It has been the endeavour of Microfinance Institutions (MFIs) across the globe during the past decade to empower poor families and provide them micro-enterprise opportunities with a dose of microfinance to carry on their livelihood. In cases where many cycles of loans have been repeated and there has been considerable increase in the income levels of such families, the need now is to go for housing, although the percentage in this category would be dismally low.
A good place to stay and sleep is as much as a necessity as clothing and food. To own a house during ones lifetime is a dream of all human kind -rich and the poor. In the case of most of the poor families their long cherished dream is seldom achieved in the absence of an assured livelihood, steady stream of income and a source to finance housing. In India the right to housing and adequate shelter is guaranteed in the Directive Principles of the State Policy. The need for shelter, as a basic necessity of human kind, has been time and again emphasised on various occasions. Over the years the Government has been taking lot of efforts to provide shelter in urban areas to people belonging to the Economically Weaker Sections (EWS) and Low Income Group (LIG) group of families but the gap gets widened every year as more and more people migrate to urban areas.
A good place to stay and sleep is as much as a necessity as clothing and food. To own a house during ones lifetime is a dream of all human kind -rich and the poor. In the case of most of the poor families their long cherished dream is seldom achieved in the absence of an assured livelihood, steady stream of income and a source to finance housing. In India the right to housing and adequate shelter is guaranteed in the Directive Principles of the State Policy. The need for shelter, as a basic necessity of human kind, has been time and again emphasised on various occasions. Over the years the Government has been taking lot of efforts to provide shelter in urban areas to people belonging to the Economically Weaker Sections (EWS) and Low Income Group (LIG) group of families but the gap gets widened every year as more and more people migrate to urban areas.
My experience in housing microfinance:
Ten years back, in 1998, I was spearheading India’s first Housing Microfinance intervention and a global first in mortgaged housing loans to the poor. When we started giving housing loans, from day one of the operations, there were only one/two takers in a group of twenty poor women, for the loan of Rs 35,000, showing that this number of families had a steady source of income and had thought of a surplus for the repayment of housing loans. Today, with many cycles of loans within the group and with credit+ activities in livelihood, more individuals in the group should be ready to avail housing loans.
In 2000, with only a year’s exposure in Housing Microfinance I was invited to present a paper on my experiences in Housing Microfinance in a national seminar in New Delhi. I had highlighted the fact that the MFI, of which I was the CEO, had ventured from day one to extend Housing Microfinance since 1999 and that we had the backing of the country’s pioneering housing finance company. My paper explained the fact that we were extending Housing Loans to individuals within the affiliated Self Help Groups (SHG) through the group thus maintaining the peer pressure and simultaneously mortgaging the loan too. The whole idea was that we could exert the peer pressure as long as the group was intact and in future, if due to some reasons the group fizzles out, we could still follow up the loan as a long term individual mortgaged loan. The paper also explained the fact that all twenty in a SHG would not be below poverty line at the time of intervention. Some would have just crossed the silver line and would have been ready to avail a Housing Microfinance loan with a confidence of a getting a steady flow of income from whatever livelihood they carry on.
One should remember that this paper was presented at a time when housing microfinance was in its very nascent stage and I still remember the day when I received a plethora of questions from a person who was considered to be a pioneer in microfinance. He almost rubbished the idea and went to the extent of spelling doomsday for the institution. In the years ahead, over nine years, the MFI not only proved him wrong but also went on to become the first microfinance institution to extend housing microfinance to individuals in groups as mortgage loans and extend substantial loan sizes with a long term repayment of ten years.
Scope for Housing Microfinance:
As a result of the social and financial intermediation interventions during the past decade or two, now there exists a wide scope for housing at the bottom of the pyramid. It is surprising that it has taken ten long years for the microfinance sector in India to realize the importance of housing microfinance and open up a new sector within the gambit of microfinance for housing micro-credit. Housing Microfinance (HmF) is still at a very nascent stage in the country as much as it is elsewhere globally. At existing levels HmF could be interpolated between microfinance and traditional mortgages. While the national average loan size of micro-lending by banks and MFIs could be between Rs 7,000- 9,000, the Housing Finance Companies (HFCs) may not look at mortgages below Rs 2,00,000/-. It is this category of housing loans between Rs 50,000 to Rs 1,25,000 that can hold a promise of new business for MFIs while HFCs could look at the next segment of housing loans between Rs 1,25,000 to Rs 2,00,000. MFIs in India could finance for housing loans upto Rs 1,25,000 as stipulated by the RBI.
My estimation of the existing shortfall and demand for housing microfinance:
As far as rural India is concerned it is estimated that there is a shortage of 47 million of which below the poverty level families accounted for over 90% of the shortage. (Source: Working Group on Rural Housing). With many government schemes for free/subsidised housing and many other philanthropic interventions taking place in the country a conservative look at even 50% of the shortage as demand for HmF would result in around 23 million (230 lakhs) households and with an average loan size of Rs 90,000/- would give a figure of Rs 2,07,000 crores.
A Technical Group estimated the urban housing shortage at the end of the 10th Plan to be around 24.7 million for 67.4 million households. The Group further estimated that 99% of this shortage pertains to EWS and LIG sectors. During the 11th Plan, the Group estimated that housing requirement (including backlog) will be to the tune of 26.53 million units for 75.01 million households. (Source: National Urban Housing and Habitat Policy 2007). In the same conservative estimate if we look at 50% of the urban demand for HmF and with an average loan size of Rs 1,25,000 we would arrive at Rs 1,54,375 crores. The market for Housing Microfinance in India would be an estimated Rs 3,61,375 crores. This estimation however does not include other products which the MFI and HFC could explore like loans for repairs, renovation, extension and purchase of house sites. While this is the market which MFIs and HFCs can take a look at, the real effect on the economy would be through double this figure- A Six Lakh Crore Housing Microfinance market. Once Housing Microfinance is introduced in a big way there would be a need for loan funds from HFCs/banks to MFIs and from banks to HFCs for this purpose.
Effect of Housing Microfinance on the Indian economy:
If this huge market for Housing Microfinance in the country gets the right impetus it deserves, it would help the economy to grow even beyond the current GDP growth levels. It is estimated that while the construction sector’s income multiplier is around 5 the construction related manufacturing has an income multiplier of 7.6. Opening up new vistas for housing at the bottom of the pyramid would pave way for employment opportunities and business at the local level and if this exercise is carried out on a mass scale to usher in a good number of MFIs and HFCs in the country it will eventually reflect on the macroeconomic stability of the country as the housing sector is inextricably linked to it.
If this huge market for Housing Microfinance in the country gets the right impetus it deserves, it would help the economy to grow even beyond the current GDP growth levels. It is estimated that while the construction sector’s income multiplier is around 5 the construction related manufacturing has an income multiplier of 7.6. Opening up new vistas for housing at the bottom of the pyramid would pave way for employment opportunities and business at the local level and if this exercise is carried out on a mass scale to usher in a good number of MFIs and HFCs in the country it will eventually reflect on the macroeconomic stability of the country as the housing sector is inextricably linked to it.
Low Cost Housing and Cost Reduction in Construction:
Any Housing Microfinance intervention should also invariably look at methods of drastically reducing costs for the MFIs/HFCs clients. It should be the endeavour of MFIs to encourage low-cost building materials like Fly Ash bricks, hollow block bricks, sun baked mud bricks etc in the construction of Low Cost Housing projects and low-cost building techniques like filler roofs, rat-trap bond method, and a few of the techniques of Laurie Baker.
(Photo Credit: All photos taken by U. Abhishek, my son. Thanks Anuj.)
