by a storm, properties in the inner city - good housing for low income families - are being bought up by small scale investors at a fraction of their construction costs. City governments such as Johannesburg have recognized the huge potential for urban regeneration and have sought to develop mechanisms to encourage the growth of small scale residential landlord investors.

The article makes the example of Standard Bank, one of SA's big four banks, which is negotiating a wholesale funding agreement with the Trust for Urban Housing Finance [TUHF], a development finance organisation that lends money to property buyers in Johannesburg's inner city. TUHF was originally capitalized with government money both from the national government [through the National Housing Finance Corporation] and the City of Johannesburg. Standard Bank is offering R25 million to TUHF, which will be made available for on-lending to small and medium sized residential landlords. The article explains that while in the past, TUHF has been lending at prime plus one or two percentage points, the terms of the Standard Bank finance will push the interest rate up to prime plus about 2 1/2 percent. On the one hand, I suppose I could agree with the article to the extent that the extra half a percent does have an impact on the affordability of loans. But on the other hand, if TUHF manages its Standard Bank financed loan book well, this could encourage Standard Bank to lend directly - and ultimately compete with TUHF. This should decrease the interest rate, because it cuts out the middle man.

Will this undermine TUHF's ability to play? Sure, Standard Bank will no doubt skim the cream of the client base of the top. But it will be offering finance at more affordable rates, and this could encourage greater investment in the inner city - which I've already said is sorely in need of private sector engagement. And sure, Standard Bank's success would probably leave TUHF with less conventional, possibly informally employed and higher risk clients. But this was the whole point of establishing TUHF in the first place - and this, it seems to me, is a good use of state resources.

With both players in the market, we have the growth of an established sector, financed by Standard Bank, and the broadening of access to a less conventional market. Who knows, maybe TUHF will also prove to the likes of Standard Bank that risky clients are only risky because of the management approach employed. And maybe this will facilitate a revolution in affordable banking... the point is, TUHF is a public sector intervention to stimulate private sector engagement. Standard Bank's interest in TUHF shows that the strategy is beginning to work and this should be applauded for its long term potential rather than criticized for its apparent short term cost.