The Dawning of Housing Microfinance in India

2/09.09

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.

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.

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.)

The One Room Miracle

01/08-09

It is almost a month since I started this Blog and was contemplating on what should be my first blog posting. Quite consciously I did not want this blog to narrate personal musings and therefore planned to start with global shelter issues. Somehow I was not able to do it. After deep introspection I then changed my mind and decided to share some of my impulsive thoughts in my first blog post on this Blog and go global in my next blog post.

Middle class moorings:

My father and mother were teachers. They both were first-generation children educated by parents who could not afford to get themselves educated. With no other income other than their salary my parents had to face lot of problems in running the family. The worst problem we faced was of shelter. We had to live in ten rented houses before my parents could manage to build their own small house. The tenth rented house was the one in which we all stayed the longest period- over three decades. This blog post is about this one-roomed flat that is symbolic of a typical urban middle class family’s triumphs and tribulations.


Government Initiative in Urban Housing:

Multi-storied housing units are a common sight in urban India these days. In the early sixties when the Tamilnadu State Government came out with an idea of construction of three types of multi-storied housing units for hire-purchase or for rent, surprisingly, there were not many takers. The concrete multi storied concept did not attract many. The reason was not because of low quality construction as it is done now-a-days. The reason was the mind set of people who had been, for generations, living in plot based individual houses.

A perspective view of the west facing blocks of LIG Colony

The first such venture in Coimbatore, my hometown, came up in the North-Western part of the most posh localities of the town- RS Puram. The construction of the Low Income Group (LIG), Middle Income Group (MIG) and the High Income Group (HIG) was over in 1965-66 but there were not many takers for the houses. In another years time most of the MIG and HIG flats were getting sold but none of the LIG units got sold. When the government decided to offer them for rent we were one of the first occupants of the LIG units. The construction of those first set of houses were of impeccable quality. The contractor who constructed them probably did not have to grease many hands as they do now. The doors and windows were of good teak wood which have shown no signs of warping or decay till now. Housing units constructed later on in places like Singanallur and Ukkadam are soon becoming history. These houses were probably built by contractors who had to grease a whole long chain in the engineers-politicians nexus.

Another view of the 'L' Block from the Cowley Brown Road side.

The One Room Miracle:

The flat that was allotted to us was in the L Block of LIG group of houses. The house was basically a one-roomed flat with a single brick separating two partitions on the first floor. While one portion at the entrance was our living- cum- study-cum bedroom the other one was the kitchen-cum-dining portion. A bathroom and toilet were attached.

We were a big family for the space. My parents, a sister, two brothers, and occasionally my grandmother and I shared our limited spaces within the house. Despite the small space we were able to go on for over three decades in the same flat. As we were one of the oldest occupants our family was popular and the house number became iconic- L-15 LIG Colony.

It was like living in a village where we knew about each other family. For families which had been living in individual houses, cut off from each other family, this colony was a boon. As children we had the rare chance of learning lessons from the wrong doings of other people in the colony. As the colony had houses on both sides of the Punniyakodi Street we used the road as our playground; be it cricket, football, seven-tiles, kabaddi, hide & seek, marbles, gilli-thāndu/gulli-danda, spinning tops, flying kites etc. During days when we used to arrange cricket matches enthusiastic parents used to occupy vantage positions on their balconies to watch us play. During the kite flying season we used to powder tube-light bulbs and add a whole lot of ingredients to prepare a paste (Mānjā) to be smeared on the thread tethered to the kites. One of the toughest games was hide & seek as the colony provided many niches where we could hide.

A view of the colony with houses on both sides of the road

The best part of L-15 was that we all could lead a contended life and study well despite the shortage of space. In fact we had seldom felt the lack of space. During exam time the staircase used to provide us space for study. At times when there used to be skirmishes in the house the balcony on the common staircase used to provide us solace. My father who was a self made personality had earlier studied his post-school studies on his own. He completed his post graduation in Hindi, a couple of diplomas in Sanskrit and Urdu, while we were in the flat. My mother also did some value addition to her education. I could complete my MSc Agril. Economics, my younger brother his graduation in Engineering, my younger sister her BSc in Maths and my youngest brother his BCom. Later when I got married my wife also joined us.

As we all grew up the need for more space crept in. The need to build a house of our own came very late. My parents somehow managed to take loans and built one. As of now, my brothers, sister and I have all built our own houses and we all stay with our families with our mother staying with all of us wherever she feels like.

L/15 LIG Colony, Punniyakodi Street, RS Puram, Coimbatore- India

Now, for me, despite owning a two storied house with three bedrooms, a study, a living room and a spacious kitchen, my thoughts are still evergreen when I think of the days I spent in the one-roomed miracle L-15. ( Photo credits: My son U Abhishek. ...Thanks Anuj)

Welcome to my Blog on Housing the Poor

If we can build castles in the air why not think of a small house for the poor!

Every one dreams of an own house. In our case all that we have to do is to ring up our most favoured lender and there they are at our door step. The poor too dream of owning houses but mostly remain unfulfilled. When we dreamt of our houses our family would have joined with us to plan the dream house. With changing times- thanks to all the efforts in empowering families, creating livelihoods and introducing microfinance - many around the globe have now joined together to dream of own houses for the poor. As a person who was chasing dreams of providing own houses for the poor for the past ten years, I am happy to see the change that is in the air.

In communities where avenues for women empowerment, microfinance, education of children, health of the family, and remunerative livelihood have been created, we now need to look at the poor owning houses.

In the coming days my blog will look at sharing experiences and knowledge with people interested in housing the poor.

P. Uday Shankar.