1
Microfinance for Housing in India
Dr. Basanta K. Sahu, (Senior Research Officer)
Centre for Microfinance Research,
(Main Centre)
Bankers Institute of Rural Development (BIRD)
Lucknow - 226012
2
ACKNOWLEDGEMENTS
This study on ‘Microfinance for Housing in India’ is based on researching existing information and two different housing microfinance programme in the country. We thank beneficiaries of these progammes who were our key respondents. Heads and officers of ‘Bhavansree’ programme in Kerala and Sanghmithra Rural Fancial Services (SRFS) in Karnataka for their supports. We would specially thank to the local field investigators and key informants for gathering numerous information on low segment housing scenarios in general and housing microfinance in particular. We thank all those who have supported in completion of the study, especially during the field survey. We thank to Dr. N. Vishnu Namboodiri and Dr. Anath S. Panth for their help. Several rounds of discussions with the Director, Joint Director, BIRD and other officers at CMR, BIRD, Lucknow helped us in completion of this study. Support from office staffs of BIRD is duly acknowledged. For processing of field data for the study we thank Mr. Tribhuvan Nath. Thanks to all peer reviewers who had given valuable suggestion on the earlier draft of the report. Usual disclaimer applies
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Executive Summary:
Chapter – 1
Low segment housing sector in many developing countries is undeveloped and constrained
by several factors such as access to housing finance, fund mobilization, stringent regulatory
framework, land title, difficulties in procuring building materials, finding skilled construction
workers, awareness and access to housing technologies. Current pro-poor housing policy at
national and sub-national level is found sufficient to meet the challenge. In India there is
inadequate housing finance at lower segment resulted in huge gap in demand and supply of
housing credit. Microfinance for housing (MFH) programme is emerged as one of the sources
for housing credit for low-income groups and it is growing steadily in India.
However, some of the important issues and challenges for the housing microfinance market
are complexity of the low segment housing market, conservative (risk averse) approach of
credit institutions, prominence of progressive housing among low income groups, stark
differences between housing microfinance and microcredit loan, organizational and
operational structure for launch of MFH, and scale of MFH products and competition from
non-housing credit lending institutions.
Chapter - 2
In Indian context there are few studies available on housing microfinance and its outreach is
limited. The present study is based on two different housing microfinance programme in
India will be useful for different stakeholders. One of the MFH programe is state government
initiated and community based microfinance for housing progarmme financed by commercial
banks in Kerala Bhavansree. The other is MFI initiated microfinance for housing in
Karanataka. These two MFH programmes differ in product design, housing loan term and
condition, selection of beneficiaries, pattern of loan repayment and source of fund for the
lending institutions.
Chapter - 3
The analysis of the study shows that demand for housing finance is high and growing faster
among all income size sub-groups within low-income groups. But it is not adequately
documented and correctly estimated. There is increasing demand for new construction of
house and additional rooms for which required fund is much higher than available MFH
which accounts for only about one-third of total housing credit need of the existing
4
borrowers. On the other hand MFH programme constitute a lower portion of total portfolios
of participating financial institutions such as banks and MFI.
Key factors influencing the housing demand among low-income groups are current housing
condition, rising income level, purpose of housing, available housing credit (formal &
informal) family structure, land ownership, structure and pattern of employment and income,
remittance, asset holding pattern like livestock, local housing practices and other socio-
economic and cultural features.
However, microfinance for housing despite of its smaller quantity found having notable
impacts on different stakeholders. For borrowers, it has acted as a kick start for housing plan,
housing activity and fund arrangement, particularly, among house poor low-income groups
hitherto excluded by the mortgage finance. MFH also has positive impact on the household
decision making, portfolio diversification of lenders, expansion of housing sector and growth
of the local economy as a whole.
For low income group MFH found more appropriate lending method than traditional
mortgage lending. For instance, in our study MFI (SFRS) has extended housing loans to its
clients having strong repayment history across groups and regions without requiring
mortgages. By doing this it has minimized the administrative cost and diversion of group
loans for other uses.
Major constraints of MFH found in the study areas are provision of technical support on
housing to the clients resulted in delay in completion, increasing cost, multiple borrowing,
poor hygienic condition and poor space management. There was downscaling of MFH
programme by the banks where high non-repayment was reported and conventional approach
of housing finance followed. On the other hand MFH programme of MFIs reported higher
repayment of housing loan similar to the line of microcredit programme.
Findings of our study do not support the common argument that there is incremental housing
activity among low-income groups. It may be due to strict loan conditions and guidelines for
completion of housing activity within given time. As in most of the cases the housing
activities were meant for immediate living purpose the borrowers cannot afford to delay it.
Another important finding of the study is low or absent of inter-linkage between housing
microfinance and micro-enterprise loan due to the nature of household occupation, housing
needs and poor development of home based enterprise.
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Chapter - 4
Based on our findings suitable suggestions are offered for product design, selection of
beneficiary, up scaling MFH programme, institutional partnership and other relevant issues.
- Intermediary Model of MFH: Instead of currently practice of individual MFH model
partnership between housing finance institutions and commercial banks and MFIs may be
followed for better delivery of MFH, progrmme operation and fund management.
- Housing Subsidies: It may be used for reducing cost of fund for the credit lending
institutions like MFIs than provision of direct subsidy to the beneficiaries.
- Estimation of Housing Demand & Priority: It is necessary for estimating actual housing
credit need and housing priority of the target groups before operation of MFH
programme. Suitable housing measure index like the one developed by Cashpor to
measure poverty can be used.
- Product design: Designing of different MFH product lines for different credit lending
institutions to meet wider and diverse needs of the target groups is suggested. Practice of
uniform housing loan amount and loan terms excludes many potential borrowers. For
smaller credit demand (up to Rs 30000/-) and for short-term ranges (1 to 2 years), MFIs
may be the ideal suppliers. RRBs, commercial banks, housing finance companies, and
other credit organization, can provide bigger credit (above Rs 50000/-) and for longer
loan term (5 to 10 years).
- Realistic and flexible approach for repayment: Nature of household occupation, source of
income, asset holding pattern and nature of housing activity should also be given
importance while determining loan amount and repayment sechedule. For instances,
farmers borrowers can repay higher loan amount during harvest period where as
borrowing household receiving regular remittance is a positive factor.
- Inclusive beneficiary selection process, regular monitoring and supervision will be
effective than overcautious credit lending approach followed by the credit lending
institutions to overcome credit risks. For identification of beneficiary suitable para-legal
documents and proofs can be accepted within the legal framework and that govern rights
to property.
- For up-scaling of Housing Microfinance special package that includes subsidized funds
supply, technical support, alternate fund raising options, inclusion of some moderate-
income clients would be important.
- Suitable housing plan and low cost housing technology must be a part of the housing
microfinance programme, if possible at minimum charges.
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CONTENTS
Page
No
Acknowledgement 2
Executive Summary 3-5
Content 6-7
List of Tables 8
List of Charts 9
Abbreviation 10
Chapter -
1
Introduction
1.1 New Housing Policy Measures in India
1.2 Nature of Housing Needs & Demand in India
1.3 Supply of Housing Finance in India
1.4 Microfinance for Housing (MFH): A Pro-Poor Housing
Finance
1.4.1 Approaches of MFH
1.4.2 Definition of Microfinance for Housing
1.4.3 Who Offers MFH
1.4.4 Microfinance for Housing & MFIs
1.5 Review of Literature
1.6 Major Issues of Microfinance for Housing & Research Gap
1.7 Objectives of Study
1.8 Hypothesis
1.9 Methodology
1.9.1 Major Variables and Contexts
1.9.2 Study Areas, Sample Sizes and Nodal
Agencies/Officers Visited
1.9.3 Field Visits
1.9.4 Likely Findings/ Outcome
1.10 Structure of Report
11-38
Chapter -2 Microfinance for Housing in India
2.1 Comparative Features of MFH Models: (Bhavansree and
SRFS)
2.2 Bhavamsree Programme: Microfinance for Housing in
Kerala
2.3 Sanghamithra Rural Financial Services (SRFS):
Microfinance for Housing in Karnataka
2.3.1 Housing Microfinance Product of SFRS (Griha Nirman
Loan Scheme)
2.4. Summary
38-62
Appendix–I: Chapter – 2 (Table: Profile of SFRS’s Operation
at District Level) 62
7
Chapter -3 Demand & Supply of Housing Finance in Study Area:
Housing Priority among Low Income Group
3.1 Existing Housing Facilities in Study Areas
3.2 Housing Priorities in Study Areas
3.3 Profile of Sample Households
3.4 Patter of Household Income & Employment in Study
Areas
3.5 Demand & Supply of Microfinance for Housing in Study
Areas
3.5.1 Measuring Demand for MFH
3.5.2 Demand & Supply of Housing Loan in Study Areas
3.6 Supply of Housing Finance in Study Areas
3.6.1 Other Sources of Housing Finance
3.6.2 Rate of Interest
3.7 Performance of MFH Product: Repayment of MFH Loan
3.8 Role of Peer Group in MFH
3.9 Housing Design & Technical Assistance
3.10 Progressive or Incremental Housing
3.11 Reasons for Delay in Completion of Housing Activity
3.12 Decline in Housing Expenditure during Post-MFH
Period
3.13 Product Design
63-109
Appendix – II: Chapter -3 (Tables 3.1 to 3.) 3.1: Type of House Ownership & Occupancy
3. 2: Distribution of Occupation and Income of Sample Households
3. 3: Housing Profile of Sample HH
3. 4: Preferred Source of Borrowing by Housing Activities
3. 5: Gap in Demand and Supply of Housing Credit by Housing
Activity
3. 6: Delay in Completion of Housing Activity as Per Plan
3. 7: Household Asset Holding Pattern
110-
116
Chapter -4 Conclusions & Policy Suggestions
4.1 Major Findings
4.2 Policy Suggestions
4.3 Low cost Housing
4.4 Summary
117-
129
Appendix – III: Chapter - 4
Low Cost Housing Technology
130-
131
References
132-
133
Appendix – IV: Survey Questionnaire
134-
142
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List of Tables
Title of Tables Page No
Table – 2.1: Shortage of Housing in India 40
Table - 2.2: Urban Housing Stock and Shortage, 1991-2007 40
Table – 2.3: Housing Loan Amount in Installments by Different Banks 50
Table – 2.4: Progress of Bhavanashree Programme in Kerala 54
Table - 2.5: Operational Performances of SRFS in Study Areas 56
Table – 2.6 Borrowing Patterns of SRFS 60
Table -2.7: Comparative observations on MFH programme of Bhavansree
and SFRS
61
Table – 3.1: Inadequate Housing by Categories in Study Area (in % of HH 65
Table – 3.2: Distribution of Sample Household by Major Occupations 67
Table – 3.3: Distribution of Sample Household by Income (Annual) Size
Groups
68
Table – 3.4: Household Demand & Priority for Housing Activity in Study Areas
(Nos of Borrowing Households) 69
Table – 3.5: Housing Activity & Purpose of Housing 70
Table: 3.6: Housing Activities by Income Size Groups 72
Table – 3.7: Distribution of Sample Households by Major Occupations 76
Table – 3.8: Employment & Income and Distribution of Workers by Sex &
Occupations
78
Table – 3.9: Gap in Demand & Supply of Housing Credit in Study Areas 83
Table – 3.10: Housing Plan/Activity of Sample Households & Impact of
MFH
85
Table – 3.11 (a): Sources of Non-MFH Credit, Rate of Interest and Loan
Period (1st Round)
87
Table – 3.11 (b) Sources of Non-MFH Credit, Rate of Interest and Loan
Period- (2nd Round)
88
Table – 3.12: Average Household Borrowing (Non-MFH) for Housing
Activity by Income Groups
91
Table – 3.13 Household Borrowing (Non-MFH) from Group by Purposes 92
Table – 3.14: Repayment of MFH, Default Rate and Type of Borrowings in
Study Areas
96
Table – 3.15: Sources of Repayment of MFH 98
Table – 3.16: Housing Design in Study Areas 100
Table – 3.17: Delay in Completion of Housing Activity as Per Plan
103
Table - 3.18: Reason for Delay in Completion of Housing Activity (%HH)
104
Table -3.19: Decline in Annual Housing Expenditure during Post-MFH
Period
106
Table - 4.1: Challenges of MFH and Potential Solutions 122
9
List of Charts
Title of Charts Page-No.
Chart 3.1: Level of Education Household Head 74
Chart 3.2: Housing Amenities Available in Study Areas 74
Chart 3.3: Type of House in Kerala 75
Chart 3.4: Type of House in Karnataka 75
Chart 3.5: Annual Average Employment 78
Chart 3.6: Annual Average Income 79
Chart 3.7: Gap in Housing Credit Demand and Supply 83
Chart 3.8: Source of Housing Finance 90
Chart 3.9: Non-MFH Borrowing Amount & Outstanding 90
Chart 3.10: Purpose of Non-MFH Household Borrowing 92
Chart 3.11:Delay in Completion of Housing Activity as Per Plan 95
Chart 3.12:Reason for Delay in Completion of Housing Activity 105
Chart 3.13: Decline in Housing Expenditure after MFH in Karnataka 107
Chart 3.14: Decline in Housing Expenditure after MFH in Kerala 107
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List of Abbreviations
ACFHs - Apex Co-operative Housing Federations
ADB – Asian Development Bank
ADS – Area Development Society
BPL – Below Poverty Line
CBRI – Central Building Research Institute
CDS - Community Development Society
CMRC – Community Managed Resource Centre
DHFL - Dewan Housing Finance Corporation Limited
DMC – District Mission Coordinator
EWS - Economically Weaker Sections
GDP – Gross Domestic Product
HFCs - Housing Finance Companies
HUDCO – Housing and Urban Development Corporation
HUGSD – Harvard University Graduate School of Design
IAY - Indira Awas Yojana
IRDP - Integrated Rural Development Programme
JNNURM - Jawaharlal Nehru National Urban Renewal Mission
JRY - Jawahar Rozgar Yojana
LIG - lower income groups MCHF - Microcredit to Housing Finance
MFE - Microfinance for Enterprise
MFH - Microfinance for Housing
MFIs – Microfinance Institutions
NABARD – National Bank for Agriculture and Rural Development
NBFIs – Non-Bank Financial Intermediaries
NGOs – Non-Government Organizations
NHB - National Housing Bank
NHG – Neighborhood Group
NHHP- National Housing and Habitat Policy
NUHHP - National Urban Housing & Habitat Policy
RAY - Rajiv Awas Yojana
RBI – Reserve Bank of India
RRBs – Regional Rural Banks
SAHF - Shelter Advocacy to Housing Finance
SBI – State Bank of India
SBT – State Bank of Travancore
SC – Schedule Cast
SEWA – Self Employed Women’s Association
SRFS - Sanghmithra Rural Financial Servises
ST - Schedule Tribe
UN-HABITAT – United Nations Centre for Human Settlements
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Chapter-1
Introduction
Inadequacy of basic housing is fundamental to the process of deprivation. It is now
considered as one of the key measures for poverty and loss of entitlements. Poor housing
conditions affect the capability of the low-income groups, women, landless and weaker
sections because which has adverse impact on health, income generation, asset creation,
social status and overall development of household. On the other hand, housing is one of
the important source of wealth creation available to the poor. By investing in homes, the
low-income groups accumulate equity that can then be used as collateral and it can make
them credit worthy which is a critical condition for access to finance and income
generating opportunities. Therefore, adequate shelter is a basic necessity for breaking the
vicious cycle of poverty and deprivation among low-income groups. A viable housing
sector can be a key growth motor for the economy. Unfortunately, inadequate and poor
quality housing in many developing countries has been a chronic problem. Provision of
adequate housing, especially to the economically disadvantaged sections, has been re-
emerged as a development policy intervention across the countries in the world. It is a
more serious issue in over populous countries like India.
Housing indicates the quality of life and socio-economic condition of people in an
economy. House is one of the most preferred and valuable assets that provides both
protection from weather and disease and a work place for income generating activity,
especially for self-employed and females. Some surveys on low-income households
conducted in developing countries indicate that priority for housing is higher than
education and health (Ferguson, Bruce and Haider, Elinor 2000). However, low segment
housing sector across in less developed countries is undeveloped and constrained by
several factors that arise from issues relating to land, access to housing finance, fund
mobilization, stringent regulatory framework, difficulties in procuring building materials,
finding skilled construction workers, adoption and awareness of housing technologies
and housing policy at international, national and sub-national level. All these issues led to
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non-availability of adequate shelter to the poor and low-income groups both in urban and
rural areas.
According to the UN-HABITAT estimates about one-sixth of humanity (or more than 1
billion people) currently lives in slums. The estimates show that the number of slum
dwellers will rise from one billion (one-sixth of world population) in 2003 to almost two
billion by 2020, with the majority of new dwellers residing in secondary cities and
regional towns1. There will be acute shortage of housing supply at lower segment which
is expected to grow faster in coming decades. In Asia, the situation is equally grim as
about 58 percent of people in South-Eastern Asia are living in slums with one of the
highest incidence in Mumbai in India where 55 percent of its residents living in slums
(Wong S, 2008).
The housing situation is alarming in some populous countries like India with progressive
increase in urbanization, informal sector employment, rural to urban migration and
landlessness migrants. Though growth of real estate sector has been impressive in India
in recent years but there is inadequate supply of pro-poor housing. There is also lack of
housing finance to lower segment which remain one of the major policy concerns during
all five year plans. The 11th Five Year Plan estimates the urban housing shortage at the
commencement of Plan period was 24.7 million units, with 99% of this shortage
pertaining to the economically weaker sections (EWS) and lower income groups (LIG).
The situation is further aggravated by high shortage of rural housing about 7 million
(RBI, 2009). It is estimated that over 170 million people in the country live in slums
without adequate access to clean water, sanitation and security of tenure, and another two
million are homeless. With a 3% urban growth rate, the country’s 25 million housing
shortfall is only set to rise, leading to more slums.
India's housing shortage is well documented and debated over period. The Asian
Development Bank (2007) estimates that India’s housing shortage is as high as 40 million
units, suggesting that more than 200 million people are living in chronically poor housing
conditions. High shortage of house in the low income segment constitutes a large
1 UN-HABITAT/World Bank (2005), The Millenium Declaration: An Urban Perspective, Nairobi, Kenya
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proportion of total shortage of housing in India. However, it may not necessarily reflect
high demand for housing as many low income households are unable to afford for a
house of their choice either by construction or by purchase due to their inadequate access
to housing finance and other factors. On the other hand there has been increased in the
income level across al groups which push the demand for better housing. In this regard, it
would be interesting to study the nature and extent of housing shortage among low
income groups and the potential demand for low segment housing sector. Earlier studies
indicate that high demand for housing heralds customized designs of housing finance and
supply mechanisms targeting low-income groups which have traditionally been excluded
from the housing market due to problem of land title and high investment requirements
(ADB, 2007). Several policy efforts have been made to meet the challenges of housing
shortage such as formulating national housing policies; strengthening existing institutions
and creating new housing institutions to scale up housing supply, credit facilities,
production of building materials and training of personnel for human settlements
management; and the review of existing legislative frameworks and regulatory machinery
to augment land supply (Shah, 1993). But provision of housing to the poor continues to
pose a major challenge for the policy makers.
There are several pro-poor public housing programmes implemented over time and
suitable policy changes have been made to meet the challenge of massive deficit in
housing sector. The first housing programme for rural areas, namely, the Village Housing
Scheme, was introduced in the Second Five Year Plan. It was introduced as a part of the
total rural reconstruction programme. Effort was also made to link rural housing with the
major national level development program like Integrated Rural Development
Programme (IRDP) and Jawahar Rozgar Yojana (JRY) for accelerating the pace of rural
housing, asset creation and employment generation. At state level, some rural housing
programmes were taken up by some state governments and implemented through state
housing boards or through urban slum clearance/improvement boards and co-operatives.
The basic approach was to provide subsidized housing for the poor and promote low cost
houses and use of local materials and local skills for house construction. But much has
not been achieved and housing needs of the low income groups remain challenging.
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Many potential beneficiaries are either gets excluded from public housing schemes or
keep waiting for long to meet their housing needs.
One of the key factors for this situation is inadequate access and availability of housing
finance to low-income groups. Though pro-poor housing and housing finance has taken
centre stage in many policy debates including on poverty reduction, asset creation, health
& sanitation, livelihood and financial exclusion it has not yet reflected in terms of
meeting the challenge of housing shortage, especially, in regional and group perspective.
Major problems of pro-poor public housing programme in India are (1) housing
programmes in general are neglected by the central as well as state governments, (2)
people's participation is very poor in the programmes, (3) house-sites given to the poor
are many times far off from the village, are not connected by an approach road and
without basic infrastructure. (4) most of the rural houses constructed by the government
assistance are pucca houses using urban-based materials and skills, and therefore they do
not have a favourable impact on the rural economy, and (5) new housing technology,
construction .materials, financial help, etc, are not always forthcoming to the poor (7)
without proper arrangement for basic sanitation and drinking water and separate
arrangement for keeping animals, (8) houses have high recurring costs. Some of these
issues have been addressed in new housing policy measures in recent years.
1.1 New Housing Policy Measures in India
The concept of affordable housing has drawn some attention of the policy makers in
recent years to address some of the housing issues of poor and low income groups. To
ensure ‘shelter for all’ the National Housing and Habitat Policy (NHHP) in 1998 and
subsequent housing policies have played crucial role in reforming the hosuning sector by
opening up housing sector to private setor and successfully rooted the government out of
direct construction activity and delineated a facilitation role for it in the housing sector. It
laid greater emphasis on the aspect of “Habitat” as a supplementary focus to housing. The
emphasis on “providing” housing continued with emphasis on both quality and cost-
effectiveness, long-term goal of eradicating houselessness, improving the housing
conditions of the inadequately housed, and providing a minimum level of basic services
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and amenities to all. The NHHP was formulated to address the issues of sustainable
development, infrastructure development, and for strong PPPs for shelter delivery with
the objective of creating surpluses in housing stock and facilitating construction of two
million dwelling units each year.
There are several policy initiatives to encourage private sector participation in fulfilling
the wider housing gap in the lower segments. The scheme of Affordable Housing aims at
promoting various types of public-private partnerships – between private sector, the
cooperative sector, the financial services sector, the state govt. and urban local bodies,
etc. For realizing the objective to promote sustainable development of habitat in the
country with a view to ensuring equitable supply of land, shelter and services at
affordable prices to all sections of society the National Urban Housing & Habitat Policy
(NUHHP) 2007 was a notable policy measures. It was designed towards the goal of
affordable housing for all. National Urban Housing and Habitat Policy 2007 (NUHHP), is
a major policy effort on urban housing and habitat of the Ministry of Housing and Urban
Poverty Alleviation, Govt. of India. It gives a detailed account of the status of urban
housing in India, the problem of housing shortage etc. NUHHP seeks to promote
sustainable habitat in the country and delineates specific areas of action and an action
plan towards achieving ‘Housing for All’ – its ultimate goal. Given the magnitude of the
housing shortage and budgetary constraints of both the Central and State Governments, it
is amply clear that government efforts will not suffice in fulfilling the housing demand.
The new policy focuses on multiple stake-holders and seeks to promote various types of
public-private partnerships for realizing the goal of 'Affordable Housing for All'.
NUHHP 2007 aims at to promote development of cost-effective, quality approved
building materials and technologies with a view to bringing down the cost of EWS/LIG
houses and it dwells upon the roles of various stakeholders and specific action required
pertaining to land, finance, legal and regulatory reforms as well as technology support
and transfer. This policy emphasizes on appropriate fiscal concessions for housing and
infrastructure seeks to develop innovative financial instruments like development of
Mortgage Backed Securitization Market (RMBS) and Secondary Mortgage Market. It
16
also also makes to attract Foreign Direct Investment (FDI) in areas like integrated
development of housing and new township development. It
Similarly, Jawaharlal Nehru National Urban Renewal Mission (JNNURM), is a
programme with objective to provide stimulus to economic activities through affordable
housing programmes in partnership. Though its immediate objective is employment
generation to the urban poor and asset creation for income generating activity, the
JNNURM seeks to fill up the gaps in infrastructure and deficiencies in housing and basic
services through appropriate investments.
.
Other policies adopted by the Central Government, from time to time, were accompanied
by initiation of various programmes and schemes. The National Slum Development
Programme (NSDP) had provision for adequate and satisfactory water supply, sanitation,
housing, solid waste management, primary and non-formal education. The scheme
provided additional central assistance to States to supplement the resources of the State
Government for provision of basic infrastructure and services in slum areas. The Swarna
Jayanti Shahari Rozgar Yojana (SJSRY) was designed to provide gainful employment to
the urban poor by encouraging setting up of self-employment ventures and provision of
wage employment opportunities for families below poverty line in urban areas. The Two
Million Housing Programme (TMHP) was launched with the objective of ‘housing for
all’ with particular emphasis on the needs of economically weaker sections and low
income group categories. The Valmiki Ambedkar Awas Yojana (VAMBAY) aimed at
providing subsidies for construction of housing and sanitation for urban slum dwellers
living below poverty line in different towns/cities all over the country. It appears that
there some public policy interventions also induce pro-poor housing demand directly or
indirectly.
There were several other policies and programme implemented towards minimizing
housing deficit for the needy poor. But due to its limited spread and other limitations such
as constraints of fund allocation, location in far-flung places with poor infrastructure,
acute shortages of urban land, encroachments and absence of property rights and poor
17
selection and implementation process many pro-poor housing schemes have not been
successful (Sundaram & Tendulkar, 1995, Hirway 1987). Evaluation of some earlier
popular pro-poor housing programme such as IAY (Indira Awas Yojana) and coverage of
some new housing schemes, Rajiv Awas Yojana (RAY), Valmiki Ambedkar Awas
Yojana and the National Slum Development Programme substantiates it. In case of IAY,
the scheme mostly has not helped the expected number of houseless and the intended
beneficiaries (SCs, STs & BPL). There is a great disproportionality between the funds
provided and the targets achieved (Planning Commission, undated)2. It might have
induced growth of informal housing, without appropriate plan and prospects to minimize
the pressure of housing deficit. To a large extend informal housing do not benefit from
the outcome of public housing programme, research and development in low cost
housing technology such as construction of quality housing using the most cost effective
and environment friendly building technologies, designs and materials.
Social Housing Schemes
S.No. Name of the Scheme Started in
1. Indira Awas Yojana 1990
2. EWS Housing Scheme for beedi workers and hamals 1991
3. National Slum Development Programme 1996
4. A two million Housing Programme for EWS/LIG 1998
5. PM Gramin Awas Yojana 2000
6. Valmiki Ambedkar Awas Yojana (VAMBAY) 2001
7. JNNURM (BSUP and IHSDP) 2005
Source: Ministry of Housing and Urban Poverty Alleviation (MoHUPA), GoI.
The mission to create a slum-free country through major housing schemes like IAY,
Rajiv Awas Yojana (RAY), special schemes for SC & ST etc. has not met the
expectations. The focus is still on providing heavily-subsidized home ownership to a few,
rather than shelter for all. However, Eleventh Plan (2007-12) targets construction of 150
lakh houses under IAY for the poorest of the poor, houseless and unserviceable kutcha
house (Panning Commission, 2008). To eliminate backlog of houselessness in rural areas
IAY has been focusing on accurate targeting, adequacy of cost of unit, provision of
necessary infrastructure and ownership issues.
2 (http://planningcommission.gov.in/reports/sereport/ser/stdy_villgeval.pdf) access on 10.10.2010
18
But there is no relief to the impasse of housing situation in the country both at national
and regional level showing much is required to perform at policy level. It is now realized
that subsidized housing scheme may not be the sufficient to tackle the housing problems.
To lure the private sector to make investment in housing sector, the Government has
offered some incentives in terms of fiscal and other concessions so that the private sector
can be motivated to take up the task for the housing for poor. These concessions are
proposed to be linked with housing for vulnerable sections. In this connection the ninth
five-year plan (1997 to 2002) has rightly stated "Housing has been primarily a self help
activity. In addition to IAY other strategies to tackle housing shortage are encouraging
prime lending institutions to enhance credit flow to rural areas, flexible financial product
for rural housing through commercial banks, encouraging small and medium developers
for rural housing and institutional mechanism to address credit risk perception in housing
rural sector. Policy efforts are proposed to set up rural housing consortium comprising
National Housing Bank (NHB), NABARD and leading commercial banks and MFIs to
provide equity and debt for rural housing. Provision of special incentive to housing
finance institutions to increase their rural housing loan portfolios from current 10-20% of
their total housing loans is also under consideration (Planning Commission, 2008).
In fact, urban housing problem has been severe with rapid rural to urban migration. It has
put high pressure on urban land and housing sector. For instance, total urban land stock in
India is 2.3% of its geographical area and it houses 30% of the country's population. The
national housing policy recognizes that provision of shelter is important in the following
terms. It
1) improves the quality of life of the poor
2) creates conditions for attainment of better health, hygiene, and education
3) enhances productivity
4) stimulates economic activity
5) creates employment opportunities
6) motivates savings
7) promotes social justice
19
Considering the severity of housing problem in the country a high level task force was set
up in 2008 by M/o Housing & Urban Poverty Alleviation to look into the various aspects
of providing ‘Affordable Housing for All’ under the Chairmanship of Sh. Deepak Parekh.
The task force has strongly recommended the need for ‘Affordable Housing’ and early
effective policy action to address the problem with focus on the housing finance.
1.2 Nature of Housing Need & Demand in India
In addition to huge shortage of housing in the country there is a mismatch between
demand and supply of housing units across rural and urban areas and different socio-
economic groups. About 99% of the housing shortage of 24.7 million for 67.4 million
households at the end of the 10th Plan pertains to the Economically Weaker Sections
(EWS) and Low Income Groups (LIG) sectors. During the 11th Plan, the Group
estimated that the total housing requirement (including backlog) will be to the tune of
26.53 million units for 75.01 million households (NUHHP, 2007). As 26.7% of the total
poor in the country live in urban areas and it constitutes about 80.7 million persons or
about one-forth of the country’s total urban population, the issue of affordability assumes
critical significance. The 61st Round of National Sample Survey Organisation (NSSO)
reports that the number of urban poor has risen by 4.4 million persons, between 1993-94
to 2004-05 and it shows that shortage of housing for the urban poor is alarming. But the
situation in rural areas is also equally worse as three-fourth of the poor live in rural areas
and many of them lack minimum housing.
Many low income households get excluded from formal housing finance on the ground
that they are unable to meet the criteria and fail to afford it. Several public housing
assistance programmes such as slum upgrading, subsidized housing programme, urban
development and poverty eradication normally exclude many needy people or they have
to wait for years together to get their turn. Though, several transparent methodologies
have been introduced to make the selection process free and fair, greater participation of
people to minimize exclusion of needy and underprivileged but desired outcome has not
been achieved. One of shortcomings of these housing programmes is ignorance of the
local housing needs and conditions. Uniform in nature, high incidence of exclusion of
20
potential beneficiaries, high administrative cost and other problems have made them
unpopular. On the other hand, inequality in housing conditions seems moved along with
income inequality across groups and regions. The poor have become progressively
incapable of self help and mutual help for solving their housing problems. While their
dependence on public housing support continues in the absence of alternate means to
improve their housing condition much hyped public pro-poor housing programme fails to
meet it. Budgetary constraint for public housing schemes and poor fund arrangement and
access to housing finance by the housing poor accentuate the problem of housing defict in
both urban and rural areas. The Working Group on Urban Housing pertaining to the 11th
Plan made different assumptions on unit cost of construction of houses in million plus
cities and other urban areas for estimating the investment required for overcoming the
housing shortage. The total estimated investment for meeting the housing requirement
upto 2012 was estimated to be of the order of Rs.3,61,318.10 crores consisting of
Rs.1,47,195 crores for mitigating housing shortage at the beginning of 11th Plan and
Rs.2,14,123.10 crores for new additions to be made during the 11th Plan period (this
includes construction of pucca houses & upgradation of semi-pucca and kutcha housing
units). Off late it was realized that access to formal housing finance by the low-income
groups is one of the key factors and policy areas for resolving the housing problem in
India. But much has not been progressed in this regard.
1.3 Supply of Housing Finance in India
Access to housing finance is one of the major constraints for low-income groups. It is
partly because of abysmally low exposure of many leading housing finance companies
(HFCs) to pro-poor housing finance and largely due to their inaccurately assess the credit
risk associated with low income borrowers. High transactions cost to lend low income
group, low profit margins, lack of clear land titles, uncertainty of repossession etc. are the
other major factors prohibit many housing financing institutions to step into low segment
housing finance business. On the other hand, there is hardly any incentive for them doing
this. However, low repaying capacity and low margin in case of low segment housing
credit market may not be true in all contexts. In the words of the Prof Muhammad Yunus
“Its not people that are not credit-worthy, it is banks that are not people-worthy’’.
21
Considering the importance of housing, particularly in the period when level of income is
rising across social groups, the actual housing credit demand is underestimated to avoid
credit risks and high transaction costs in low segment housing finance markets. In spite of
notable contribution of housing sector in the economy3 low segment housing finance has
not been given due importance in India. Housing, besides being a very basic requirement,
holds the key to accelerate the pace of development. Investments in housing like any
other industry have a multiplier effect on income and employment. It is estimated that
overall employment generation in the economy on account of additional investment in the
construction/housing sectors is eight times the direct employment (IIM Ahmedabad :
2000).
Till the emergence of National Housing Bank in 1988, about 80 percent of housing
finance was supplied from informal sources (RBI, 2009). Due to stringent housing loan
terms and procedures followed by housing finance institutions only about 10% of their
consumer housing portfolio is directed towards the lower middle and low income groups.
Many HFCs rather follow a safe route by lending in bulk to organizations (MFIs,
Cooperatives, RRBs, NGOs) serving the housing finance of the poor and low income
groups. Banks insist on clear land title, irregular income of the borrowers and their
servicing capacity, quality of construction, repayment conditions and beneficiary
identification processes that hardly fulfill by poor and low income groups. This has
resulted in very low penetration of traditional mortgage finance market, particularly in
low income housing. In India, the mortgage to GDP ratio is estimated at 2% against 51%
in USA and between 15-20% in South East Asian countries. So, supply of formal housing
finance to poor and low income groups is limited and selective that helped in
accentuating access to housing finance in lower segment.
Under this situation, housing problems of many poor and low income households could
be vicious and multidimensional in nature. As their demand for housing remains high
3 As per a Central Statistical Organisation (CSO) estimate, the Housing Sector contributed 4.5% to India’s
Gross Domestic Product (GDP) in 2003-04 at current prices. The contribution of housing in urban areas to
the GDP in 2003-04 was 3.13% (NUHHP, 2007)
22
with limited or no financing options, they may likely to explore other available financing
options, which range from moneylenders to relatives. Many a times these options may
not work in favour of such borrowers but they cannot ignore expenditure on housing.
Under this condition, promotion and development of microfinance for housing (MFH)
could be an important alternative for poor and low-income groups for financing their
housing expenditure and investment.
Though pro-poor public housing policy has been reemphasized as part of development
policy and programme at national and sub-national level, it is still confined to supply
driven subsidized housing where possibility of exclusion is high. There is lack of demand
driven housing finance policy initiative for the target low income group. In fact, low
segment housing demand and housing finance remained a neglected issue in development
policy discussion and pro-poor financial sector development. Only recently it became a
portfolio of microfinance sector, but much is not know about it.
1.4 Microfinance for Housing (MFH): A Pro-Poor Housing Finance
Housing microfinance is one of the recent avenues for low-income households to access
loans for housing. MFH was first strongly entrenched in Latin and Central America, but
is now widespread in other regions of Asia and finally taking hold in India.
Unfortunately, microfinance for housing in India is not well discussed and debated at
policy level. Despite of the fact that microcredit sector in the country is growing faster,
the potential role of microfinance for housing has not been recognized. There has not
been much effort to study the potential size of low segment housing finance markets in
India. Interestingly, microfinance for housing already developed in other countries,
getting popularized in India. But much is not known about it. The present study attempts
to analyze current situation of microfinance for housing in India with focus on select
locations and functioning of different housing microfinance programme.
Housing microfinance has emerged in recent years as a discrete area of practice that
intersects housing finance and microfinance. It is perceived as filling a large void due to
the limitations of traditional mortgage finance and building on the lessons of
23
microenterprise finance. However, it offers affordable finance for the poor in ways that
were not possible even a decade ago. It has brought together a variety of stakeholders ─
government housing agencies, financial institutions, microfinance institutions, credit
cooperatives, NGOs, and even private developers. However, despite the housing
microfinance phenomenon of recent years, much still needs to be done in order to
respond to the massive demand for pro-poor housing around the world due to rapid
urbanization.
However, there are other issues relating housing finance in rural areas for low-income
groups. In rural areas, housing for the poor and the low-income groups suffer from
fulfilling the usual conditions of mortgages. They lack access to sustainable materials and
linkages with existing infrastructure. Rural housing structures mostly composed of mud,
thatch, stones and other low-cost, readily available materials. The money and time it
takes to repair these structures often leads to debt or lost man days of employment. The
housing problem in rural villages is further exacerbated by the unsteady income of the
villagers, who are often wage labourer or marginal farmers.
1.4.1 Approaches of MFH
Basically there are two types of approach of housing microfinance programs exist in
developing countries. One is microcredit to housing finance (MCHF) programs and other
is shelter advocacy to housing finance (SAHF). Shelter advocacy to housing finance
(SAHF) programs is an approach defending the right of the poor to equitable access to
resources, particularly land and shelter, as well as adequate infrastructure and services.
Most of SAHF initiatives operate on a small scale within limited local boundaries,
although some have begun to scale up and have joined regional or national federations of
community-based organizations to gain political visibility in lobbying government to
redistribute services or effect policy changes (HUGSD, 2000).
The micro-credit to housing finance (MCHF) programs initially began as micro-credit
initiatives for small and micro-enterprises. Off late, microfinance institutions observed
that their clients borrow for income generation purposes channel the funds into housing
24
improvements. It drew their attention to expand lending portfolio and to offer housing
finance products. The strong connection between the home as both shelter and a place to
house or support income-generating activities made this a logical evolution and eased the
transition to new financial products, structures, and loan terms (HUGSD, 2000).
1.4.2 Definition of Microfinance for Housing (MFH)
Microfinance for housing (MFH) is a subset of microfinance, designed to meet the
housing needs of the poor, especially those without access to the banking sector or formal
mortgage loans. MFH is designed for low-income households who wish to expand or
improve their dwellings, or to build a home in incremental steps, relying on sequential
small loans. It is basically a non-subsidized, sustainable approach tailored to the needs of
the low-income market. Such products are developed over the years to finance for the
housing needs of micro and small entrepreneurs. Housing microfinance is believed to
progressively upgrade poor families' homes – which include improving existing rooms,
adding a room, or installing water or electricity. However, MFH differs from formal
mortgage lending in four basic ways:
1. MFH loans are smaller and shorter term than conventional mortgage loans,
2. Because of its smaller size, MFH loans are not used to purchase a house or bigger
expenditure on housing. It is mostly meant for house improvements, incremental
building, or development of a starter dwelling in sites and services initiatives;
3. MFH loans are usually not collateralized by the property, which is, of course, a
defining characteristic of formal mortgage loans; and
4. Mostly banks and HFCs are the primary source of mortgage lending, MFH is
offered by banks, MFIs, NGOs, co-operatives and NBFIs.
In general housing and micro enterprise loans may sometimes be indistinguishable: first,
many micro businesses are conducted in whole or in part from the home, and secondly,
many micro lenders have learned that some portion of their enterprise loans are being
used for housing.
25
1.4.3 Who Offers MFH
MFH is offered by variety of institutions including MFIs, banks, NBFIs, cooperatives,
credit unions, and NGOs. A major distinction can be made between financial institutions
offering micro enterprise loans (MFIs, banks and NBFIs), and institutions whose main
purpose is improving the shelter situation of the poor, which may or may not be financial
institutions. In this regard, past experience, advantage of like fund availability, customer
information and policy incentives etc. matter for housing microfinance programme. In the
present study we have considered two different supply channels of MFH – commercial
banks and MFIs who deal in microfinance for housing. While commercial banks have an
advantage of using their own fund and experience in housing finance, selecting
customers, executing MFH and recovery of loan are positive. For instance, based on its
experience some banks like HDFC Bank in India have promoted organization involved in
microfinance for housing4. Similarly, Grameen Bank in Bangladesh, recognized customer
demand for MFH some years ago, and began offering housing loans as “rewards” for
successful completion of micro enterprise loans. However, some MFIs may be unwilling
to provide MFH at the expense of their traditional micro-enterprise lending.
1.4.4 Microfinance for Housing & MFIs
As microfinance sector is becoming competitive with faster growth and wider outreach
the requirement of its clients is also becoming diverse and specific. Under this situation
some MFIs may respond to their clients demand and expand product offerings beyond
enterprise lending, particularly, in housing sector. It may be in the interest of the MFIs to
diversify their portfolios and remain competitive. On the other hand, diversification of
portfolio of MFIs into new areas such as MFH may help them to achieve better, sustained
financial performance.
MFH is often treated as invisible part of micro enterprise finance as use of micro
enterprise loans for housing purposes hardly recognized. Though MFH is different from
4 HDFC in collaboration with PWDS had financed over 1800 dwelling units of Economically
Weaker Sections through IASC (Indian Association for Savings and Credit) a MFI extend s
housing loan for low micro credit clients.
26
micro-enterprise loan, previous success with micro-enterprise loans commonly used to
underwrite MFH loans. As all MFH borrowers may not be entrepreneurs, and all MFH
loans are not offered by micro lenders (MFIs), underwriting generally includes a variety
of approaches to reducing credit risk. Lenders may rely on mandatory savings over a
specified period, membership in savings groups, and/or co-signers. For MFH loans
collateral may include property and other assets and land title.
MFH may expand or improve the households dwelling for the purpose of conducting its
business, or selling or storing the goods being produced. It indicates role of MFIs could
be instrumental in achieving better outreach and efficacy of microfinance for housing
than other credit lending institutions dealing with only housing microfinance. The present
study would like to discuss on the potential role of MFIs and other local institutions in
expanding MFH and its likely impact in select study areas. The study would attempt to
analyze possibility of MFIs and other local institutions to diversify their portfolio into
housing finanace. This may be important, especially for MFIs, as in many cases they
have grown “horizontally,” by offering the same inflexible products to new customers.
As regard to demand for MFH, household as a decision making unit, demand for credit to
invest in housing basically on following grounds and seek finance for it, in spite of the
fact that investment on housing assets do not generate direct income
a) Provision of living space for the family members and livestock
b) Improving safety, health and sanitary conditions such as bathrooms, toilet,
strengthening wall, roof and entrance
c) Investing on housing as valuable assets
d) Equating or upgrading social and economic identity or status
e) Investment for home based income generation activities.
However, the household decision for MFH and housing activity would depend on a
variety of factors, including occupation and income, current housing condition, land title,
and access to credit sources, saving etc. Given some supply-side constraints such as lack
of appropriate loan products, inadequate legal framework and high transaction cost etc.
27
many poor households may unable to realize their housing goals. In some cases, poor
households do not have choice but to build their own housing and to finance it from own
savings, informal borrowings, remittances which are not only slow process but
sometimes tend to be expensive. With this background, the present study would analyze
how MFH, as a way out of pro-poor housing problem particularly those who are excluded
from formal housing finance.
On supply side there may be some challenges to MFH programme. Credit lending
institutions dealing with MFH often face difficulty in fund raising, inexperienced staff,
credit risk associated with low income borrowers, lower profit margins, lack of land titles
etc. Some of the important issues and challenges for the housing microfinance market
discussed in the literature are
- complexity of the low segment housing market versus the conservative (risk
averse) approach of financial institutions,
- differences between MFH and the traditional microfinance,
- organizational and operational structure for launch, and scale of MFH products
- prominence of progressive housing among low income groups
- competition from other credit lending institutions
1.5 Review of Literature
Microfinance institutions have long observed that clients use part of micro-enterprise
loan for improvement of their living conditions (Bruce Ferguson & Heider, E. 2000).
Their clients borrow for income generation purposes, yet channel the funds, partially or
fully, into housing improvements. Micro-enterprise loan offers much better repayment
terms than informal sources of money lending, and such a loan can serve as a supplement
or alternative to saving towards housing improvements. Drawing on their experience that
microfinance has potential beyond income-generating uses (enterprise) and can apply to
personal asset building activities such as investments in housing. Believing that
economically active poor people can finance their habitat needs in a manner that is
incremental and affordable, some MFIs have broadened their lending portfolio to offer
housing finance product for new housing construction and other house improvement
28
activities. Recent studies show that the scale of demand for housing improvement is
substantial (Herbert & Pickering, 1997; Harvard Joint Center, 2000) across world.
Contrary to general belief, low income households are willing to spend a high percentage
of their incomes to improve and expand their houses (World Bank & Capital Advisors,
1998).
In 1997, the World Bank and Capital Advisors conducted a study on the willingness and
ability of low income households to pay for housing improvement loans in three cities
located at the border with the United States (Ciudad Juarez, Tijuana, and Matamoros).
The study concluded that out of total low income households who were in need of
housing credit for their home improvements and willing to take out loans only 14%
qualified for it. It implies that there is huge market potential for housing improvement
loans but many households may not not qualify for such loans under given conditions.
However, conventional mortgage markets do not cater to the low income groups because
larger part of their income they spend on immediate consumption. Mortgages require
regular payments on longer period of time. Low -income households are often self-
employed and their incomes vary greatly and they occasionally face crises - such as
sickness and injury - that absorb all their available resources. Mortgages typically require
that households hold full legal title to their property. Low and moderate income
households often acquire lots in informal subdivisions and then construct temporary
dwellings to vouchsafe the properties (Ferguson & Heider, 2000).
Major characteristics of micro-finance for housing are small loan size for incremental
upgrading of an existing dwelling or new house, short repayment period, small or no
subsidy, creative underwriting adapted to the conditions and prospects faced by
low/moderate-income, technical assistance in documentation and building, and -
sometimes - alternate forms of title as collateral. House construction can take longer time,
in some cases decades, depending on the arrangement of fund, availability of housing
material and others factors. It can have adverse impact at household level as well as
macro level developmental stimulus that housing sector usually provides. Earlier studies
29
show that typically, low –income households construct their own units over longer period
of five to 15 years (Turner, John and R. Fichter, 1972). They usually, start with the
acquisition of land, build a small and temporary dwelling to live. Gradually add space
and increasing quality. When the lot is small, households usually try outward expansion,
complete flooring and finishing, adding space for sanitation and other uses, getting legal
connections to electricity and water supply. In this context, micro-finance for housing
programme may suit to the incremental upgrading housing process. Loans are small,
incremental and, hence, affordable to low-income households.
As complete house is built step by step over time, progressive build is the way most poor
and self-employed people acquire homes, largely because it makes the process
affordable. So MFH is believed to motivate many poor and low income groups to build
their house over time, particularly when housing finance is inadequate or it is difficult to
arrange at one time.
As regard to type of housing activities, MFH caters to low-income people for variety of
activities including new constructions; repairs, improvements or upgradation of existing
structures; purchase of land; and investment in infrastructure. In the absence of adequate
formal housing finance available to the poor, most of their housing activity long been a
progressive endeavor. Poor households have to confront with several problems like
arranging for land, fund building material and other loan servicing which often force
them to construct their homes incrementally, over a period of years or even decades
(Martin Carlos, 2008).
Regarding rural urban housing requirement its nature may vary from region to region and
group to group depending on land and building materials costs, structure of house
distance from workplace etc. So MFH can have different impact on rural and urban
clientele. Rural housing is qualitatively different from urban housing in the sense that the
housing activity is not very much based on the cash economy but depends to a
considerable extent on land rights and access to resources.
30
But in urban areas the complex land and housing market dynamics, particularly the
political and legal ramifications of land tenure, render the task of MFH more
complicated. This could be the reason why many MFH programs operating on a
relatively small scale in and operated in rural areas. However, in India SEWA’s
Parivartan slum upgrading scheme strives to build on their institutional status to address
the land, housing, and infrastructure problems affecting their client base.
Quantum and tenure of housing loan is important for low-income groups and households
having irregular income who develop a tendency to build house over time referred as
‘progressive housing’ or ‘progressive build,’. It implies that poor households build
gradually and incrementally, a few rooms at a time (Ferguson, 2003). MFH of small
loans of a shorter tenor will suit to the housing credit need of the target groups. Similarly,
performance of MFI in lending housing finance depends in its fund arrangement ability,
which remains an important constraint as it required huge amount of fund for longer
period (Young, 2007; Krishnan, Ramji & Taishi, 2007).
Though several credit lending institutions are participating in housing microfinance
market commercial banks have shown little interest. The hesitancy of commercial banks
towards developing MFH offerings calls for understanding why they do so. They usually
have little interest in lending to low-income households, particularly for small loans
which are less profitable. It is plausible that commercial banks are wary of MFH because
of the overall complexity of housing issues and the subsequent perception of risks at
lower segment of the market. They may prefer to extend “conventional” well-tested
micro-enterprise loans rather developing MFH products. It would be interesting to find
about commercial bank's participation in MFH market in our study.
One of the most widely debated topics regarding pro-poor housing is its subsidy
component. Housing subsidies not only prompt distortions in the market but can have
detrimental effects in terms of relocation, displacement, increased cost of living of the
beneficiaries, thereby defeating the original intent of those subsidies (Martin Carlos
31
2008). A serious problem with national housing subsidies in some countries is the
presence of administrative barriers or difficult requirements that prevent low-income
households from accessing the funds. For instance, the South African program requires
low-income households to build the house in order to receive the housing subsidy;
disbursement of the subsidy takes place upon certifying occupancy of the dwelling.
Needless to say, the majority of poor households lack sufficient funds to build the house.
In Chile, a down payment that is beyond the means of most low-income households is
required in order to participate in the national housing program.
In Indian context, pro-poor housing subsidy has been a complex matter like other
subsidies such as input subsidies in agriculture where exclusion of target groups
continues. Housing subsidy extended through different schemes constitute only a part of
the total unit cost demanded by the beneficiary and it often makes the housing scheme
financially unviable. Nair (1999) has pointed out that the unfortunate part of Indian
housing scenario is the financial imprudence of the political leaderships in the country.
She argues that the real gainers of the budgetary sops offered by the government are the
urban middle class, middle-income housing projects and housing finance institutions; not
the poor who really need housing finance.
While comparing between rural versus urban programmes the research of Buckley et al.
(2005) shows that rural subsidies are six times higher than urban subsidies, even though
the ratio between rural and urban poor is three to one. Thus, on per capita basis, the rural
poor get twice as much funding as the urban poor which often difficult to find on ground.
Based on above discussion and available literature we have listed out some important
issues relating to microfinance for housing and existing research gap.
1.6 Major Issues of Microfinance for Housing & Research Gap
2. There is huge gap between housing units and housing finance for lower segment.
It predominates over other key issues relating to pro-poor housing such as
32
availability, access and supply of housing finance, nature & pattern of demand for
housing and other issues
3. Low cost and affordable housing often prescribed to address problems of housing
without much focus on the ground reality such as needs of the occupants (space
for livestock, store and activities), house building and designing (economical -
within the reach of the beneficiary), durable & safe (recurring expenses on repair
and replacement of low cost house), adjustable to technology (solar energy etc).
4. There is need for alternative housing finance models like microfinance for
housing as because of failure of formal housing finance system to meet the needs
of poor and low income group. Identification of institutions and housing loan
products to meet local needs is missing in the policy debates on pro-poor housing.
5. Investment in housing could be effective way out of the poverty for many poor
and low income households. Leakages and exclusion from public support and
programmes may be reduced if the beneficiary has a durable permanent house.
6. Many poor could not afford to build durable house and hence go for temporary
non-durable housing arrangements which may put more burden on the poor in
terms of expensive maintenance of houses (regular replacement of thatched roof,
repairing of walls etc.).
7. Product design of MFH may be a gray area as borrowers invariably desire long-
term and high value loans irrespective of their capacity to repay.
8. There is a link between housing and income generating activity of the poor and
low income households.
1.7 Objectives of Study:
The objective of this study is to illustrate the nature and pattern of microfinance for
housing in India and the challenges and potential of low segment housing finance market.
The findings of the study are likely to benefit financial institutions and organization those
who are already in the industry or those who are interested in diversifying into the
housing microfinance field. The study focuses on the Indian context, where the demand
for housing improvement loans is believed to be very large and government housing
programs have proven inadequate and ineffective.
33
There are few studies available on the topic in India context . Realizing the visible gap in
research and understanding on microfinance for housing in India, the present study is an
attempt in the regard. The specific objectives of the study are as follows.
1) To understand and discus the overall demand and priority of housing and current
housing finance arrangement among low-income groups.
2) To assess different practices of housing microfinance and the potential market for
MFH.
3) To examine the non-MFH credit borrowing pattern and its utilization pattern
among low-income households vis-à-vis their nature and type of housing
activities.
4) To analyze performance of different MFH programme, it impacts, challenges and
designing of MFH products. To explore possible institutional partnership between
MFI and other institutions and how up-scaling of housing microfinance will
benefit all stakeholders.
1.8 Hypothesis:
Based on above analysis we formulate following hypothesis to verify from primary
household level data in select study areas.
- There is huge unmet demand for housing credit at lower segment
- MFH and MFE (microfinance for enterprise) inter-linkages could be a solid base
for MFH expansion. Microenterprise loan impacts borrower’s income where as
microcredit for housing impacts borrower’s assets base and may impact income.
- Rate of repayment is low in case of microfinance for housing loan than general
microcredit. Repayment capacity of the borrowers is based on generation of future
income in case of microenterprise loan but incase of housing loan it is borrower’s
existing surplus and future cash flow that determine repayment of housing loan.
- Progressive housing or incremental housing over time is common among low
income groups due to lack of access to adequate housing credit.
- There is lack of innovative product design in housing microfinance programme.
There is lack of awareness and adoption of low cost housing technology.
34
1.9 Methodology
The study follows following methodologies to arrive at proposed objectives and
findings.
A. Analysis of secondary data and information: Available secondary data on
microfinance for housing from published reports, documents and other literatures
were collected and analyzed in in Indian context.
B. Pilot visit and consultation with different housing finance institutions (HFC,
Banks, MFI, NBFC, NGO), apex housing organization (HUDCO, NHB), low cost
housing consultancy agency (Micro Home Solution) and local experts and other
key informants.
C. Primary field survey: With help of structured questionnaire, specially designed for
the study, household surveys were conducted in different sample villages in two
districts each in Kerala and Karnataka (mainly to cover MFH clients)
D. Interviews with senior executives and other staffs of selected housing
microfinance lending institutions and their supporting institutions.
E. Focus group discussion in some sample villages and collection of information
from some key informants in study areas.
1.9.1 Major Variables and Contexts:
Out of few known housing microfinance programmes in India, we selected two different
models based on its evolution, operation, product design and other aspects that match to
the spirit of the study. Out of these two, one programme was initiated by the state govt.
with support from commercial banks and the other was MFI supplied. However, selection
of the study areas was made after a series of discussion with the stakeholders and local
experts and performance of the MFH programme. Selection of districts and Taluks was
based on the intensity of the programme as most of the districts were having similar
pattern of MFH activities. Selection of sample households was made on representative
random sampling to capture different aspect of the MFH programme in different
contexts.
35
Keeping in mind the limited housing microfinance products/schemes we selected the
study areas and the clients of some known organizations dealing with MFH for sometime,
for detail study. However, effort was made to explore other housing microfinance
programme such as Gujarat Mahila Housing SEWA Trust and Indian Association of
Savings and Credit (IASC) but not considered for detail study due to its features and
scope and other factors related to the present study. Detail household information about
demographic feature, house type and characteristics, house use pattern, pre-MFH
housing priorities/plans, current expenditure on housing, housing loan terms and
conditions, post-MFH changes in housing expenditure, non-MFH borrowing pattern and
condition, status of housing activities, housing credit use, constraints, participation in
group microcredit programme and other social-economic households features were
collected with help of uniform interview schedule. In Bhavansree programme in Kerala
sample households were selected from client of three banks i.e. SBI, SBT and ICICI
Bank. In Karnataka most of our sample households were microcredit clients of different
SHG groups formed by MYRADA, and now being served by SFRS (Sanghmithra Rural
Financial Servises).
Random selection of households was done at village (Karnataka) and CDS (Kerala) level
based on type of households and type of housing activity. However, prior information
about the group and housing activity was collected from the concern bank branch
mangers or credit officers and analyzed it prior to visit to the sample villages/CDSs.
1.9.2 Study Areas, Sample Sizes and Nodal Agencies/Officers Visited:
A. Kerala: Bhavansree Programme in Kerala
Study Areas & Sample Size:
Kollam District (33 households) in sample villages from Chavara, Nallila,
Sasthankotte and Puvazgy Gram Panchayat
Trivandrum district (26 households) in sample villages from Ooruttambullam,
Peyad and Poovachal Gram Panchayat
Nodal Agency/Officers: Kudumbashree, Head Office, Trivandrum): Executive
Director, Consultant (Microfinance)
36
District Mission Coordinator, Kollam & Trivandrum: DMC, Officer in Charge of
Bhavanshree Programme
Community Development Society (CDS): Kollam (Chavara, Nallila,
Sasthankotte, Puvazgy) & Trivandrum (Ooruttambullam, Peyad,
Poovachal)
State Bank of India (SBI), Local Head Office Trivandrum: AGM (Rural Business)
& Officer in Charge of Bhavansree Loan
SBI, Regional Office, Kollam: Regional Manager, Chief Manger (Bhavansree
Loan)
SBI, Branch Office, Kollam, & Kottarakara: Branch Manager & Field Officers
State Bank of Travancore (SBT), Head Office, Trivandrum: DGM (Development
& Rural Banking), Chief Manager (Dev. Dept. Agriculture)
SBT, Branch Offices in Kollam (Chavara, Nallila, Sasthankotte, Puvazgy):
Branch Manager& Field Officers
SBT, Branch Office in Trivandrum (Ooruttambullam, Peyad, Poovachal): Branch
Manager& Field Officers
B. Karnataka: Shanghamithra Rural Finance Services in Karnataka
Study Areas & Sample Size:
Mysore District (29 households), in Sample Villages of Mandakali, H. Matakere,
Sargur, Bidagul and Nagrle (in H D Kote & Najungud Taluk)
Chamrajnagar District (24 households) in sample villages of Kannur, Anapura,
Shyghya, Gollur (in Kalihundi and Kollegul Taluk)
Nodal Agency/Officers: Sanghmithra Rural Financial Services (SRFS) Corporate
Office, Bangalore: Executive Director, Officer in Charge Housing Loan
SRFS, Regional Office, Mysore: Regional Manager
SFRS Branch Offices (Mysore & Chamrajnagar): Porfolio Managers, Credit
Officers, In charge of Community Resource Centre
MYRADA Office, HD, Kote: Centre Director
Sample Villages in Mysore:
37
1.9.3 Field Visits
The field visit consisted of two phases. The first visit was for pilot survey in Kollam and
Trivandrum in Kerala to explore current status of Bhavansree programme, its operational
and administrative structure and interaction with few clients. During the pilot visit to
West Bengal we did not found any suitable MFH programme for the study as one
progrmme by MFI (SKS) was just lunched and another programme by Shahara Finance
found not directly involved with housing microfinance borrowers. However, input
gathered during the pilot visits helped immensely on modifying the questionnaire for
final survey.
During the second phase of field visit household survey was conducted in Kollam and
Trivandrum districts in Kerala and Mysore and Chamrajnagar districts in Karnataka. The
objective was to gather primary data on current housing scenario, demand and delivery of
microfinance for housing and other aspects of housing credit for low income groups.
Interaction with different stakeholders was made at different level to have a prior
information about microfinance for housing programme in the respective states.
For field data collation a team of research investigators was selected and trained by the
researcher prior to household survey in the respective study areas. Collection of primary
data includes key information about sample households with focus on nature of housing
expenditure, current housing plan and activity, demand and sources of housing credit,
loan repayment, microcredit group activities and major constraints and suggestion
relating to housing finance. Information on household socio-economic features was also
collected to relate the nature and pattern of housing activity and demand for housing
credit.
After completion of field survey a complete check of all filled in questionnaire was made
before processing of field data. Total 110 questionnaires were finalized for analysis after
rejecting around 5 percent of total questionnaires due to incomplete information.
38
1.9.4 Likely Findings/ Outcome
1. Better understanding of nature and pattern of low segment housing finance
market. To estimate the gap between demand and supply of housing finance
among low income group
2. Functioning of current MFH programme, product design and nature of household
participation
3. Impact of MFH programme on household (housing activity, fund arrangement
and repayment)
4. Linkages between microfinance for enterprises & housing activity
5. Policy suggestions for development and expansion of MFH programme
1.10 Structure of Report
Chapter – 2 introduces the two types of housing microfinance programs, one is
Bhawanshree programs in Kerala which was initiated by the state govt and financed by
public and private banks. The other is Sanghamithra Rural Finance Service (SRFS) in
Karnataka involved in own initiated MFH programme basically in rural areas. This
chapter documents basic differences with respect to evolution, vision, objectives, focus,
client eligibility requirements, selection process, housing loan terms and conditions
between two MFH programme. It also briefly delineates the challenges facing the
housing microfinance industry today.
Chapter – 3 assesses and analyzes the current housing situation in the study areas,
demand and supply of housing finance, delivery and utilization pattern of housing micro
finance, pattern of non-MFH credit arrangement, impact of MFH and others aspects
related to housing and housing activity and features of sample households in the study
areas. A comparative analysis between two different MFH models has been done
describing different aspects of housing microfinance initiatives. Possible explanations for
different house use pattern, housing activity and regional housing practices are also
highlighted.
Chapter – 4 concludes with suitable policy suggestions in the perspective of current
problems, challenges and potential of MFH. It offers measures for innovative housing
microfinance initiatives.
39
Chapter-2
Microfinance for Housing in India: Different MFH Programmes Bhavansree (Kerala) & Sanghamithra Rural Financial Services (Karnataka)
Housing has been identified as one of the five major elements of social and economic
infrastructure, critical to the quality of life in rural areas, along-with health, education,
drinking water and roads. In recognition of the importance of shelter as one of the basic
requirements for leading a secure and dignified life, a number of schemes have been
implemented to facilitate provision of quality shelter for all. The rural housing and
housing support schemes, which are currently in operation, are often found not adequate
to meet the growing housing deficit in the country. Unfortunately pro-poor housing
initiatives are often biased for urban areas, especially, in developed and urbanized
countries where urban population constitutes a sizeable portion of total population. But in
India where about two-third of population live in rural areas rural housing problem has
not given due importance, particularly, in terms of quality of house, construction
technology, supply of inputs and access to rural housing finance. In spite of impressive
growth of institutional finance in the country, the pro-poor rural housing finance has been
dismal resulting in huge housing shortage. In rural areas, housing condition is poor
despite increase in income. Studies show that housing finance supplied by commercial
banks and housing finance companies are progressively becoming pro-rich, pro-salaried
and urban oriented (Manoj, 2010).
Till National Housing Bank (NHB) come into existent in 1998, nearly 80 percent of the
housing stock in the country was financed from informal sources (RBI, 2009). Currently
the major players in housing finance sector in Inida are Commercial Banks (CB),
Housing Finance Corporations (HFCs) and Apex Co-operative Housing Federations
(ACFHs). A closer look at the lending patterns of CBs and HFCs reveals their focus on
richer classes and urban areas with high average loan size. Further, these institutions
constitute more than 99 percent of the total institutional lending in the housing sector. On
the other hand, 75 percent of ACFHs clients belong to lower income group which
account for only 0.44 percent of total institutional lending in housing sector. It indicates
40
unequal distribution of formal housing finance in the country which has been more or less
limited to upper income groups. This could be one of the reasons for mounting shortage
of housing especially for low income and weaker sections. In spite of the appreciable
growth of institutional finance to housing in India, the housing shortage is still on the
rise, particularly since the 2000s. According to the National Housing Bank (NHB), the
principal agency for promoting housing finance institutions in India, the total urban
housing shortage in India is estimated around 25 million units during 2007-08 along with
a high rural housing shortage. In fact the housing shortage grew almost 4 times during the
period FY 1991– 2007 (see the tables – 2.1 & 2.2). Considering the problem of housing
shortage is still acute in India, there is the need for alternate models for inclusive housing
development – one that is affordable to the low-income masses.
Table – 2.1: Shortage of Housing in India (Million Nos.)
Housing
Shortages
(in million)
Year/Areas 1961 1971 1981 1991 2001
Rural 3.6 3.0 7.0 8.2 10.6
Urban 11.6 11.6 1.63 14.7 14.1
Total 15.2 14.6 23.3 22.9 24.7
Source: Census of India (Various Issues)
Table 2.2: Urban Housing Stock and Shortage, 1991-2007 (Million Nos.)
Year Housing Stock Housing
Shortage Pucca Semi-Pucca Kutcha Total
1991 29.80 06.20 03.20 40.70 08.23
2000 46.55 06.83 03.42 55.56 06.93
2007 47.49 09.16 02.18 66.30 24.71
Source: Complied from Manoj (2010)
However, housing sector has been given priority only in recent years and there has been a
steady increase in the budget allocations for this sector. As a result there is increase in
India’s Mortgage to GDP ratio from 3.4% in 2005 to 7.4% in 2009. But it remains low
against the double digits ratios of other Asian countries like Malaysia (34%), Thailand
(17%). As there are number of financial institutions including commercial banks have
entered the retail housing finance arena there has been notable in total institutional
housing finance in India. Unfortunately, it is a matter of concern that institutional housing
41
finance has not yet reached to the low-income and other marginalized sections of the
population that constitute near full of the total shelter-less population. Under this
condition, potential role of microfinance for housing has been seen as one of the policy
alternatives for pro-poor housing development.
Microfinance for housing (MFH) is often argued as the area of overlap between housing
finance and traditional microfinance. This overlap applies to loan products as well as
institutions as it was found that roughly 20 percent of micro-enterprise loan goes de facto
for housing (Christen 2004)5. So microfinance clients had already exhibited a high
demand of housing finance. It is an inducement for the suppliers of microfinance to add
housing products to their portfolio while others may aim at to reach the low segment
housing finance market by doing so. With this background we have tried to anayze two
different MFH programs and its evolution, design and implemtation. Here, we have
highlighted some select housing microfinance initiatives in India before comprehensive
and comparative analysis of Bhavansree programme in Kerala and SRFS in Kerala.
Some basic features of microfinance for housing in India are also discussed at the out set.
Bhavansree Programme in Kerala:
Bhavansree is one of the widely cited programme on microfinance for housing in Kerala ,
implemented for the members of Kudumbashree. It incorporates the pro-poor housing
scheme into the Kerala State government’s poverty eradication programme known as
Kudumbashree, which is implemented with community based organizations and achieved
appreciable success. Kudumbashree is administered in partnership with the Kerala state
government, NABARD and Community Development Organisations (CDS). It provides
basic supports to poor and low income group for livelihood through NHG (Neighborhood
Group) including housing finance. In 2004, after the failure of previous housing
programme which had utilized subsidies, Kudumbashree Mission dedeveloped a housing
microfinance programme for it members called as Bhavanashree without any direct
subsidy. Bhavanashree is an example where state government with support of
5 Christen, R.P. (2004), in Daphis F. & Ferguson, B. (eds. 2004), 'Housing Microfinance: A Guide to Practice',
Kumarian Press, Bloomfiel, CT, USA, pp. xiv
42
commercial banks initiated a housing microfinance programme embedded in a larger and
holistic poverty alleviation scheme. Later it becomes one of the successful programmes
in the country. We will discuss more about it in the next chapter
Sanghamithra Rural Financial Services (SRFS)
Sanghamithra Rural Fianacial Services a MFI promoted by MYRADA and operates in
three states Karnataka, Tamilnadu and Andhra Pradesh. Its ventured into housing
microfinance in 2004 was preempted by its mentor organization about the potential
demand for housing credit among its clients. The programme was designed and
implemented while retaining the earlier group lending and microcredit loan activities.
Any SHG group comprise 15-20 women, if qualifies, will receive Rs 30000 to 50000 per
member for three years loan repayment terms. This is in line similar to the microcredit
loan and housing loans continue to follow the group guarantee mechanism. However,
there is provision of getting smaller loans for shorter periods of time which need to be
declared before sanction of the loan.
SEWA:
Gujarat Mahila Housing SEWA Trust provides housing credit to their clients - poor
women working in the informal sector like head loaders, rag pickers, vegetable vendors
etc. for repairing, extension/upgradation and addition of services like water, drainage and
electricity facilities. The housing loans were for short period and were repeat loans in
small amounts. The loans were extended to their members without any collateral and
were also combined with a business loan to increase the income of their members. The
challenges in providing housing loans to such groups/sections were met by assessing the
credibility and financial behaviors of the members, rather than depending on traditional
concepts of collateral for repayments and putting emphasis on peer group pressure as a
mechanism to ensure prompt repayments. Provision of credit related extension services,
simple procedure and product designing, linking credit with other support services like
insurance, health care, child care, legal aid and skills training were followed in order to
reduce the women's financial vulnerability. Gujarat Mahila Housing SEWA Trust had
also recently started a housing mortgage loan where loans were extended to members for
a period ranging from 5-15 years and the amounts ranged upto a maximum of Rs 5 lakhs.
43
Dewan Housing Finance Corporation Limited (DHFL)
DHFL a key private sector housing finance company believes in reaching out to a large
number of customers with small loans instead of serving a small number of customers
with large loans. It aims at establishing direct contact with customers at every stage. This
is a more inclusive strategy in efficiently serving to core customers who generally belong
to the low and middle income groups. DHFL Being a customer driven credit institutions,
it has continually introduced new products & endeavored to reach out to the vast majority
of the low & middle income groups For instance, it introduced a non-income proof
scheme called ‘Samarth’ for self employed individuals. Along with housing finance, it
also provides insurance for its customers in case of damages due to natural causes and
personal accident. DHFL housing credit is designed by assessing the customer’s
willingness to repay and thus try and maximize its efforts at serving his requirement.
Operation of Microfinance for housing has also emerged with other factors for instance –
initiatives of the govt. (Bhavanshree in Kerala), involve in house building activity
(Evangelical Social Action Forum), catering to informal sector (SEWA Trust) etc. The
other known institutions involved in microfinance for housing are Indian Association of
Savings and Credit (IASC), Dewan Housing Finance Corporation Limited (DHFL),
GRUH, Evangelical Social Action Forum (ESAF). SKS in Anhdhra Pradesh has initiated
housing microfinance with help of mortgage financer HDFC.
Other MFIs are likely to enter into the sector with similar programme for housing with
their existing micro-enterprise loan programme. However, this does not necessarily mean
all MFIs should start HMF. There have been cases, such as Activists for Social
Alternatives – Gramma Vidiyal (ASA-GV), an MFI in Tamil Nadu, where the MFI was
unable to sustain their housing product due to high levels of default and lack of funding.
This underscores the importance of assessing the demand for the product and clients’
loan absorption capacity and procuring funding sources with sufficient time horizon.
2. 1. Comparative Features of MFH Models: (Bhavansree and SRFS)
44
Funding
There are several ways to distinguish different housing microfinance programme such as
evolution of the programme, lenders profile, product design, coverage, clientele base,
source of fund and other specific factors. The distinction can be made among institutions
offering MFH, which is mainly categorized into banks and MFIs. As regard to fund for
MFH programme commercial banks can rely on demand deposits, while MFIs seek fund
from several sources including donor agencies. Microfinance institutions also fund
themselves but they also explore subsidized fund through various combinations of grants,
donor, and government funds. Some large MFIs, such as SKS and SEWA Trust are
financially sustainable.
In our study two different MFH models used different sources of fund for the respective
programme. In case of Bhavansree more than dozen of commercial banks participated in
the programme had their own fund, which constitutes a smaller portion of their respective
total portfolios. So there was no such problem of fund for MFH. But incase of SRFS,
raising fund for the MFH programme was a constraint because its own fund was not
adequate for the increasing demand of its clients. It has borrowed fund from commercial
banks, development bank like SIDBI, NABARD and NHB at market rate except from
NABARD.
Client Eligibility Requirements and Loan Processing
Depending on the lenders institutional arrangement the selection process varies in both
the MFH programme. As housing loan amount is larger in case of than micro-credit loan,
ensuring repaying capacity and commitment of the clients was emphasized. Both types of
MFH discussed here followed careful scrutiny while assessing applicants’ credit-
worthiness and past repaying record. Other criteria were credit risk assessment process
including clients’ regular savings pattern, household assets, ability to service debt (steady
income, wages and other sources income), participation in minimum group loans with a
successful repayment history, and legal land ownership. Following stringent criteria and
selecting few out of large applicants was believed to minimize credit risk.
45
Bhavansree programs had more conservative and different stages of selection process and
took longer period loan disbursement than SRFS. However, demonstrated credit-
worthiness of a client may qualify for MFH loan but not for higher loan amount than the
prescribed limit. Loan amounts do not reflect the member’s ability to pay as the case of
common mortgages. Interest rates and amortization schedules were uniform for all
clients. There was also no flexibility in loan terms and conditions. Upon successful
repayment of the first loan, members may become eligible for a next loan of higher
amount.
Group guarantee was relied on in lieu of conventional collateral and hence become a part
and parcel of the programme. Group-related characteristics such as fellow members’
approval, collective guarantee of loan recipients and, in some cases, a minimum length of
residency in the community were reemphasized.
Loan Terms and Conditions Lending Policies and Procedures
Both Bhavansree and SRFS housing loan programme emphasize on group-based
approach and prerequisites such as regular participation in savings groups and obtaining
signatures from the entire group, keep record about require legal land ownership. But
they do not keep client’s land title as formal collateral. In case of Bhabansree, where
several banks are participating in the programme, some banks find it is not worth to take
land title of a tiny land as collateral because it cannot be used easily for recovery purpose
in case of default. However, all banks insist to submit document of clear land title at the
time of sanction of loan. An applicant failing to submit a clear land title will be
disqualified to avail housing loan. In case of SRFS, only copies of land title not the
original one is required at the time of loan processing. Payments were usually made
monthly during group meeting fixed by the respective groups. In some cases, payments
are collected from the group member’s house. In case SRFS the process was more or less
similar to the micro-credit loan repayment.
Group v/s Individual Lending
46
Though is often argued that group lending of housing loan is less appropriate than micro-
enterprise loans6, in the study areas most of the housing loan were disbursed in group
under both the MFH program. However, there were some exceptions in Kerala where
individual loan was sanctioned by the banks depending on their previous records. Group
lending was followed to seek collective liability and it found work in case of default or
similar events. But it was a problem for some members. In fact, under Bhavansree
programme, group loan IDs were maintained by the respective banks and it found
difficult for the individual member to service the loan separately. This in contrast to
holding a group collectively liable for all members’ repayments of large sums of money
over long spans of time creates higher risks that are less likely to be accepted by either
lenders or borrowers.
MFH & Microcredit Links
Though inter-linkage between housing microfinance and micro-enterprise loans are often
argued work at low income size groups. But both of the MFH programme (Bhavansree
and SRFS) hardly treat this linkage seriously or attempt to analyze it. There was no effort
to document MFH and microcredit linkage, particularly, between housing improvements
and income-generating activities which is crucial for the sustainability of the MFH
programme. Nature of repayment of housing loan was the key focus in both of the cases
and it was considered one of the major indicators of success of MFH programme and
cited frequently for the same. For the lender's the links between housing loan and
microcredit loan seems limited only to establish the repaying behaviour of a group or its
members, which is also one of the key eligibility condition for availing housing credit.
However, for the borrowers, links between MFH and microcredit may influence their
credit utilization, loan repayment, income generation and household decision making. We
have discussed more about it in the next chapter.
Programme Implementation and Repayment Rate
6 Structurally, microenterprise and housing finance differ. Microenterprise loans are generally smaller, with
an amortization period of a year or less, and the enterprise revenue helps to repay the loan, while housing
loans typically involve larger sums repaid over longer amortization periods and the investment may not
produce income right away.
47
Both MFH programme were launched in different phases in different localities with
select groups. MFH programs of SRFS had a solid track record of repayment. It may be
due to its long association with the groups (Most of the SRFS clients are formed and
guided by its mentor organization MYRADA) and flexible collateral free housing loan.
Relatively higher group loans and group saving also helped in repayment of housing loan.
In contrast, Bhavansree program suffered setback during last few years in terms of
mounting arrears and defaults. Incidence of mass non-repayment (mainly due to govt.
declaration regarding waive off the housing loan), rising interest rate, poor accounts
keeping at CDS level, lack of monitoring and supervising were some major problems.
Subsidy Component of MFH
It may be noted that both MFH programmes are subsidy free housing loan. Some factors
other than subsidy affect expansion and growth of MFH in the study areas which we have
discussed in the next section. However, some subsidy in terms of provision of land for
house construction to a few landless beneficiaries and some monetary assistance to ST
and other backward categories were offered under Bhavansree programme in Kerala. It
was purely on the discretion of the local panchayat. However, select borrowers of
housing credit will be eligible for some monetary assistance was only after completion of
their housing activity.
2. 2. Bhavansree Programme - Microfinance for Housing in Kerala
Since, Kerala is known for its better socio-economic development and high human
development index in India. Compared to other Indian states, it is expected that people of
the state have better housing facility than other parts of the country. There are several
agencies and organizations playing key role in making the housing sector dynamic in the
state. Despite some positive trends noticed in housing sector, a sizeable portion of total
poor and marginalized sections of the society are living in inadequate housing condition.
48
Bhavansree is an innovative micro finance for housing programme designed by
Kudumbashree7 with financial support from numbers of commercial banks both from
public and private sector to cater the housing credit need of the poor families in Kerala.
The banks participated in the Bhavansree programme are SBI, SBT, Canara Bank,
Central Bank of India, Indian Overseas Bank, Indian Bank, Dhanalekshmi Bank,
Syndicate Bank , ICICI bank & Union Bank. The loan amount and terms are common i.e.
loan amount up to Rs 50000/- and interest 7.25 % (fixed) and the repayment period is for
ten years.
Housing Finance Demand and supply Assessment:
Realizing huge demand-supply gap in housing credit for its members that aggravate their
poverty situation, Kudumbashree gathered information of actual housing situation across
the state. There was high demand for housing and sanitation among the group members
which prompted Kudumbashree to initiate a subsidy free housing scheme called
Bhavansree. Initially the objective was to cover below poverty line (BPL) members later
other low income group members were included. Providing micro finance for new
construction, repair and replacing Kutcha houses (huts) was aimed at. Repayment of loan
was planned from their own savings as there was low incidence of income generating
activity among group members. SBI was the first bank to issue the loan amount to the
beneficiaries
Loan Application & Selection Criteria
Identification of beneficiaries was done at the Ayalkoottam (group of women called
NHG8 or Neighborhood Group) through the CDS9. The major eligibility criteria for
housing microfinance loan under Bhavanashree are given below:
7Kudumbashree is Kerala State government’s poverty eradication programme started in the year 1998. This
poverty eradication programme, is implemented with community participation and has achieved notable
success. Kudumbashree is administered in partnership with the Kerala state government, NABARD and
various Community Based Organisations. 8 Similar to SHG and consisting of 20-40 women members selected from the poor families 9 At the panchayat/municipal level a community development society, a registered body under the
charitable societies act is formed by federating various ADSs
49
Land ownership: Any member of Kudumbasree having at least 1.5 cents (60 sq.m)
qualifes for housing loan. If the land is owned by other family member, they can be made
co-borrower to avail the loan. For landless members local self government (Panchayat)
sometime allots suitable land wherever possible.
Group membership: At least 6 months membership tenure and a consistent and regular
thrift and credit record is required to eligible for Bhavansree loan.
Selection of beneficiaries is a multi layer and participatory process with involvement of
DMC, CDS, ADS10, NHG and the participating banks. The CDS conveys the information
to ADS presidents and it is the responsibility of ADS presidents to convey the
information to all NHG presidents of the respective ward and finally all group members.
Each NHG president will brief the members of the respective group during the weekly
meetings.
Role of CDS
Role of CDS is important in entire programme. It facilitate in application process at the
Panchayat level. NHGs arrange for a meeting to discuss the needs and repayment
capacity of applicants. Approval of application by NHG, ADS, CDS are necessary before
submitted to the bank. There is some legal scrutiny by the bank for which a legal fee is
charged from the beneficiary. Regarding the Bhavansre loan processing, all applications
with documents of property are authenticated and verified at the NHG level before the
final verification done by respective CDS. Then CDS decides the number of applications
to be considered in one slot, depending on the demand and bank specifications. Normally
CDS submits applications to the bank in groups. The Banks finally select the clients and
inform to the CDS for further actions. An orientation programme is to be organized by
the bank officials, CDS and the panchayat officials before the disbursal of loan to brief
the beneficiaries on loan installments, loan repayments and other details. In most cases
amount of housing loans comes as a group loan to the CDS account and then it is
distributed in installments (2 or 3) to the beneficiaries which is decided by the bank.
10 The second tier of Kudumbashree - community based organization is called area development society
(ADS), which is formed at the ward level by federating 10-15 NHGs
50
Loan size & Installments:
It may be seen from the table – 2.3 that Bhavansree loan amount ranges from Rs30000-
Rs 50000 for 10 years and disbursed in two installments. But theses loans are not strictly
to the need and higher repayment capacity of the clients. For construction of a new house,
the loan amount is generally Rs 40000 to Rs 50000. There were instances of lower loan
amount for new house construction. In spite of several round of interaction between
representatives of CDS and Banks regarding increasing loan amount limit it remain
unchanged. The loan is disbursed in installments at different stages of construction. Most
common is three installments. Some banks give it in two installments. The installment
amount varies across banks: CDS officials or the bank officials or both verify housing
activity at each level. In certain cases, the ward member verifies and gives the
certification to the CDS
Table – 2.3: Housing Loan Amount in Installments by Different Banks
Loan Installment
Banks
Loan
(Rs)
Tenure
(Years) Basement Lintel Roof level
SBI 35000 10 15000 15000 5000
50000 10 - 20000 30000
SBT 40000 10 12000 16000 12000
50000 10 15000 20000 15000
ICICI 50000 10 20000 15000 15000
Source: Kudumbasree
Subsidy/Assistance by Panchayats to MFH Borrowers
In the case of new construction, the Panchayats, subject to its capacity, can provide
subsidy amount of Rs 10000 to each applicant as per the Panchayat’s decision. Subsidy
amount is not allowed for repair and maintenance. However the subsidy amount is totally
under the discretion of the Panchayat. The subsidy amount once sanctioned is deposited
in the loan account11 of CDS. The subsidy amount is used to pay the last part of interest
component not the principal of the loan. Hence the subsidy amount does not get misused
or comes to the beneficiaries directly.
11 Bhavanashree loan account that the CDS holds with the particular bank from where they issued the loan
51
Loan period
The maturity period is 10 years. One can repay the whole amount at any time without any
pre-closure charges. But there were some problems related to return of land document to
who pre-closed their individual loan. The concern banks deny or delay in giving back the
land document to individual applicant, until all the members in that group repays their
loan amount.
Interest rate:
Though the interest rate was fixed at 7.25% as per the MOU signed between the
participating banks and the government it was not followed. However, banks do lend the
loan at different interest rates that vary from 7.25% – 8%. Banks justify by saying that
land valuations vary at different places. Due to high default rate during last few years
some banks have increased the rate of interest up to 10.25 percent.
Collateral:
Though it is claimed that Bhavanshree loan are not like common mortgage loans, it is
mandatory that the house for which loan is sanctioned and land on which the house is
located to be mortgaged with the bank if the loan is taken for construction of a new house
or for maintenance. Applicants need to submit original land title to the CDS at the time of
application. There is a tripartite agreement between the bank, CDS and the borrower and
it is the CDS who is responsible for the collection and repayment of loan amount. The
CDS chairperson and member secretary need to be agreed to the above conditions as per
the agreement forwarded by the banks. In other words the CDS act as proxy guarantor for
the Bhavansree borrowers
Insurance:
Most banks give insurance facilities (on person) to the beneficiaries but at the applicant’s
cost. In case of death of the beneficiary, the insurance provider which is normally the
bank would repay the remaining loan amount. The premium varies according to the age
of applicant and it is normally deducted from the installment amounts. SBI often gives
loans and insurance facilities but other banks don’t give insurance facilities.
52
EMI, Repayment & Collection process:
There is a moratorium of 6 months for Bhavansree loan. So the loan term becomes 10.5
years instead of 10 years. But most of CDS start collecting the monthly installments from
next month of loan disbursement. It distorts the actual monthly installment but many
CDSs fix EMI in multiples of 100 for ease collection while others make it as per actual
EMI amount. There is provision that if the beneficiaries find it difficult to repay the EMI
at the beginning of a month, the NHG can take the responsibility of collecting the amount
deposit it with CDS later. However, it is up to the CDS to decide on the method of
collection. The beneficiaries pay the amount to the CDS, either directly to the chairperson
at the Panchayat office or somebody appointed by the CDS to collect the amount on the
specific day of collection decided by the CDS as per their convenience and the bank’s
monthly due date for payment of group installments. The beneficiaries get a receipt from
the CDS for the payment made. However, CDS levies an additional charge of Rs. 5 or Rs.
10 as per the distance, to meet the traveling expenditure for depositing the EMI on due
date. Second method of repayment is beneficiaries can deposit it at the bank directly.
This is not common as it is treated as an additional burden of bank to entertain individual
members where the loan account is a group account. It is often not easy if the distance of
bank is farther.
Repayment rate:
Initially the repayment rate was reported was more than 95 %. Even though there were
some default or arrear cases reported CDS adjust it by using of the additional money12
(over and above the actual installment amount) they collect from the individuals. As the
banks starts the collection only after the moratorium of 6 months, many CDS does not
find much difficulty in managing few default cases while repaying the installments to the
bank. This was a area for the banks fail to understand the actual repayment rate. But it
become a serious problem later when the default rate was increasing and CDS fail to
adjust it in the similar way. Now repayment of Bhavansree loan is almost stopped due to
the public announcement of waiving of Bhavansree loans.
12 Most CDS start the early collection of monthly installments before the six months moratorium allowed
by the bank is from the disbursement of the first installment. They also collect a little more amount than the
actual EMI.
53
Monitoring:
Initially the programme was designed to have an inbuilt monitoring practice, mainly by
peer group and representatives from ADS, CDA and Banks. Once the construction starts,
the respective NHG of which the beneficiary is a member should monitor the
construction process and report to the ADS. All constructions that happen within the
ward should be reported by the concerned ADS to the CDS. In case any beneficiary finds
any difficulty in construction, the CDS takes the initiative in rectifying it. But in general
monitoring by NHG and ADS seems not serious due to mutual fellow-feeling.
CDS has following responsibility to monitor and report to respective DMC as follow.
- Statement showing the details of applications sanctioned and disbursed as on a
particular date
- Statement showing the progress in construction of houses as on a particular date
- Statement showing the progress in repayment of advances as on a particular date
In case of any default, ADS or CDS members responsible for finding the reason and warn
the defaulter. But most of the time, the CDS would not report defaults of 2-3 months if
they can manage it with their reserve funds as mentioned above. Even the banks often
ignore the cases of 2- 3 months delay.
Progress of Bhavanashree Programme in Kerala
It may be seen in the data presented in table 2.4 that there was a progressive increase in
number of applicants and loan disbursed during 2005-06 under the Bhavansree
programme in Kerala. The total number of housing loans disbursed increased from 1035
in November 2004 to 24709 in April 2006. There was substantial increase in both number
of beneficiaries and total loan amount disbursed. During 2006, there has been a consistent
increase in the number of cases disbursed. The difference between the number of
borrowers identified and the number of applications is mainly due to post-application
withdraw of some applicants fearing of giving the land as collateral and failure to submit
documents like land title deed and encumbrance certificate as required by the banks.
CDS was taking good care of collection earlier the situation became worse in last few
months with high default rates. Our interaction with the concern banks officials suggests
54
that banks had no major problem with regard to the repayments till 2008. But now many
of them stopped financing for this programme due to high non-repayment. To large
extent beneficiaries are not intentionally stopped repaying it was mainly because of the
expectation that the outstanding amount will be waived off in future.
Table – 2.4: Progress of Bhavanashree Programme in Kerala
Period Borrowers
identified
Applications
collected by
CDS
Applications
forwarded
to Banks
Applications
sanctioned
by Banks
No. of
cases
disbursed
Amount
disbursed
(Rs. in lakhs)
Nov-04 33039 26522 11706 1212 1035
Dec-04 33088 30223 14785 3081 1642
Jan-05 38420 35305 17000 5533 2021
Feb-05 40958 35211 20880 7245 3428 1000.34
Mar-05 41577 36783 23340 8517 5463 2075.92
Apr-05 46936 37987 25805 11543 7631 2864.97
May-05 47290 38304 27077 13635 9471 3510.27
Jun-05 50344 43188 29991 16246 12804 4557.41
Jul-05 49226 41036 27972 16116 13052 4557.41
Aug-05 49861 43124 30015 16919 13895 5117.23
Sep-05 51782 43470 29512 17512 14580 5749.11
Oct-05 51117 42862 29662 18981 15823 6278.78
Nov-05 51861 43319 30013 19572 16607 6571.78
Dec-05 52272 43906 30678 19922 17048 6765.91
Jan-06 53027 44621 31166 21566 18509 7286.48
Feb-06 50609 41976 31054 22437 20269 8042.36
Mar-06 51481 43783 33922 24512 22568 8709.61
Apr-06 50416 43777 34782 26119 24709 9367.77
Source: Kudumbashree Annual Reports (various years)
55
2.3. Sanghamithra Rural Financial Services (SRFS): Microfinance for Housing in
Karnataka
SRFS is a MFI with difference that the claim made by none other than the Chairman of
the organization Mr. Aloysius P. Fernandez who is a well known NGO activist in the
country. SRFS has been promoted by MYRADA13 with aim to fulfill some priority of the
poor and low income groups by extending microcredit and other services. The thrust is to
focus on poor and marginal groups who often fail find a better way to borrow for their
diverse credit needs including for income generating activity and housing, which many
other credit lending institutions unable to fulfill. Though Sanghamithra was deliberately
set up as a separate institution, it shares the vision of by MYRADA i.e. promoting self-
governed institutions of the poor. The mission is focused to provide credit to low income
group where other credit institutions left gaps.
Sustainable poverty reduction through the promotion of livelihood strategies is the
mission of SRFS. With support of by MYRADA it has taken the initiatives in upgrading
skills of SHGs members to enable them to undertake livelihood activities. A software
called NABYUKTHI was developed by MYRADA for SFRS with the support of
NABARD to document and analyze data relating to the economic activities undertaken
by the group members and other group level indicators.
Another notable feature of the SRFS functioning is that it has been giving incentives to
the NGOs whose groups were linked with it. It varies with stages of linkages for instance,
Rs. 250/- for first linkage, Rs. 150/- for second linkage and Rs. 100 for the third linkage.
Recently, CMRCs a community level supporting wing promoted by Myrada were
included in this effort. The incentive pattern in respect of CMRCs is 50% of upfront of
admin charges recovered from the SHGs by Sanghamithra; initially 25% is paid on
linkage and remaining 25% on closure of the loan accounts. It gives the institutional
13 Mysore Resettlement and Development Agency (MYRADA) was founded in 1968 to assist the
Government in resettling Tibetan Refugees. MYRADA is a Non Governmental Organisation managing
rural development programmes in 3 States of South India and providing on-going support including
deputations of staff to programmes in 6 other States.
56
structure under which housing microfinance was launched and its success. This approach
is different from other MFH programme including Bhavansree.
Regarding the financial achievement which is important for the growth of MFH program
SRFS performed satisfactorily. During 2009-10, SRFS has disbursed a sum of Rs.
6389.55 lakh to 4432 groups out of which new groups (first linkage) were 2079 and the
loan given was Rs.1947.55 lakh and the balance amount of Rs. 4442 lakh was lent to the
existing groups as repeat loans. There is a network of 60 branches spread across 3
southern states and it has extended cumulative credit linkage to 29974 SHGs (485936
households) till March 2010 with aggregate amount Rs. 25514.11 lakh. It shows faster
outreach of microfinance programme by SFRS (SFRS Annual Report 2009-10).
As regard to the financial outstanding portfolio as on 31.03.2010 it was Rs. 6925 lakh
against outstanding level of Rs. 5784.30 lakh during the corresponding period last year
registering a growth of 19.73%. The average loan size per group has also increased from
Rs. 71,900/- to Rs. 94,000/- during current year. During 2009-10 a record 4432 groups
have been sanctioned loan constituting 70912 families. The cumulative loan amount was
Rs.25514.11 lakh and the disbursement made during last year registered an increase of
31% (SFRS Annual Report 2009-10).
Table - 2.5: Operational Performances of SRFS in Study Areas
Loan Disbursed
(Rs. lakh)
Outstanding
(Rs. lakh)
Group
Nos
2008-09 2009-10 2008-09 2009-10 2008-09 2009-10
Mysore 4957.19 6553 1401.45 1653.56 6553 7349
Growth (in %) 28 18 12
Chamraj Nagar 1346.3 1687.05 293.46 373.38 2218 2463
Growth in (in %) 25 11 27
Karnataka 15444.35 20348.7 4696.39 5658.47 21533 25288
Growth (in %) 31 17 20
Source: SRFS Annual Report 2009-10
It may be seen the data presented in the table – 2.5 that within short span of time SRFS
has registered notable growth during the previous years showing operational success and
57
popularity of the microfinance for housing programme. However, it has some major
problems that may affect its performance in coming years. As per some senior executive
of the organization SFRS now confronting with unhealthy competition from other NBFC-
MFIs who have adopted JLG method of lending and distort its operation by influencing
group members. There are instances where the groups were broken by other NBFC/ MFIs
to form new JLGs. It poses a serious threat to the sustainability of SHGs. Multiple
lending has become rampant and become one of the main reasons for increasing
delinquency in micro-credit. SFRS also has constraint in fund raising for its ongoing
programme.
Financial Sustainability ratio
In spite of above problems SRFS has improved it financial sustainability ratio to 118.38
from 114.18 during last year.
2.3.1 Housing Microfinance Product of SRFS (Griha Nirman Loan Scheme)
Here we have discussed some basic feature of the MFH product of SFRS. Microfinance
for housing programme of SRFS is one of the known MFH scheme in the country. The
housing loan scheme was designed for the low income groups who have availed general
group loans subject to regular and consistent past payment record. Some basic features of
the scheme are given below. This is a group lending not individual lending scheme.
Purpose of Housing Loan:
- Site or land purchase for landless or those who do not have homestead land
- New house construction
- Repair and maintenance to existing houses
- House extension and renovation
- Construction of bathrooms and toilets
- Creation of space for income generating activities
Eligibility Criteria: selection of the group is based on following major conditions
- A group must have effectively functioned for a minimum period of three years
- The group must have availed group loan from SRFS or any other financial
institutions at least twice before availing the housing loan from SFRS.
58
- For non-MYRADA groups there must be undertaking from respective group
promoters
MFH Loan Amount and Other Features
- Amount of housing loan is minimum Rs. 75000 and maximum Rs. 150000/- per
group
- Within the group an individual member can avail a minimum of Rs. 5000/- and
maximum of Rs. 30000/- . The maximum limit has been increased up to Rs.
50000/- during last two years
- At least 5 members of the group should avail the housing loan
Loan Period:
- Loan term period is three years.
- Three moths moratorium is given to all borrowing members for principal amount
and up to six months for repayment of interest.
Interest rate
- Initially rate of interest was 12% on reduced balance basis as per the SFRS
procedure. Subsequently it increased to 15%.
- Rate of interest is little lower than general group loan.
Processing Charges
- Service charges are applicable as per the general loan payable up front 2% for 1
year, 1% for two years and 0.5 % for three years.
- Rate of interest is subject to change but before disbursement of loan.
Repayment
- Repayment holiday of three months are allowed from the datae of disbursal of the
1st installment.
- The amount should be utilized within three months and housing activity should be
completed as per the plan.
Collateral
- No collateral required for housing loan but copy of the land ownership record
must be submitted.
- It should not bear any encumbrances.
Other terms and conditions
59
- Scrutiny at group level about all documents submitted are correct.
- Document relating to land/house in the name of the borrower or spouse must be
certified by the group.
- If any dispute it must be settled by the group and it should not affect the
repayment of loan.
- Average monthly repayment capacity of the housing borrowers should be higher
than the general loan.
- Borrowers must not have any default to the group at any time.
- Group is responsible for repayment of the housing loan like general loan.
- Group must ensure that the member is not having any liability with other financial
institutions.
- Group should document and keep record about different housing activities of the
members under housing loan.
- SRFS has right to assess to inspect the asset created by the housing loan and
verify the documents related to the property submitter by group.
- If found asset has not been created or not completed within given period SRFS
has right to recover the fund fully or partially.
- The property cannot be allowed to alienated, mortgaged or pledged to third party
unless the loan is not completely repaid.
- All rules and regulations may be amended time to time by SRFS will be
applicable.
Fund Arrangement & Borrowing Patterns of SRFS
SRFS borrows from several commercial banks and development banks like NABARD,
SIDBI and NBH. Its borrowing pattern and outstanding and rate of interest of loans from
different institutions during the last three years are presented in table 2.6. It may be seen
that SBI continues to be the largest lender for SFRS with low rate of interest. SBI has
renewed the working capital limit of Rs. 1500 lakh with the repayment schedule during
the year 2009-10 for on lending operations and another Rs. 1000 lakh was sanctioned
during the year at 9.25% interest which is repayable in 36 months. Both the facilities
were fully utilized and there was an outstanding of Rs.1617 lakh up to march 2010.
60
Canara Bank was the second largest lender for SFRS has renewed a cash credit limit of
Rs.1500 lakh during the last year for lending operations. Among other commercial banks
Who lend to SFRS, Indian Bank renewed the overdraft limit at the existing level of Rs.
500 lakh for on lending to SHGs followed by State Bank of Mysore who renewed the
cash credit limit of Rs. 1000 lakh during March 2010 at 9.5% interest against 10% earlier.
Similarly, Union Bank of India had sanctioned a loan of Rs.1000 lakh, of which, Rs.500
lakh by way of term loan and Rs.500 lakh as cash credit limit during 2009-10, at 9.25%
interest. SRFS also borrow from private banks such as ING Vysya Bank in the form of
over draft. Because of the high rate of interest the OD limit was closed and Rs. 400 lakh
was borrowed as term loan. It may be noted that SRFS also availed term loan of Rs. 300
lakh from National Housing Bank out of which Rs. 145 lakh was utilized by way of re-
finance. It had submitted final application for the remaining amount and the approval was
made recently.
Table – 2.6 Borrowing Patterns of SRFS (Loan & Outstanding in Rs Lakh) Jun-07 Jun-08 Mar-09 Mar-10
Loan
Out
standing
RoI
(%)
Loa
n
Out
standing
RoI
(%)
Loa
n
Out
standing
RoI
(%) Loan
Out
standing
RoI
(%)
Canara
Bank
2000 1480.21 9.75 1500 1399.57 9.25
150
0
1476.02
9.25
1500
1358.9
9.75
500 173.65 11 500 Nil 11
HDFC
Bank
Indian
Bank 200 189.66 10 200 111.55 10
500
496.55
10
500
496.96
9.5
500 298.37 8.75 500 498.39 9.25
ING Vysya 500 464.26 10 700 319.79 10.25
SIDBI 300 42.84 8
SIDBI 300 192.84 8 300 107.13 8 750 362.96 9.25 750 96.87 9.25
750 400 9.25 750 580.67 9.25 1000 500 10.5
NABARD 251 52.37 7.5 251 7 7.5 500 500 9.5
NABARD
(MFEDF) 100 100 3.5 100 100 3.5 100 100 3.5 100 80 3.5
SBI
0 0 0 1500 1490.3 9.5
150
0 1494 9.25 2500 1617.29 8.75
SBM
100 358.58
10.7
5 1000 834.88 9.5
NHB 300 89 10 300 121 10
ING Vysya 500 464.26 10 700 319.79 10.25
Total
4601 2887.1 5601 4294.61
4884.21
5926.63
RoI – Rate of Interest, Source: SRFS Annual Report 2009-10
61
Table - 2.7: Comparative Observations on MFH programme of Bhavansree and
SFRS
Bhavansree SRFS
Loan Size 40000-50000 30000-40000
Rate of Interest 7.25 15
Loan Period Up to 10 3
Collateral No (beneficiary should have
minimum 1.5 cent land)
No (only copy of Land
kept for record)
Guarantor CDS Group
Saving Required No No
Membership 6-12 months 6-12 months
Other Requirements
Selections Through NHG/ADS/CDS By MFI through SGH
Gender Women members (family
members can be co-borrowers)
Women members only
Housing Technical
Assistance
Literature supplied by CDS No
Funding of MFH Own fund used by Commercial
banks
Borrowed from
commercial Banks,
SIDBI, NABARD,
NHB, Own Fund
Subsidy Government/Panchayat
subsidy was effectively
incorporated in the loan
component
No Subsidy
2.4 Summary:
Two distinct lending MFH were observed in the study areas with different approach, loan
terms and conditions, clientele base and success. The SRFS initiated MFH is prevalent
among most MCHF programs. These initiatives show effective transfer of expertise in the
field of micro-enterprise credit toward shelter interventions. The experience of
Bhavansree shows that MFH programme can be success with differentiating between
housing and microenterprise loans. However, in both cases housing loans are applied for
and awarded collectively through respective SHG and NHG. There were some cases of
individual award of MFH in Bhavanshree in Kerala.
As regard to access to diverse capital sources to finance there is some limitations,
particularly, for SFRS. For their housing programs, the revolving potential of funds in
62
housing microfinance initiatives is limited compared to microenterprise portfolios,
because housing loans tend to be larger in size and have longer maturities. Interestingly,
some of its clients are keen to pre-close the existing smaller housing loan to take larger
loan to meet their requirement. However, SRFS discourages this trend by imposing pre-
closure charges (2% of outstanding) because it believes that it is beyond the repaying
capability of the clients and will lead to higher default rate in future. In fact, it was
reported during the field survey that in order to meet their requirement many MFH clients
end up in high cost informal borrowing that affect their occupation, housing activities,
income flow and other plans. The gap between estimation of housing credit need by the
lenders and borrowers appears substantial which may distort the low segment housing
market markets.
Appendix: 2.1 Profile of SRFS’s Operation at District Level
State Unit
June 2008 June 2007 March 2008
No. of
Groups
Loan O/S
(Rs. in
lacs)
No. of
Groups
Loan
O/S
(Rs. in
lacs)
No. of
Groups
Loan
O/S
(Rs. in
lacs)
K’taka
Mysore 2015 1216.39 1812 916.32 2005 1213.79
Bidar 104 45.06 0 0 87 33.06
Chamrajnagar 501 282.85 538 231.97 482 252.89
Chikkaballapura 32 4.48 0 0 24 3.70
Chitradurga 992 465.04 896 371.16 1044 499.16
Davangere 720 315.96 572 173.07 713 318.61
Gulbarga 564 214.45 213 49.96 536 175.46
Ramanagar 329 423.73 0 0 301 390.30
Mandya 311 212.11 283 125.78 304 213.21
Shimoga 548 342.14 454 213.25 531 332.12
Bangalore Rural 662 513.48 801 546.34 693 555.62
Kolar 93 42.42 103 43.04 97 46.07
Sub-total 6871 4078.09 5672 2670.89 6194 4033.99
Tamil
Nadu
Dharmapuri 510 392.07 511 433.96 526 405.67
Erode 423 200.32 326 142.53 402 201.50
Krishnagiri 276 172.79 248 190.42 284 190.35
Salem 3 2.09 3 0.81 3 2.45
Sub-total 1212 767.27 1088 767.62 1215 799.97
Andhra
Pradesh
Ananthapur 92 29.15 85 9.74 89 31.63
Kadapa 9 4.63 11 2.24 7 3.95
Sub-total 101 33.78 95 11.98 96 35.58
Grand Total 8184 4879.16 6856 3450.59 8128 4869.54
Source: SRFS Annual Report 2009-10
63
Chapter – 3
Demand & Supply of Housing Finance in Study Area:
Housing Priority among Low Income Group
The plight of the Indian house poor is well said in these statements - ‘Rehne ko Ghar
Nahin – saara Hindustan hamara’ To meet the basic housing need it requires bigger fund
and longer period than meeting the need of food, clothes and other entitlements. The wish
to have their own house is perhaps the most ignored aspect of human entitlements among
the poor and low income groups. While housing has direct impact on safety, healthy and
dignified living it enhances socio-economic capability of the poor. However, it is
increasingly recognized that vast majority of low income households need to be
empowered to build their own house but certainly not in a slow and laborious process. In
the situation where conventional mortgage finance does not cater to low income groups
on the ground that they cannot afford the debt service required, it becomes harder to build
a house by using their own savings or borrowing from informal sources. The present
study is a modest attempt to understand low segment housing finance market in Indian
context. This chapter discusses two different known models of micro finance for housing
(MFH) and some other important aspects such as housing priority, demand and supply of
housing credit, incremental housing and product design.
In a populous country with high incidence of poverty like India, shortage of housing is
major challenge for the government. While expansion and early delivery of pro-poor
housing remains a daunting task, many needy people have to wait for a longer. Under this
condition it is obvious that a sizeable proportion of poor people continue to live in poor
housing condition. On the other hand, their average expenditure on housing in terms
repair & maintenance, house development and expansion or paying rent constitute a
significant proportion of the their total income which is recurring in nature. The situation
becomes worse if the income flows of households are more volatile. However,
household’s decision to invest in housing is influenced by its perception and priority of
64
housing. Three major arguments often sought in fovour of this are housing is a basic need
for safety, healthy and dignity living, it is an assets and an investment.
With this background, the present chapter aims to assess the nature of housing micro
finance products that are currently being offered by microfinance organizations in India.
Two different scenarios of microfinance for housing discussed here will give some broad
picture about the capacity of microfinance methodologies to deliver housing credit
adapted to the living conditions, borrowing and saving pattern, employment and earnings
and other household feature of low-income groups. The analysis made here is expected to
offer some useful understanding about low segment housing finance in the study areas
with suitable policy suggestions for product design and partnership between different
stakeholders in the sector to expand their own efforts to reach down these target groups
or sections.
3.1 Existing Housing Facilities in Study Areas
Existing housing arrangement and condition, socio-economic characteristics and other
region and group specific factors considerably influences the overall demand for housing,
and housing priority which is reflected in the demand for housing finance. However,
there is hardly any scientific measure commonly followed to show the housing
inadequacy, particularly, at lower segment. It is further more difficult to measure at the
level of different groups and regions. As discussed in the literature that there is huge
inadequacy of housing at lower segment but it is important to understand the degree and
distribution of it across groups and regions which is not a easy task. It also involves some
subjectiveness or individual biases while measuring inadequacy of housing. With due
care possible effort have been made to use individual perceptions of sample households
to reflect the degree of housing inadequacy in the study areas.
From the table 3.1 it may be seen that housing inadequacy is not only high but it has
different dimensions in both the study areas. More than 70 percent of total sample
households expressed that their current housing condition is inadequate out of which one-
third viewed their housing shortage is not manageable. It shows the serious problem of
65
housing that many low-income households confront with in rural areas and the
consequent hardships in terms of poor health, hygienic and safety living. It also indicates
the discouraging situation of home based income generating enterprises which is often
argued in pro-poor housing policy debate.
Table – 3.1: Inadequate Housing by Categories in Study Area (in % of HH)
Karnataka Kerala Total
Bed Room 71.7 45.8 58.0
Inadequate but Manageable 71.1 66.7 69.2
Not Manageable 28.9 33.3 30.8
Dining Space 17.0 13.6 15.2
Inadequate but Manageable 66.7 100.0 82.4
Not Manageable 33.3 0.0 17.6
Kitchen 71.7 20.3 44.6
Inadequate but Manageable 73.7 75.0 74.0
Not Manageable 26.3 25.0 26.0
Common used area 71.7 6.8 37.5
Inadequate but Manageable 78.9 50.0 76.2
Not Manageable 21.1 50.0 23.8
Bathroom 58.5 18.6 37.5
Inadequate but Manageable 80.6 36.4 69.0
Not Manageable 19.4 63.6 31.0
Toilet 41.5 15.3 27.7
Inadequate but Manageable 77.3 44.4 67.7
Not Manageable 22.7 55.6 32.3
Livestock Shed 87.5 0 70
Inadequate but Manageable 87.5 0 70
Not Manageable 12.5 100.0 30.0
Space for Economic Activity 9.4 3.4 6.3
Inadequate but Manageable - -
Not Manageable - -
Over All Housing Inadequacy 79.5 59.1 71.8
Inadequate but Manageable 66.5 66.4 66.4
Not Manageable 33.5 33.6 33.6
Note: Figures in Bold show % of HH having housing inadequacy in respective categories.
Figure without bold shows the degree of housing inadequacy in respective categories
Source: Field Survey
Regarding the type and nature of housing shortfalls, it was found prominent in some
important categories such as bedroom, kitchen, bathroom and toilet and common used
area which is basic requirements for overall development of a family. It may be noted
that this situation was worse in Karnatak villages than in Kerala villages, where housing
was perhaps given far more importance than the former. However, it does not mean that
66
housing shortage is less in Kerala. In fact, it was found much sharper in some cases
within the respective categories in Kerala than in Karnataka. For instance in terms
shortage of bath room only 18 percent households reported it was inadequate in Kerala
but within this category about 66 percent household viewed that it was not manageable.
On the other hand in Karnataka about 58 percent households reported inadequate
bathroom but within this only 19 percent viewed it was not manageable. Similar was the
case for toilet facility in both the states. It may be noted that the nature of inequality in
terms shortage in housing facility and to the extent households could manage with it
completely vary from region to region. Though it is not easy to measure and compare the
inadequate housing exactly in the two study regions the data presented in the table – 3.1
clearly indicate some trend in this regard which is alarming. Moreover, it is irrespective
of level of income, occupation and other household features. A sharp differentiation in
availability of housing facilities for the low income groups as evident from the data could
influence the demand and priority of housing and housing finance.
From the data another important trend is expected is that the direction of shortfall in
housing may be higher with low average household income. For instance, housing
shortage in absolute term found much higher in Karnataka than Kerala. Given the
housing condition, it is less manageable for households in Kerala than their counterparts
in Karnataka, which may lead to higher demand for housing finance. However, the
demand for housing finance may be different in different other contexts, which will be
discussing subsequently.
3.2 Housing Priorities in Study Areas:
Housing priority of different household would be different depending on their
requirement, current housing condition and other factors. It is expected that at household
level inadequate housing and shortage of housing facility which is difficult to manage
would prompt these households to prioritize their housing needs and housing plan before
seeking for housing finance. The data presented in the tables- 3.2 and 3.5 highlight some
notable trend of housing demand and household priority for housing in the study villages.
It was reported that more than 40 percent of housing loan borrowers in study areas were
67
wage labourers and they do not operate any home based enterprises. About one-third of
sample households were engaged in agriculture in Karnataka. Since most of them work as
a daily wage labourer out of their home, demand for MFH for home improvements or
new house construction is mainly for self living than using the house for immediate
income generating activity or use as an investment option. In other words, household
priority for housing and MFH reported in the study areas was more or less confined to the
purpose of immediate self living. This is in contrast to the general understanding that
spending on housing by low income groups is towards income generation. However, their
demand for housing constitutes as an important household asset which may induce any
future home based enterprise. Similarly, household priority for housing by occupations
shows that there was immediate need to house for self living than to start income
generating activity as argued in the literature. It implies the poor and inadequate housing
condition low income groups in rural areas. Data presented in table - 3.3 shows the
distribution of sample households by income size groups. It may be noted that
distribution of sample households are highly uneven by income size groups. While
households in relatively higher average annual income groups (Rs.18000-36000) was
higher in Karnataka (68%) it was reverse in case of Kerala where about 82 % household
were having average annual income between Rs 12000 – 18000 (see table – 3.3).
Table – 3.2: Distribution of Sample Households by Major Occupations
Major
Occupation
Karnataka Kerala Total
No % No % No %
Agriculture 18 34 2 4 20 18
Livestock 0 0 1 2 1 1
Construction
worker 1 2 1 2 2 2
Regular service 2 4 6 11 8 7
Retail trading 6 11 7 12 13 12
Skilled laborer 3 6 12 21 15 14
Wage laborer 22 42 24 42 46 42
Other 1 2 4 7 5 5
Total 53 100 57 100 110 100
Source: Field Survey
Regarding households priority for different housing activities, it was spread over
additional room, repair and maintenance, expansion of house, space for livestock etc.
68
This is important from demand for housing and housing loan perspective. Demand for
house in terms of more storage, space for work/enterprise and other requirement improve
prospects of household production environment, especially for home-based enterprise,
which can directly improve household income and spur higher return as visualized in the
literature. But it seems missing in the study areas mainly due to the fact that many sample
households do not involve in such type of enterprises or of that scale which require
specific housing space as mentioned. So the housing priorities and demand housing in the
study areas was mostly to fulfill the basic housing need for self living. This can be an
encouraging factor for housing finance industry that considers housing loans as
investments for immediate returns or income generation from loan servicing perspective.
Table – 3.3: Distribution of Household by Income (Annual) Size Groups
Income Size Groups
Karnataka Kerala Total
No % No % No %
<Rs. 12000 2 4 24 42 26 24
Rs. 12000-18000 15 28 23 40 43 39
Rs. 18001-36000 13 25 3 5 15 14
>Rs. 36000 23 43 7 12 25 23
Total 53 100 57 100 109 100
Source: Field Survey
The data presented in the table-3.4 shows that demand for new house construction was
higher among sample households, who are from low income groups14. It substantiates the
fact that low income households, give higher priority to new house construction over
other housing activities than their counterparts in high income groups. It is mainly
because of two possible reasons. First, most of the households in high income group
already have house to meet their basic requirement. Since they have a repairable house
there is scope for further investment on it to meet their requirement rather going for new
house construction. In this context, in the demand and priority of MFH would be for
other housing activities such as house expansion or additional room, repair and
maintenance, renovation etc. than new house construction. Second, for many low income
households, who do not have structured and permanent reparable house, it may be for the
14 Lower income group does not refer to the income size group classification of the sample household
purposefully made in this study. It refers to the low income poor household in general.
69
fist time to invest on new housing construction where tendency is to move into a new
house is high and urgent. However, going for new house construction that requires more
fund would be harder for low income groups than high income groups on the ground their
access to housing fiancé, fund arrangement, repaying capacity and other factors. We have
discussed later in this chapter that how low income groups manage the constraints of new
house construction by compromising the quality, size and cost of houses than continuing
with old housing arrangement which high recurring expenses on housing such as
replacing thatched roof, strengthening wall etc. However, this type of household priority
gives positive implications for the low segment housing finance market development or
not is difficult to say because during our field survey we found that many of these
households had a tough financial situation during post-house construction period in terms
of repaying housing loans, particularly for credit taken from informal sources.
Table – 3.4: Household Demand & Priority for Housing Activity in Study Areas (Nos of
Borroing Households)
Karnataka Kerala Total
HH (Nos) % HH (Nos) HH (%) HH (Nos) %
New construction 27 50.9 40 70.2 67 60.9
Additional room 12 22.6 8 14.0 20 18.2
Repair & maintenance 1 1.9 6 10.5 7 6.4
Strengthening roof & wall 5 9.4 1 1.8 6 5.5
House expansion 1 1.9 1 1.8 2 1.8
Livestock 2 3.8 0 0.0 2 1.8
Finishing & flooring 1 1.9 1 1.8 2 1.8
Others 4 7.5 0 0.0 4 3.6
Total 53 100.0 57 100.0 110 100.0
Source: Field Survey
From the data presented in the table - 3.4 it appears that despite the fact that house for
livestock constitutes an important part of the total demand for housing in rural areas, it
was found abysmally low in Karnatak and almost absent in Kerala. Livestock is a crucial
household asset and that supplements household income, but we did not find in the study
areas mainly due to the cost of livestock maintenance including arranging house for
livestock and other factors that discourage rural households not to opt for it.
70
There may be other non-economic factors that responsible for different housing demand
and priority among sample households in the study areas. For instance in Kerala there are
some social practices that after marriage children use to live in a separate house.
Similarly, in Karnataka, many households prefer to make additional room with their
parental house than living in a separate house. This may be reason why about 23 percent
of households in Karnataka had used MFH for construction of additional room as
compared to 14 percent in Kerala (see table-3.4).
Nature and structure of local housing activities, local environment and available housing
materials also determine the housing demand and MFH. For instance, strengthening roof
and wall often believed as major housing activities among low-income group, but it was
found low in Kerala because for local condition it is necessary that the roof should be
sloppy cement concrete to protect longer rain season unlike that in Karnataka where local
made roof making materials called khapar are preferred.
Table – 3.5: Housing Activity & Purpose of Housing (Nos of Households)
Karnataka Kerala Total
Housing Activity Purpose
No of
HH %
No of
HH %
No of
HH %
New construction
immediate self use 23 95.8 37 100.0 60 98.4
Other (future use) 1 4.2 0 0.0 1 1.6
Additional room
immediate self use 11 100.0 7 100.0 18 100.0
Other 0 0.0 0 0.0 0 0.0
Repair &
maintenance
immediate self use 1 100.0 4 100.0 5 100.0
Other 0 0.0 0 0.0 0 0.0
Strengthening roof
& wall
immediate self use 5 100.0 1 100.0 6 100.0
Other 0 0.0 0 0.0 0 0.0
House expansion
immediate self use 0 0.0 1 100.0 1 100.0
Other (for
business) 1 100.0 0 0.0 1 100.0
Livestock
immediate self use 2 100.0 0 2 100.0
Other 0 0.0 0 0.0 0 0.0
Finishing &
flooring
immediate self use 1 100.0 1 100.0 2 100.0
Other 0 0.0 0 0.0 0 0.0
Others
immediate self use 4 100.0 0 4 100.0
Other 0 0.0 0 0.0 0 0.0
All 49 51 100
Source: Field Survey
71
Having a new house is social status and is the central importance of the neighborhood
area, where the households or beneficiary currently inhabits. It is also equally important
that to consider the proximity to work place and livelihood that influence housing
demand. The preference for new house as depicted in the data mainly showing the poor
and non-repairable existing housing conditions that underscores the quality, durability
and incremental housing as often argued in the literature. It is also possible that for many
sample households, the pre-MFH housing condition was not good and their houses were
not serviceable which has prompted hem to go for new house construction even with a
smaller and cheaper house than investing on their previous houses. It shows the changing
housing priorities among low income groups and its likely impacts on the nature and size
of low segment housing finance market with rising income level, increasing affordability
and housing requirement. However, other local and groups specific non-economic factors
that influence the housing demand and priorities ca not be ruled out but it is not possible
to discuss them here.
Level of household income emerged as one of the major factor influencing demand for
housing loans. The demand was found high in the study areas irrespective of varying
income levels and different occupations, across housing activities in both study areas. As
priority for new construction of house found high in the study areas (about 61 percent of
total sample household seek housing loan for new construction see table 3.4), it shows
that investing on their existing house perhaps not a viable and cost effective housing
option because many of such houses were in dilapidated condition or having temporary
structure. This is in contrast to the common belief that demand for MFH is generally seek
for house repair, maintenance and expansion, rather for new construction which often
require larger loan amount.
During our field survey, we found that some sample households who constructed newly
houses were of lower budget, smaller in size, low quality and traditional look. It shows
the adjustment made by low income household to avoid high cost of new construction
and arrangement of fund, when access to adequate institutional housing finance is
limited. However, low cost smaller size but new house was certainly better than their
72
previous dilapidated house resulting in high recurring cost. It is expected that the quality,
size and structure of houses will improve with level of income and other household
progress. Therefore, level of household income and its sources will play vital role in
selecting type and nature of housing activities by the households. Though higher income
groups are likely to prefer for expensive housing activities, such as building new quality
house, additional room, expansion of house, renovation, cement concrete roof etc. the
data presented in the table – 3.6 indicates that proportion of households involved in new
construction is prominent across income groups and regions.
Table: 3.6: Housing Activities by Income Groups (Annual average income in Rs)
Karnataka
<Rs.
12000
Rs. 12000-
18000
Rs. 18001-
36000
>Rs.
36000 Total
new construction 66.7 46.7 53.8 47.4 50.9
additional room 33.3 33.3 7.7 21.1 22.6
repair & maintenance 0.0 0.0 7.7 0.0 1.9
Strengthening roof & wall 0.0 13.3 7.7 10.5 9.4
house expansion 0.0 0.0 0.0 5.3 1.9
livestock 0.0 6.7 7.7 0.0 3.8
others 0.0 0.0 7.7 15.8 7.5
finishing & flooring 0.0 0.0 7.7 0.0 1.9
Total 100.0 100.0 100.0 100.0 100.0
Kerala
new construction 63.6 67.4 46.7 47.4 60.0
additional room 15.2 20.9 20.0 21.1 19.1
repair & maintenance 15.2 2.3 6.7 0.0 6.4
Strengthening roof & wall 0.0 7.0 6.7 10.5 5.5
house expansion 3.0 0.0 0.0 5.3 1.8
livestock 0.0 2.3 6.7 0.0 1.8
others 0.0 0.0 6.7 15.8 3.6
finishing & flooring 3.0 0.0 6.7 0.0 1.8
Total 100.0 100.0 100.0 100.0 100.0
All States
new construction 63.6 67.4 46.7 47.4 60.0
additional room 15.2 20.9 20.0 21.1 19.1
repair & maintenance 15.2 2.3 6.7 0.0 6.4
Strengthening roof & wall 0.0 7.0 6.7 10.5 5.5
house expansion 3.0 0.0 0.0 5.3 1.8
livestock 0.0 2.3 6.7 0.0 1.8
others 0.0 0.0 6.7 15.8 3.6
finishing & flooring 3.0 0.0 6.7 0.0 1.8
Total 100.0 100.0 100.0 100.0 100.0
Source: Field Survey
73
Surprisingly, proportion of new construction among lowest income size households
found much higher than the highest income size groups in both of the study regions.
While high level of household income and ability to arrange and afford housing finance
could induce higher income size groups for high value housing activity like new house
construction the shame is not true for the lower income size households. It may be seen
from the table – 3.6 that low value housing activities such as house for livestock, house
expansion, strengthening wall and roof etc. are very low or absent among lower income
size households. However, variations in type of housing activities and priorities among
sample households in respective income size groups found not much different between
two regions. It depicts some important trends for development of low segment housing
finance market.
In sum, above discussion on household demand and priority for housing in rural areas
show different dimensions of low segment housing sector, which is important from
policy point of view. It is often argued that housing for low-income groups fetches
multiple but equally important objectives such as use of the house for a healthy living, for
productive income generating activities and for asset creation. Since larger portion of
sample households are working as wage labour or engaged in non-house based activities,
demand for housing for home based self-employment or income generating activities will
be low or at low scale. On the other hand, inadequate access and availability of housing
credit to construct house for income generating activities might prevent many sample
household to undertake such activities at their house. The incidence of live and work in
multifunctional housing spaces were not found in the study areas. Though for the
working poor, income generation is also an integral part of housing improvement efforts
and investing in the house increases the income-generating potential of home-based
activities, but this linkage seems not strong in the study areas. This is because of fact that
basic housing for immediate self living purpose of many sample households outweighs
their housing demand and priority for income generating activities. Understanding the
nature and pattern of housing demand and priority of different low income groups is
crucial for development of housing finance market. However, these households may
initiate for housing for income generation in subsequent period once they meet their
minimum housing need.
74
3.3 Profile of Sample Households:
Before analyzing microfinance for housing in the study areas the brief profile of sample
households has been discussed. It many be noted that profile of MFH borrowers, many of
them are microcredit clients, is more or less similar to micro enterprise borrowers. But
there are differences in level of income, credit requirements and choice for housing
activities. We have grouped sample households by housing activities, occupation and
income size to highlight the uses and other contexts for MFH. There are three different
aspects of household profile we focused here which are self explanatory.
1. Household demographic features
2. Housing Activity
3. Household Occupations
From the chat no 3.1 it may be seen that level of education of household head in Kerala
was higher than their counterparts in Karnataka which can influence the household
demand and priority for housing activity. Since more than one-third household head in
Karnataka were illiterate, we will reemphasize on it, while comparing other household
features including the nature and pattern of housing credit demand and housing activity in
two different study areas. Similarly, inequality between sample households in two study
region in terms of basic housing amenities, particularly for toilet, is depicted in chart –
3.2. Regarding type of houses majority of sample households in Kerala were having
pucca houses and seem better off than their counterparts in Karnataka where about 19%
households had Kuccha houses.
Chart – 3.1
Education of HH Head
0.0
10.0
20.0
30.0
40.0
50.0
Primar
y
Mid
dle
Mat
ric
Hig
her S
econda
ry
Deg
ree
& abo
ve
Oth
er
Illite
rate
%o
f H
ou
seh
old
KarnatakaKeralaTotal
75
Chart – 3.2
Housing Amenities
0.0
20.0
40.0
60.0
80.0
100.0
120.0
Access
to
Kitchen
Electricity Toilet Drinking
water
Cooking
gas
Kitchen
garden
% o
f Hou
seho
ldKarnataka
Kerala
Total
Chart – 3.3
House Type - Kerala
Kacha
4%
Semi-pacca
45%Pacca
44%
Others
7%
Chart – 3.4
House Type Karnataka (%)
Kacha, 18.9
Semi-pacca,
56.6
Pacca, 22.6
Others, 1.9
76
3.7: Distribution of Sample Households by Major Occupations
Karnataka Kerala Total
Primary occupation of
household
Nos of
HH %
Nos of
HH %
Nos of
HH %
Agriculture 18 34.0 2 3.5 20 18.2
Livestock 0 0.0 1 1.8 1 0.9
Construction worker 1 1.9 1 1.8 2 1.8
Regular service 2 3.8 6 10.5 8 7.3
Retail trading 6 11.3 7 12.3 13 11.8
Skilled Wage laborer 3 5.7 12 21.1 15 13.6
Un-Skilled Wage laborer 22 41.5 24 42.1 46 41.8
Other 1 1.9 4 7.0 5 4.5
Total 53 100.0 57 100.0 110 100.0
Source: Field Survey
Regarding the distribution of household occupations, pre-dominance of unskilled wage
employment and agriculture employment is evident in both of the study areas (see Table -
3.7). Since income from these occupations are generally lower and irregular than the
skilled based regular jobs the pattern of household occupation and level of income from
such occupation will influence theie nature and pattern of housing activities. We have
analysed income and employment pattern of sample household in the next section.
3.4 Pattern of Household Income & Employment in Study Areas
It may be seen the data presented in the table – 3.8 that there are variations in household
employment and income as emerged from both the study areas. Over all, the average
annual income of sample households in Karnataka found much lower than their
counterparts in Kerala. Regarding type of occupations and average annual income there is
wide variation between male and female workers and between the two study regions. For
instance, workers engaged in retail trading found more remunerative in Karnataka for
both male and female worker than Kerala, but it accounts for less than 10 percent of total
workers in both the regions. On the other hand, highest proportion of female workers
(59%) in Karnataka and male workers in Kerala (38%) were engaged in wage labour, but
it found not remunerative in Karnataka, particularly for females. Interestingly, a sizeable
portion of workforce, especially for women worker, in Kerala engaged in other
occupations (which constitute short term jobs, out migration, employment in other
services etc.), with high average income. It may be noted that though average income
77
found much higher for workers in Kerala in several occupations than in Karnataka,
average employment (in terms of person days per year) in Kerala was reported much
lower.
Surprisingly, average income from agriculture per male worker found much higher in
Karnataka which was more than double of other occupations, except retail and trading.
Available of irrigation, growing of cash crop like sugarcane and high value horticulture
crops in some of the study villages are the major reasons for high agriculture income in
Karnataka than Kerala. It may be noted that difference in male-female average income is
visible in both of the regions but more pronounced in Karnataka. For instance, overall
average income (Rs.9503/-) of a male worker in Karnataka was three times higher than a
female worker (Rs.3281/-). However, higher household income may not necessarily
induce high demand for housing loan if it is not regular and less volatile in nature. Since
income from agriculture and wage labour are highly volatile it may fail to meet the terms
of housing loan which require regular repayments. Pattern of household income in
Karnataka villages reflected in terms of higher demand of low budget and low quality
houses. Low and volatile household income limits borrower’s own contribution to
housing activity and it may be difficult to arrange for remaining fund. It is expected that
the variation in income and employment pattern in the study areas would influence the
housing activities and demand for housing credit. Low average household income also
corroborate the fact that many households may not venture into housing activities unless
there is some support in terms of access to cheaper housing credit, housing subsidy and
other financial supports.
On the other hand, average annual income in Kerala found fairly good. It also reiterates
the fact that higher income prompt demand for better quality and higher value house. As
expected, male-female income difference was much less in Kerala which could be one of
the key factors for improved and hygienic housing environment in the state. Regarding
source of income, it was well spread over variety of non-agriculture occupations and
remunerative wage employment in the state. It may be noted that during our field visit it
was reported that average daily wage rate in study villages in Kerala was very high (Rs
78
300 – 350). There were good numbers of sample households who receive remittances, it
is factored into other category which constitutes the highest average income of
Rs.19595/- (see table 3.8). Relatively better income level and pattern in Kerala followed
by better local housing practices will certainly induce better prospect for housing sector
as a whole and housing finance in particular including microfinance for housing.
Relatively higher average income in Kerala might prompt for higher demand for housing
credit as discussed in the literature.
Table – 3.8: Employment & Income and Distribution of Workers by Sex &
Occupations
Workers (%)
Employment
(days)/Year Earning (Rs)/Year
Male Female Male Female Male Female
Karnataka
Agriculture 38.3 4.5 300 300 13964 3500
Retail trading 9.0 5.0 149 266 14580 13000
Skilled labourer 8.5 4.5 263 30 5175 2700
Wage labourer 36.2 59.1 265 219 5106 2203
Non-farm Job 2.1 9.1 25 258 4500 1600
livestock 1.6 8.6 300 300 2000 4000
other 4.3 9.1 120 180 5200 1600
Total 100.0 100.0 323 239 9503 3281
Kerala
Agriculture 2.1 20 5000
Retail trading 6.4 9.1 13 150 2000 600
Skilled labourer 23.4 9.1 28 25 6532 6875
Wage labourer 38.3 27.3 50 45 12614 4883
Non-farm Job 6.4 135 8150
livestock 2.1 9.1 100 7 15000 2500
Other* 21.3 45.5 31 36 19595 22550
Total 100.0 100.0 44 45 16198 12489
Total
Agriculture 20.2 3.0 341 300 13492 3500
Retail trading 8.5 12.1 298 227 9863 8867
Skilled labourer 16.0 6.1 91 25 6170 6875
Wage labourer 37.2 48.5 154 184 8967 2739
Non-farm Job 4.3 6.1 108 258 6238 1600
livestock 1.1 3.0 100 7 15000 2500
other 12.8 21.2 93 77 17196 16564
Total 100 100.0 184 168 12851 6657
N 94 30 94 30
Std. Deviation 235.10 169.30 26995.48 11457.58
Note:*other category includes remittances
Source: Field Survey
79
Chart – 3.5
Average Annual Employment
0
50
100
150
200
250
300
350
400A
gric
ultu
re
Ret
ail t
radi
ng
skille
dlab
oure
r
wag
elab
oure
r
Non
-far
mJo
b
lives
tock
othe
r
Tot
al
Agr
i
Ret
ail t
radi
ng
skille
d
wag
e
Non
-far
mJo
b
lives
tock
othe
r
Tot
al
Agr
i
Ret
ail t
radi
ng
skille
d
wag
e
Non
-far
mJo
b
lives
tock
othe
r
Tot
al
Karnataka Kerala Total
Employment (days) Male
Employment (days) Female
Chart – 3.6
Average Annual Income of Workers (Rs)
0
5000
10000
15000
20000
25000
Agr
icul
ture
Ret
ail t
radi
ng
skille
dlab
oure
r
wag
elab
oure
r
Non
-far
mJo
b
lives
tock
othe
r
Tot
al
Agr
i
Ret
ail t
radi
ng
skille
d
wag
e
Non
-far
mJo
b
lives
tock
othe
r
Tot
al
Agr
i
Ret
ail t
radi
ng
skille
d
wag
e
Non
-far
mJo
b
lives
tock
othe
r
Tot
al
Karnataka Kerala Total
Male
Female
3.5 Demand and Supply of Microfinance for Housing (MFH) in Study Areas
After brief discussion about the study areas and sample households we have analyzed the
demand and supply of microfinance for housing (MFH) with focus on some key aspects
such as size of the market, product design, performance of MFH programme etc.
Microfinance for housing is not very widely known concept in India and there is no
national level estimates regarding the size, outreach and potential demand for MFH. It is
assumed to be large, based on opinion of housing finance institutions and other surveys.
The present study attempted to make a rough estimate of demand for MFH in the study
areas. These figures may likely surpass with changes in income and housing priorities but
it gives a broad understanding about demand for low segment housing finance. In order
80
to design a housing microfinance product, the most successful approach would be the
demand that addresses current market realities. Here, we have analyzed the demand for
MFH based on three aspects: 1) information collected from select NHG/SHG members
through interviews; 2) assessment of the physical housing, wherever possible, about the
materials used, cost of construction and existing housing conditions. 3) Interactions with
LFH lenders and other stakeholders.
From the field data some important aspects of the nature and pattern of demand for
housing finance by low-income groups are evident. The results of our household surveys
in different locations in the states of Kerala and Karnataka show how household feature,
income distribution, occupations, informal credit pattern, ability to pay and other socio-
economic factors influence the housing priorities and housing activities. As MFH amount
was fixed and the respective loan term and conditions were uniform in two different
situations, our focus here was to highlight its role in terms of pushing housing activities
among hitherto excluded low income group from formal housing finance and mobilizing
non-MFH from different sources. Analysis of the survey data has helped us to understand
the nature and scope of low segment housing microfinance sector in India. It may be
useful in designing MFH products, developing approaches to MFH loans and housing
subsidy policy. Analysis of data includes:
• Household demand for housing finance from different sources under different loan term
and conditions.
• Household borrowing pattern by housing activities and income size groups.
• Household perception about housing finance, repayment schedule and ability to pay.
• Incremental housing/Progressive Housing in the study areas.
3.5.1 Measuring Demand for MFH
We have used different indicators to analyse the approximate size of demand for
microfinance for housing. These indicators may be used as both proxies for
understanding the potential of low segment housing finance market and also to
supplement the existing understanding about low segment housing demand. The
following variables are developed and used for the analysis.
81
- Average total demand for housing finance by region and income group and type
of housing activities.
- Demand for different non-MFH credit (it includes credit from other formal
sources, informal credit, and credit from SHG/NHG)
- Pre and Post-MFH credit gap (difference between credit demanded and credit
obtained)
- Demand for and use of micro-enterprise credit for housing activities (proportion
of non-MFH micro-credit used for housing activites/expenditure)
- Changes in post-MFH housing expenditure (reduction in household expenditure
on housing)
3.5.2 Demand & Supply of Housing Loan in Study Areas
As hypothesized, information on housing credit demand in the study areas presented in
the table – 3.9 shows huge gap between household demand for housing credit and the
current level of supply. The gap in housing credit demand and supply, however, vary
depending on the type and nature of housing needs, activities, availability of non-MFH
credit and other factors. From the data on housing demand and activities in the study
areas, it appears that quantum of MFH may be necessary but not sufficient condition to
determine the size and nature of low segment housing finance market. For instance,
despite of inadequate and limited amount of MFH available to the sample household, the
demand for new house construction found very high, which requires relatively higher
fund and time than other housing activities. There are other housing activities like repair
and maintenance, expansion of existing house, strengthening roof and walls etc. where
fund requirement is low and it may be within the amount of available MFH. But
incidence of such cases was few as compared to the demand for new house construction
which require much larger fund.. As a result the available MFH to the sample households
fail to meet the actual demand for housing credit leading to huge gap in housing credit
demand and the credit obtained. Although high demand of households for housing credit
may not be justified in all cases and available MHF found inadequate in many cases but it
certainly induced substantial housing activities in the study areas.
82
The visible housing credit gap and available MFH products to the low income groups is a
matter of concern. For instance, available MFH product in both study areas was fixed at
maximum of 50,000/- per borrowers irrespective of their credit need, housing activity,
level of income and repaying capacity. So, supply of MFH per borrower was four times
lower than the average housing credit demand of Rs 217081/- (see table – 3.9). This trend
of credit gap may not found in case of general housing finance market. While high credit
gap indicates that there is high prospect of low segment housing finance in India, much is
not known about issues like potential credit risks, repayment behaviour and constraints of
low segment housing finance.
In spite of the fact that the housing credit supplied by two different MFH products was
very low, both the programme were well received in the resective regions. It fact MFH
worked as a kick start for initiating variety of housing activities by many poor households
in the study villages. It has been a push factor for the low-income households to start
housing activities, to expedite fund arrangement from possible sources and collection of
housing materials. However, the time of post-MFH period was not that rosy for these
households because it also puts some of them in critical financial position while
arranging for remaining fund which is not an easy task. Under given situation many MFH
borrowers will try to explore all possible sources of credit including high cost informal
credit to complete the proposed housing activity. Some of them may fail to arrange the
required fund resulting in delay in completion of housing activity. Borrowers also put
their own fund, by using their past saving, selling out ornaments, livestock, land or other
assets etc. for their housing activity. Despite this many households fail to meet the post-
MFH housing credit gap. It may be noted that average amount of own fund arranged for
housing activity is found higher (Rs.40633/-) in Karnataka compared to Kerala
(Rs.14028/-) where the distribution of sample households were concentrated in bottom
two categories of the income size groups. In other words about 90 percent sample
households in Kerala were having annual average income of Rs.18000/- or less against
about 30 percent in Karnataka. It indicates the household in higher income group use
more own fund for housing activities.
83
Regarding non-MFH fund arrangement, though some households managed to arrange the
fund but post-MFH period was tough due to the pressure of servicing both informal credit
and MFH. It affected their consumption and expenditure pattern. A good numbers of
MFH borrowers expressed that repayment of housing loans was never been easier,
particularly for those at bottom of income size groups and others having irregular income.
It may be seen that post-MFH credit gap was substantially reduced from 70 percent to 32
percent in Karnataka may be due to their relatively low budget housing activities against
their counterparts in Kerala , where the gap reduced marginally from 95 percent to 78
percent. Along with level of income, differences in nature, pattern and type of preference
for housing also influences the credit gap in low income housing segment. However,
higher demand for housing credit in Kerala was due to several other socio-economic
factors than a skewed distribution of sample households toward lower income size
groups. However, household strategy in arranging for remaining fund was different for
different groups in both the study areas as discussed in subsequent sections.
Table – 3.9: Gap in Demand & Supply of Housing Credit in Study Areas
Karnataka Kerala Total
New
const
ruction
Addit
ional
room Total
New
const
ruction
Addit
ional
room Total
New
const
ruction
Addit
ional
room Total
HH Involved in
Housing Activity (%) 51.9 23.1 100.0 72.2 14.8 100.0 62.3 18.9 100.0
HH Credit Demanded
for Housing (Rs)/HH 190185 80083 134000 211026 84688 297085 202500 81925 217081
Own-Fund before
MFH (Rs./HH) 69600 11818 40633 15513 17813 14028 36641 14342 26684
Housing Credit Gap*
before MFH (Total
credit demand - Self
arranged fund)
Rs/HH 120585 68265 93367 195513 66875 283057 165860 67583 190396
Housing Credit
Gap** after MFH
(Housing Cedit Gap
before MFH - MFH) 70585 18265 43367 145513 16875 233057 115860 17583 140396
Pre-MFH Housing
Credit Gap (%) 63.4 85.2 69.7 92.6 79.0 95.3 81.9 82.5 87.7
Post-MFH Housing
Credit Gap (%) 37.1 22.8 32.4 69.0 19.9 78.4 57.2 21.5 64.7
*Total credit demand - Self arranged fund) Rs/HH. **Total credit demand - Self arranged fund – MFH
Source: Field Survey
84
Chart – 3.7
Housing Credit Gap before and After Housing Loan (%)
0.0
20.0
40.0
60.0
80.0
100.0
120.0
New
cons
truct
ion
Addi
tiona
l
room To
tal
New
cons
truct
ion
Addi
tiona
l
room To
tal
New
cons
truct
ion
Addi
tiona
l
room To
tal
Karnataka Kerala Total
Pre-MFH Housing
Credit Gap Post-MFH Housing
Credit Gap
During the field survey it was observed that with a smaller amount of MFH, borrowers
were under tremendous pressure to complete the planned housing activity rather to delay
in it. While many of these households were well aware about the rising cost of delay in
housing activities some of them had a plan to shift to the new house as early as possible
because they had no alternate housing arrangement for a longer period. During the period
of house construction they make temporary housing arrangement such as adjusting with
friends & relatives, staying in common places like school or Panchayat house or making
short term hut. So they speed up the completion of their housing activity as early as
possible. Under this situation, the hypothesis of incremental housing seems not hold in
the study areas.
Though it was reported that despite of low amount of MFH it had induced about three-
fourth of the total borrowers to plan for housing activities and initiate arrangement for
remaining fund during the post-MFH period. From the table 3.10 it may be seen that
about 60 percent borrowers had to approach other sources for fund depending on their
nature of housing activity and quantum of fund requirement and other factors. Here the
role of MFH in encouraging housing activity among low-income groups is important
from policy point of view. It works as kick start for the poor households, encourages
expansion of low segment housing sector and offers huge opportunities to housing
finance industry and other stake holders.
As we hypothesized that demand for housing finance would be different regionally with
occupations, income and asset holding we found it partially evident from the data. The
85
responses of the group members (mostly women) were meant to reflect their housing
priorities and managing fund, completion of housing activities and other related issues.
While most of the respondents had housing activities after receiving MFH few of them
had an earlier housing plan. The data presented in the table – 3.10 show household’s plan
and preference for specific housing activity which implies some important aspect of
aspects of demand for housing finance in the study areas. However, pre-MFH housing
plan among sample households for new house construction was very higher in Kerala (75
%) showing the high potential for rural housing finance market. In Karnataka about 42 %
households had plan for new house construction prior to availing MFH, followed by 29
% households planed for construction of additional room. Regarding the impact of MFH
in inducing households to plan for their housing activity and arranging remaining fund,
the situation is notable in both of the study areas. However, there is need to explore
further about actual impact of MFH and household demand and priority for housing that
will reveal more about the housing finance market for low income groups.
Table – 3.10: Housing Plan/Activity of Sample Households & Impact of MFH
Karnataka Kerala Total
Nos of HH % Nos of HH % Nos of HH %
Housing Plan Prior to MFH*
New construction 10 41.7 30 75.0 40 62.5
Additional room 7 29.2 3 7.5 10 15.6
Repair & maintenance 0 0.0 4 10.0 4 6.3
Strengthening roof & wall 2 8.3 0 0.0 2 3.1
house expansion 2 8.3 0 0.0 2 3.1
Finishing & flooring 2 8.3 0 0.0 2 3.1
Others 1 4.2 3 7.5 4 6.3
Total 24 100.0 40 100.0 64 100.0
All Sample Households 53 57 110
MFH has induced you to plan for your housing activity
Yes 32 64.0 46 83.6 78 74.3
No 18 36.0 9 16.4 27 25.7
Total 50 100.0 55 100.0 105 100.0
All Sample Households 53 57 110
MFH has induced you to arrange for remaining amount
Yes 27 60.0 28 87.5 55 71.4
No 18 40.0 4 12.5 22 28.6
Total 45 100.0 32 100.0 77 100.0
All Sample Households 53 57 110
*Note: Only those households were considered who had any housing plan prior to MFH
Source: Field Survey
86
From the above discussion, it appears that the current MFH product do not suite to cater
all the groups. It is therefore important to analyze the characteristics of these borrowers
and their credit demand. There is need for categorizing housing credit demand and loan
period across housing credit borrowers and their housing activities to serve them better.
Housing loans and loan period can be grouped into different product lines - smaller
medium and larger instead of current uniform MFH.
More efforts are needed to estimate the potential demand for MFH and to gain better
understanding of MFH portfolios of the financial institutions. Our analysis suggests the
following:
(1) MFH sector is still a less explored area for the housing finance and other
institutions
(2) Number of MFH borrowers are increasing mostly in new construction, which
require relative higher fund, with increase in income level
(3) MFH still represents only a limited portion of total portfolios of financial
institutions deal in MFH.
(4) There is lack of MFH product design
(5) Potential credit risk can be reduced by appropriate assessment of the borrowers,
and flexible loan term and conditions
(6) Partnership between different stakeholder is missing
3.6 Supply of Housing Finance in Study Areas
As discussed in the literature supply of housing finance to low income groups has been
grossly ignored by the formal financial institutions across the world. This mainly because
of lenders’ risk perception about low income borrowers, lower profit margins, lack of
land titles, and uncertainty of repossession. Since most of the sample households in our
study have had microcredit supplied by MFI and banks for sometimes there access to
MFH was bit easier than others. However, supply of MFH in both the study areas was
made with careful scrutiny and condition to avoid possible credit risks. As in many cases
the current MFH amount was higher than the usual micro-enterprise loan or group loan in
the respective study areas the lenders were overcautious while selecting beneficiaries and
sanctioning MFH. It might have excluded many potential borrowers. However, the
87
process and loan terms and condition MFH in both areas were more or less similar except
the loan period, rate of interest and documentation.
Table – 3.11 (a): Sources of Non-MFH Credit, Rate of Interest and Loan Period (1st
Round)
Non-MFH
Borrowing
HH (in
Nos)
Distribution
of Non-MFH
Borrowing
HH (%)
Non-MFH
Borrowing
HH as %
total HH
Non-
MFH
Credit
(Rs)
Rate of
Interest
(%)
Loan
period
(yrs)
Outsta
nding
(Rs)
Karnataka 53
Money lender 12 41.4 22.6 91666.7 38.2 2.1 35444.4
Relative 4 13.8 7.5 53750.0 24.0 3.3 45000.0
Bank 3 10.3 5.7 38333.3 12.0
SHG 7 24.1 13.2 34285.7 25.6 1.5 39000.0
Employer 1 3.4 1.9 33000.0 24.0 14.0 26000.0
Other Source 2 6.9 3.8 40000.0 22.0
Total 29 100.0 54.7 61482.8 32.0 2.8 37833.3
Kerala 57
Money lender 20 45.5 35.1 104300.0 30.9 3.0 76470.6
Relative 8 18.2 14.0 119375.0 33333.3
Bank 6 13.6 10.5 103333.9 14.0 5.9 107491.8
Gold Mortgage 1 2.3 1.8 50000.0
Other Source 9 20.5 15.8 120000.0 26.0
Total 44 100.0 77.2 108886.4 26.7 5.0 76248.6
Total 110
Money lender 32 43.8 29.1 99562.5 33.7 2.3 62269.2
Relative 12 16.4 10.9 97500.0 24.0 3.3 40000.0
Bank 9 12.3 8.2 81667.1 14.0 5.9 107491.8
SHG 7 9.6 6.4 34285.7 25.6 1.5 39000.0
Gold Mortgage 1 1.4 0.9 50000.0 18.0
Employer 1 1.4 0.9 33000.0 24.0 14.0 26000.0
Other Source 11 15.1 10.0 105454.5 25.0
Total 73 100.0 66.4 90054.8 29.1 3.5 59784.9
Std. Deviation 100388.1 14.1 3.0 60907.4
Source: Field Survey
Since amount of MFH was uniform and it constitutes only a part of the total housing
credit in both the study areas, here the focus is on non-MFH credit and its variations
across the regions and groups. The focus is given on different non-MFH credit sources,
loan amount, loan period, outstanding rate of interest etc by housing activities and
income size groups. Attempt is made to relate our analysis on non-MFH borrowing
pattern, sources, loan amount, rate of interest and loan outstanding with the demand and
supply of MFH and other relevant points, wherever possible.
88
Table – 3.11 (b) Sources of Non-MFH Credit, Rate of Interest and Loan Period- (2nd
Round)
Non-MFH
Borrowing
HH (in
Nos)
Distribution
of Non-
MFH
Borrowing
HH (%)
Non-MFH
Borrowing
HH as %
total HH
Non-
MFH
Credit
(Rs)
Rate of
Interest
(%)
Loan
period
(yrs)
Outsta
nding
(Rs)
Karnataka
Relative 3 100.0 5.7 40000.0 36.0 1.7 18666.7
Total 3 100.0 5.7 40000.0 36.0 1.7 18666.7
Kerala
Money lender 2 11.1 3.5 15000.8 55.0
Relative 8 44.4 14.0 52000.0
Bank 1 5.6 1.8 25000.0 6.0 25000.0
SHG 1 5.6 1.8 50000.0 30000.0
Gold Mortgage 6 33.3 10.5 47500.0 10.5 2.0 36666.7
Total 18 100.0 31.6 44777.9 22.6 2.0 33000.0
Total
Money lender 2 9.5 1.8 15000.8 55.0
Relative 11 52.4 10.0 48727.3 36.0 1.7 18666.7
Bank 1 4.8 0.9 25000.0 6.0 25000.0
SHG 1 4.8 0.9 50000.0 30000.0
Gold Mortgage 6 28.6 5.5 47500.0 10.5 2.0 36666.7
Total 21 100.0 19.1 44095.3 25.6 1.8 27625.0
Std. Deviation 32437.4 20.7 1.3 17095.8
Source: Field Survey
We have mentioned earlier that the present study is based on two different MFH models
where commercial banks supply MFH through the local body called CDS in Kerala and
the MFI called SRFS supplies MFH in Karnataka. Details about the product and the
process of respective model have been already discussed in previous chapter. As
discussed in the previous section that average housing credit demand in Kerala
(Rs.110256) was not only much higher than that of Karnataka (Rs.61483) but there was
lesser difference between different income size groups. Wide variation in average
housing credit demand between different income groups was evident in Karnataka.
Though there is difference in housing priority and demand but it seems that households in
Kerala had a common minimum housing requirement and housing standard that require a
threshold amount of fund irrespective of income size groups. This is perhaps missing in
Karnataka. In contrast, there was a sharp difference in quantum of non-MFH credit across
income size groups in Karnataka. Surprisingly, the bottom most income size group had
89
borrowed higher non-MFH credit (Rs.61667) than overall average of Rs61483 than their
counterparts in subsequent two income size groups. While demand for housing credit was
diverse in Karnataka in terms of quantity it was fairly balanced in Kerala.
As regard to repayment of non-MFH, borrowers in Karnataka, particularly the bottom
income group performed better than their counter parts in Kerala. In fact, average
outstanding of non-MFH in case of bottom most income group in Karnataka was
Rs.24667 i.e. three times lower than their counter parts in Kerala (Rs.79273). It may be
due to fact that the cost of credit was much higher in Karnataka where interest rate was
42 percent, the highest among all categories, than their counterparts in Kerala at 28
percent. Cost of informal credit does play a crucial role in low segment housing activities.
Lower cost of non-MFH and longer loan term in Kerala is also reflected in terms of high
average outstanding. The differences in informal housing credit and it impact on house-
poor household in two different scenarios gives broad ideas about segmented hosing
finance market for the low income groups.
3.6.1 Other Sources of Housing Finance
As regard to sources of informal housing credit the conventional players like
moneylender and relatives were dominant in both study areas. However, few formal
credit sources such as banks and MFI were also explored by the sample households but
their share was low due to obvious reason. Moneylender continues to meet the sizeable
part of total credit need of the rural poor irrespective of purpose of the credit. In case of
housing credit moneylender appears to be very important in Kerala and in all housing
activities than Karnataka. It may be seen in the figure 3.8 that about one forth of sample
households depend on moneylenders for housing credit in Kerala and more so for new
house construction. Similarly, dependence on relatives for housing credit found more or
less similar in both study areas and for new house construction. Borrowing from relatives
is always reliable, cheaper and easy access than other informal sources. But loan period is
usually shorter in case of credit from relatives, especially if is an interest free credit.
Though overall situation was not very impressive in Karnataka as well where housing
credit from relatives found much higher than moneylenders but certainly it is better
90
situation than other situations. Overall, a dismal performance of institutional finance in
meeting housing credit need in study areas is evident in the study areas.
Another important trend emerges from our data is that perhaps impact of microfinance
programme helped in arresting overdependence on moneylender and other informal credit
sources, particularly in Karnataka, but much is not known about it. This is in contrast to
the situation in Kerala where traditional informal credit system is still prominent may be
due to different income and occupation pattern.
Chart – 3.8
Source of Housing Finance (% of HH)
0.0
20.0
40.0
60.0
80.0
100.0
120.0
Ban
k
MFI
Mon
eyle
nder
Rel
ativ
es
Oth
er
Tota
l
Ban
k
MFI
Mon
eyle
nder
Rel
ativ
es
Oth
er
Tota
l
Ban
k
MFI
Mon
eyle
nder
Rel
ativ
es
Oth
er
Tota
lNew construction Additional room All Housing Activities
KarnatakaKeralaTotal
Chart – 3.9
Non-MFH Borrowing Amount & Outstanding (Rs/HH)
0
5000
10000
15000
20000
25000
30000
<Rs.
1200
0
Rs. 1
2000
-180
00
Rs. 1
8001
-360
00
>Rs.
3600
0
Tota
l
<Rs.
1200
0
Rs. 1
2000
-180
00
Rs. 1
8001
-360
00
Tota
l
<Rs.
1200
0
Rs. 1
2000
-180
00
Rs. 1
8001
-360
00
>Rs.
3600
0
Tota
l
Karnataka Kerala Total
Rs/H
H
Non-MFH
Borrowing Rs/HHNon-MFH
Outstanding Rs/HH
91
Table – 3.12: Average Household Borrowing (Non-MFH) for Housing Activity by
Income Groups (Rs/HH)
Income
Groups
Borrowing
HH (%)
Amount
Borrowed
(Rs)
Rate of
Interest
(%)
Loan
Period
(Yrs)
Loan
Outstanding
(Rs)
Karnataka <Rs. 12000 10 61667 42 2 24667
Rs. 12000-
18000 31 38889 38 2 21667
Rs. 18001-
36000 21 55000 30 3 61000
>Rs. 36000 38 83455 24 4 46600
Total 100 61483 32 3 37833
Kerala <Rs. 12000 44 97948 28 3 79273
Rs. 12000-
18000 56 120000 26 7 77330
Total 100 110256 27 5 78259
Total <Rs. 12000 31 93000 30 3 67572
Rs. 12000-
18000 46 97879 31 4 58776
Rs. 18001-
36000 8 55000 30 3 61000
>Rs. 36000 15 83455 24 4 46600
Total 100 90611 29 4 60511
Source: Field Survey
During the post-MFH period, in order to meet larger fund required for housing activity
many household use part of full amount of the loan taken from their group. As it is
argued that quite often group members chennalize their micro-enterprise loan into
housing activity we found it substantial in both study areas. About 29 percent household
in Kerala and 14 percent in Karnataka had used their group loan for housing activity. It
appears that most of the group loan activities in Kerala are housing relater and it outpace
micrenterprise loans. In Karnataka group loan for housing was second most important
activity after agriculture. The implication of this trend is that so long as housing credit
needs are unmeet there is possibility of diversion of microenterprise loan into housing
activities despite of its consequences. It indicates that there is need to consider the both
type of credit need while designing microfinance products. Effort to balance between the
housing finance and other microfinance products is urged for the financial institutions
and other stakeholders dealing with microfinance products.
92
Table – 3.13 Household Borrowing (Non-MFH) from Group by Purposes (HH in %) Karnataka Kerala Total
Agriculture 22.4 0.0 15.7
Consumption 10.2 14.3 11.4
Education 12.2 9.5 11.4
Health 4.1 14.3 7.1
Housing 14.3 28.6 18.6
Livestock 10.2 4.8 8.6
Repayment of old loan 4.1 0.0 2.9
Business Activity 12.2 14.3 12.9
Social Expenditure 10.2 0.0 7.1
Other 0.0 14.3 4.3
Total 100.0 100.0 100.0
Source: Field Survey
Chart – 3.10
Non-MFH Borrowing of HH (%)
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Agr
icul
ture
Con
sum
ption
Edu
catio
n
Hea
lth
Hou
sing
Live
stoc
k
Rep
aym
ent o
f old lo
an
Bus
ines
s Activity
Soc
ial E
xpen
ditu
re
% o
f H
H b
orr
ow
ing
oth
er
tha
n M
FH
Karnataka
Kerala
Total
From the above discussion it is clear that there is a huge unmet demand for housing
microfinance in the study areas. The experiences from the study can be used in
developing new products. There is scope for partnership between different players
interested in MFH sector – donors, MFIs/NGOs, banks, organizations that provide
technical expertise in construction, and government agencies. Partnerships between these
players and a balance between housing and microenterprise loan products are the area
need more attention for better outreach and effective results. For instance, it would be
possible for MFIs to get discounts from building materials suppliers by placing a bulk
orders on behalf of their clients. There is scope for low-cost housing to reduce housing
cost and govt. housing subsidy can be used here effectively.
93
3.6.2 Rate of Interest
It may be noted that interest rates for MFH was much lower than micro-enterprise finance
in general and informal housing finance in particular. In Kerala, where commercial banks
provide MFH the interest rates varies between minimum of 7.25 percent to 10.5 percent
depending on the loan conditions. In Karnataka it was fixed of 15 percent for the entire
loan period of three years and was little lower than and microenterprise loan by MFI.
Low interest of MFH is a positive sign for expansion of MFH but its variations during the
loan period, as frequently happened in Kerala creates confusion and problem among the
beneficiaries who are not aware of floating interest rate. Since MFH loan period is 10
years in Kerala the banks hesitate to follow fixed interest rate for a longer period.
Low interest rates of MFH encourage households for housing activity, who would
otherwise face astronomical rates from neighbourhood money lenders. Our observations
during field survey confirm that low income groups often give priority to their need for
housing credit amount rather than low cost smaller loan amount, partly because of their
urgent need for housing and partly because of their ignorance. Some of the sample
household were agreed for higher interest rates but loan must be available to them. This
type of trends may encourage exploitative informal money lending business but we did
not find much about it in our study. It is possible that some links between cost of credit
and affordability work well for micro-finance for housing because housing activity
require larger amounts. But it does not hold true for the common understanding that low
interest rates induce high demand for credit at lower segment. Although, micro-finance of
housing may require low rate of interest than micro-enterprise loan so that poor
households can afford for larger (housing) credits, but it may not work where immediate
housing needs surpass the long waiting for cheaper credit, especially when level of
income is rising. In other words, it is important to work out the rates necessary to meet
the demand for MFH and to make it commercially viable. However, a lower rate of
interest may not necessarily be the sufficient condition for success of MFH in terms of
repayment of housing credit and expansion of the programme as found in some study
areas.
94
3.7 Performance of MFH Product: Repayment of MFH Loan
Repayment of housing credit is the corner stone of the microfinance for housing from the
lender’s perspective. The longer term of housing micro-finance creates greater term risk.
Micro-enterprise loans are so short (usually six months to one year) to minimize the risk
of mismatching assets and liabilities. But, microfinance of housing generates term risk,
although less than the longer term of traditional home-lending. Hence, microfinance of
housing that offer substantially longer terms to lower monthly payments and achieve
widespread affordability - typically from three to ten years seems make MFH lenders to
be overcautious.
The repayment rate of housing loans administered by SRFS was reported satisfactorily at
96% in 2009. But the breakdown of repayment of MFH or unexpectedly high default
rates in Kerala has been a major concern for the bankers, CDS (local partner), the
government and the beneficiaries. The reason was more of political that operational or the
ill intension of the borrowers.
Housing credit borrowers in Karnataka maintained an excellent financial performance,
where MFH was supplied by MFI. In Kerala, repayment rate was very good in the initial
years of Bhavansree programme but due to some political announcement about waiving
off housing loan by the government. Default rate started rising during last two years. It
may be noted that repayment rate of HMF loans was significantly lower than that of other
microfinance loans in Kerala. One recent study (Manoj, 2010) on ‘Bhavanashree’ found
that the repayment rate was 78 percent during 2009 which seems deteriorated
subsequently. The present study found about 90 percent of default/arrear which is
unexpectedly higher than the usual repayment rate of other MF loans.
While interacting with people during the field survey we found that majority of non-
repayments were not intentional defaults. Some of them were short-term arrears due to
some common factors such as sudden health expenditure, education expenditure, and loss
in business/earning and social and other functions. Our interaction with the banks that
95
financed MFH we realized that the programme was successful and repayment was
satisfactory prior to the announcement of loan waiving. Therefore, in the given context, it
may not be appropriate to assess the non-repayment of Bhavansree loan in Kerala is an
overall failure of MFH programme.
On the other hand MFH program in Karnataka exhibit low arrears rate out of which
majority were due to some reasonable factors such as sudden health expenditure or loss in
current business. The reasons for high repayment in Karnataka are
Rigorous selection of beneficiaries
Low budget housing activities
Absence of incremental housing
Shorter loan period (three years)
Regular monitoring and supervision about housing activities
Long association with MFI (earlier with MYRADA now with SFRS)
Strong repayment record of previous microcredit loans
Matured SGH and strong peer pressure (Reasonably high group saving fund)
Irrigated agriculture and dominance of cash crops
Links between general microcredit and housing loan
However, there is scope for innovative micro-finance initiatives in addressing the
challenge of low segment house financing services. The experience of Karnataka show
that housing needs of low income groups far outpace the common apprehension that low
segment housing finance is not a win-win situation without public provision of credit
subsidy. But it does not ignore the role of public support, particularly in terms of
provision of basic infrastructure and other services that continue to play a vital role in
development pro-poor housing finance sector.
As regard to the loan period of MFH a smaller period may be appropriate from lender
perspective but it may not be comfortable for the beneficiaries who have already
committed to service bigger and costlier informal housing credit simultaneously. Its
consequences may not be favourable for the growth of MFH sector. For instance, many
96
MFH borrowers in Karnataka expressed to pre-close their current MFH to avail a bigger
amount of loan that will be used partly to repay their previous informal credit which is
larger and became costlier over time. But the lender had different views on this and
imposed pre-closer charge to discourage such tendency and to avoid default rate it
perceived. This trend may be dangerous for both MFI and its clients. Therefore, redesign
of MFH product needs immediate attention with focus on higher loan amount and longer
loan period. Typically repayments are monthly, but some borrowers expressed for
flexible repayment schedule preferably quarterly or any time in a year depending on
available of surplus fund, nature of occupation (agricultural laborers prefer the option of
repaying after harvests).
Table – 3.14: Repayment of MFH, Default Rate and Type of Borrowings in Study Areas
Karnataka Kerala Total
N % N % N %
Have you ever failed to pay EMI of housing loan?
Yes 3 18.8 47 90.4 50 73.5
No 13 81.3 5 9.6 18 26.5
Total 16 100.0 52 100.0 68 100.0
Preferred repayment schedule/time
Monthly 43 86.0 31 59.6 74 72.5
Quarterly 7 14.0 18 34.6 25 24.5
Half yearly 0 0.0 3 5.8 3 2.9
Total 50 100.0 52 100.0 102 100.0
Place of Repayment of EMI/MFH
Bank 1 2.0 36 75.0 37 37.8
Group meeting 49 98.0 3 6.3 52 53.1
Collected by agent 0 0.0 2 4.2 2 2.0
Other 0 0.0 7 14.6 7 7.1
Total 50 100.0 48 100.0 98 100.0
Place of Last Payment of EMI
Inside village/Group meeting 42 97.7 0 0.0 42 46.2
Panchayat 0 0.0 13 27.1 13 14.3
Bank 0 0.0 35 72.9 35 38.5
Other 1 2.3 0 0.0 1 1.1
Total 43 100.0 48 100.0 91 100.0
Source: Field Survey
As regard to housing microfinance portfolio of lending institution it may not be serious
problem for commercial banks but it is a matter of concern for MFIs where, MFH
constitutes a sizeable portion of their total portfolio. To some extent it is reflected in their
97
conservative MFH product design as they found be constraints in mobilization of fund. In
some cases new borrowers often kept on waiting for housing loans to be funded from
repayments of past loans unlike the case of MFH finance by banks whose portfolio in
these lending constitutes a smaller part. SRFS only received some fund from National
Housing Bank (NHB) after long waiting and it was not adequate to meet the requirement.
On the other hand loan repayment period of Bhavansree programme in Keral was ten
year where several commercial banks were financing for it. But there was lack of
supervision, monitoring and expertise in micro housing technology.
Under uniform loan amount, interest and repayment period it is difficult to accommodate
diverse housing demand and priorities at the lower segment. Relatively better-off
households can afford higher monthly repayments or pre-closure of loan while others
may have different choices. Designing products to balancing these choices and priorities
requires serious efforts which are missing in both the study areas. Similarly, given the
diverse occupation pattern and repaying capacity across low income groups expecting
uniform repayment of housing credit may not be rational in all contexts. It may be seen in
the Table –3.15 incomes from agriculture and wage labour constitute major source of
repayment of housing loan which are volatile and irregular in nature. About 70 percent of
household depend on agricultural and wage labour to repay their housing credit. While
incomes from agriculture once after harvesting and wage incomes depend on its
availability. Under this situation it is difficult to realize the regular repayment of housing
credit of a larger (EMI) amount. It indicates how hard it is on the part of low income
groups to manage regular loan repayment. There is urgent need for flexible and
appropriate product design in low segment housing finance sector.
It may be noted that, in Kerala there was no such attempt to pre-close housing loan where
repayment period was longer and average wage rate was higher. In fact the monthly
repayment amount (EMI of Rs 500/- to 750/-) was within their reach unlike their
counterparts in Karnataka. Some time households go into arrears to meet regular EMI
payment. But default rate was typically nil or low because of peer pressure from other
members of the neighborhood.
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Table – 3.15: Sources of Repayment of MFH
Karnataka Kerala Total
N % N % N %
Agriculture income 19 44.2 1 2.3 20 23.0
Income from regular job 8 18.6 6 13.6 14 16.1
Wage labourer 13 30.2 30 68.2 43 49.4
Non-farm income 2 4.7 0 0.0 2 2.3
Remittance 0 0.0 2 4.5 2 2.3
Other sources 1 2.3 5 11.4 6 6.9
Total 43 100.0 44 100.0 87 100.0
Source: Field Survey
In sum, repayment of housing loan among working poor though looks harder, particularly
in case of shorter loan period but it may not result in problem of default as well perceived
by the lenders. Though, a smaller housing credit and shorter loan period is expected to be
better serviced than larger and longer one as often it is argued but it never guarantee the
success of repayment under given situation. A well designed and processed product for
housing microfinance is suggested instead of housing credit lenders to become
overcautious while fixing the loan amount and loan period as found in the study areas.
3.8 Role of Peer Group in MFH
Some argues that group liability or collective responsibility may not work for housing
microfinance because of the nature and loan conditions. But we found that collective
liability through group pressure works as the primary collateral. During the loan process,
prospective members of groups (SHG/NHG) are required to present some proof of land
ownership and other documents. Cost of verification of land title and other details get
minimized when housing loan are processed through group. The document of land
ownership is not used as collateral, but as an instrument to pressure the borrowers to
make repayments if they are in arrears. Role of peer group pressure works in repayment
cases but it depends on the group maturity and individual factors. If one borrower in a
group fails to pay back, other members of the solidarity group help him out. In case of
Karnataka the group use fund from their saving and pay it back by the member later. This
collective security seems proved effective and has resulted in good repayment record. But
this is little different from the collective security that works for micro-enterprises loan
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where all group members share the group loan. In case of micro-finance for housing few
members of the group are selected for MFH through group. But peer group pressure may
not suite, especially, where MFH has been operated by commercial banks and at
individual level.
3.9 Housing Design & Technical Assistance
In spite of variety of low cost housing technology are available and promoted by several
agencies most of the sample households were not aware of it and few of them who knew
it never used. There was hardly any serious attempt from housing finance institutions and
the promoting agencies in this regard. In almost all cases the borrower is responsible for
the design of the house, basic health and safety requirements, if any. Though there are
some minimum housing standard needs to be met but no serious efforts were made to
execute it. Acute shortage of manpower, lack of expertise and procedural apathy on the
part of housing finance institutions and other organization are some key factors for failure
to execute low cost housing design and practices. It was ignored due to apprehension of
higher cost of execution and monitoring for a smaller loan amount. This is one of the
serious lacunae in MFH programme in India. However, we found some cases where
construction of toilets, sponsored separately by the district administration, along with
new house construction under MFH programme in Chamrajnagar in Karnataka. In
Mysore district there were few cases of some housing technique followed by the
beneficiaries with help of MYRADA long before the present MFH programme. In
Kerala, some information about housing technology was found with Bhavansree official
but its implementation was not made properly so that the households will benefit from it.
Local housing practices, often suggested and designed by mason, construction worker
and neighbors, found widely followed in the study areas. Data presented in table – 3.16
show that use of new and low cost housing design and technology was almost absent as
most of the houses were self designed in both of the study areas i.e. Karnataka (78 %)
and Kerala (49 %). Only few houses were designed by local masons or others. In fact,
almost all households were happy with their current house design. Either, there is lack of
awareness and access to new and low cost housing technology in the study areas or the
available housing technology is not appropriate for the local requirements.
100
Given the nature of housing activities in the study areas, quality of the housing under
MFH programme can be costly, inconsistent and non-durable without adequate and
appropriate technical assistance. Micro-finance housing programmes yet to consider low
cost housing technology is also important for the programme. Traditional house building
practices followed across the study areas were not very cost effective and hygienic. The
houses that had been built under MFH programme in Karnataka were typical low-income
dwellings, traditional look and constructed by using local housing materials such as mud-
sand-stone mixed (it is uses as substitute of cement) wood, bamboo and local made tiles
(for roof). It requires regular and timely maintenance and repair which is not easy for
poor households. In Kerala, though some houses were constructed by using local housing
design and low cost housing material but they follow some housing standard. In many
cases, construction of new houses used cement pillars, tin/asbestos roofs to reduce
structural damage and install sanitary latrines for better hygienic condition. So, overall
housing condition in in Kerala seems better than Karnataka.
Table – 3.16: Housing Design in Study Areas
Karnataka Kerala Total
No % No % No %
Who gave design for current house development/repair/new construction
Self designed 40 78.4 28 49.1 68 63.0
Local people 2 3.9 18 31.6 20 18.5
Funding agency/bank/MFI 0 0.0 1 1.8 1 0.9
Masson 9 17.6 10 17.5 19 17.6
Total 51 100.0 57 100.0 108 100.0
Are you happy with the given house plan/design
Yes 46 95.8 53 98.1 99 97.1
No 2 4.2 1 1.9 3 2.9
Total 48 100.0 54 100.0 102 100.0
Do you have insurance for the house
Yes 1 7.1 5 9.4 6 9.0
No 13 92.9 48 90.6 61 91.0
Total 14 100.0 53 100.0 67 100.0
Source: Field Survey
A well-built house is also a symbol of social status, found followed in many cases in
Kerala. For instance, people try to make their house beautiful and visible by making a
boundary of the premise where the house is located, putting entrance gate, growing plants
in and around, putting a name of their house and making the premises hygienic. It was
101
not found in Karnataka may be due to lack of fund, awareness about good housing, poor
housing technology and other factors. In sum, need for appropriate housing design and
low cost housing is very important for low income groups to minimize expenditure on
housing and improve health and sanitary conditions, which are often ignored.
3.10 Progressive Or Incremental Housing
One of the most common arguments discussed in the literature about low-income housing
activity is incremental housing practices or progressive housing. Given the credit
constraints poor households would like to complete their housing activity in phases over
a period of time rather finishing at one go. Since MFH is designed for low-income
households it is believed that they will also follow incremental steps to expand or
improve or to build their dwelling. To some extent it justifies the plight of low income
and poor households. In other words, incremental housing’ is believed a practical way of
housing development for the poor. But our data do not support this statement completely.
There may be some factors that push households to complete their housing activity at a
stretch ever earlier than their housing plan (see table 3.17). In other words in some
contexts, poor households cannot afford to delay in completion of on going housing
activities.
It may be seen the data presented in table - 3.17 showing about the average period of
new house construction which was the most important housing activity in the study areas.
The difference between planned and actual period to complete the housing activity in the
study areas does not support the argument of incremental housing practice among sample
households. Overall, the difference between period of housing activity planned and the
actual period used to complete was less than a year for housing activity like new
construction shows no such delay as expected in progressive housing. Interestingly, early
completion of housing activities was also reported in many cases with few exceptions in
Kerala. This is in contrast to the findings of earlier studies that poor households prefer
incremental housing to build their home or there is progressive housing activity among
low-income groups.
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It appears that many MFH borrowers preferred to complete the house construction at a
single stretch in spite of constrains of fund. Because delaying in completion of housing
activity would be costly in terms of making alternate living arrangement, diversion or
misuse of arranged fund including MFH, availability and increase in cost of inputs for
housing. It may be noted that many sample households were not having adequate and
permanent housing arrangement for self living. So urgency of housing arrangement for
immediate self living pushes them for early completion of housing activity like
construction of new houses. Under this condition, they prefer to explore all possible
sources source of credit including high cost informal credit and make other arrangement
for early completion of housing activity. e household was having house to manage credit
constraints. They put family labour in housing activities, wherever possible, and even
exchange labour with neighbors for housing construction to minimize cost. In some
cases, poor household had to compromise with quality of housing in terms of smaller in
size, using low cost roof, replacing costly housing material by local materials and not
opting for cementing walls and floor.
While interacting with households and others during our field visit we found that they
households understand what progressive housing is but it is a costly matter for them and
they prefer single-stretch construction to complete housing activity at one go than doing
it in an incremental manner over a longer period. Most of the households preferred
traditional design and concrete construction. However, few incidences of progressive
housing were also found in the study areas and confined to higher income size groups,
where the objective was further improvement of their current housing condition and not
the arrangement of housing for immediate self living.
The main factors for this trend of housing activity in the study areas, particularly among
low-income households in Karnataka are
Current housing facility is inadequate for immediate living purpose
Uncertainty in income flows and fund arrangement
Experience of incremental housing practices in the locality in terms rising cost and
other problems
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Predominance of traditional housing construction practices and lack of awarness and
access to appropriate and low cost housing technology
To avoid misuse and diversion of fund arranged for planned housing activity
Table – 3.17: Delay in Completion of Housing Activity as Per Plan
Housing Activity HH (No)
Average Period (in
Man Months)
Karnataka
New House
construction 9 1.6@
Kerala
New House
construction 31 -1.7* Note: @ shows completion of house construction before by man
* Shows delay in completion by man months.
Source: Field Survey
3.11 Reasons for Delay in Completion of Housing Activity
Though incidence of delay in completion of housing activity was low in study areas we
have attempted to capture some major factors that hinder or delay in completion of
housing activity. One of the major factors responsible for delay in completion of housing
activity was availability of the required fund as per the plan made earlier. Major
constraint in arranging for the required fund were inadequate amount of MFH and
difficulty in arranging remaining fund, which account for 60 percent of delay in housing
activity in the study areas (see table 3.18). It may be noted that about one-fourth of
sample households in both study areas were reported delay in housing activity due to
difficulty in arranging for remaining fund. The data presented in the table – 3.18 depict
distinct differences between the two MFH models regarding factors causing delay in
completion of housing activity.
Similarly, problem relating to housing loan disbursement, common in case of bank loan,
was reported the major problem in Kerala where MFH was disbursed by public sector
banks (see table 3.18). In Karnataka, no such problem was reported as MFH loan was
disbursed by MFI. Regarding problem of diversion of MFH loan toward other purposes it
was higher in Karnataka as about 17 percent of households reported had used part of
104
MFH loan for non-housing purposes. Given the type and pattern of occupation and
income of the low income households it is possible that part of the MFH amount may get
diverted into other expenditures. In cash of Karnataka, where sizeable portion of sample
households grow cash crops and high value crops, it is likely that household credit can be
used interchangeably between farming and housing activity, irrespective of sources of
credit. Therefore, inter-linkage between micro-enterprise loan and micro housing finance,
which are also used interchangeably, would be very much in practice among low income
households. As there were only few sample households involved in micro-enterprises,
our study has not attempted to measure it. However, there may be some other reasons
such as sudden health expenditure, payment for children education and social expenditure
responsible for diversion of household credit. As discussed before, to avoid this situation
many MFH borrowers try to use the fund and complete their housing activity as early as
possible at one stretch as going for progressive housing where chance of misuse of MFH
is more.
Use of MFH also depends on arrangement of the remaining fund which is equally
difficult task for many poor households. It may be seen the data in the table – 3.18 that
about 27 percent of MFH borrowers reported having problem in arranging remaining
fund for the planned housing activity and it was more or less similar in both of the study
areas. Since the quantum of required fund became too high and a borrower has to
approach several sources of credit as found in our study. If failed in arranging the amount
the possibility of use of MFH loan for other purpose would be more.
Table - 3.18: Reason for Delay in Completion of Housing Activity (%HH)
Karnataka Kerala Total
HH
(No)
HH
(%)
HH
(No)
HH
(%)
HH
(No)
HH
(%)
Inadequate MFH 5 27.8 7 36.8 12 32.4
Delay in loan disbursement 0 0.0 3 15.8 3 8.1
Unable to arrange remaining fund 5 27.8 5 26.3 10 27.0
Non-availability of Construction
Workers 1 5.6 2 10.5 3 8.1
Use of MFH for other purpose 3 16.7 1 5.3 4 10.8
Other 4 22.2 1 5.3 5 13.5
Total 18 100.0 19 100.0 37 100.0
Source: Field Survey
105
Chart – 3.12
Reason For Delay in Completion (% HH)
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
Inadequate MFH Delay in loan
disbursement
Unable to arrange
remaining fund
Non-availability of
Construction
Workers
Use of MFH for
other purpose
Other
Karnataka %
Kerala %
3.12 Decline in Housing Expenditure during Post-MFH Period
One of the key objectives of microfinance for housing programme is to reduce incurring
expenditures on housing which constitutes a sizeable portion of total income of low-
income groups. As hypothesized, there was decline in average expenditure on housing in
the study areas after realization of MFH. But no clear and visible trend emerges about the
degree of decline in housing expenditure across income group and regions. It may be
seen the data presented in the table – 3.19. Very high proportion (about 88 percent) of
borrowers experienced some decline in their housing expenditure after availing MFH.
Though overall picture of decline in post-MFH housing expenditure looks uniform in
both of the study areas the degree of the decline was wide spread across income size
groups in Kerala than in Karnataka. However, the decline was not progressive throughout
despite of the bottom most income size group had experienced high degree of post-MFH
decline in housing expenditure. Overall, 23 percent of household experienced 10-20
percent decline in expenditure on housing as compared to 14 percent household
experienced more than 50 percent decline in Kerala. It shows that MFH programme has
helped in arresting expenditure on housing among the low income groups which is
expected. But it was in lesser extent than their counterparts in Karnataka. Top most
income size group in Karnataka had experienced higher degree of decline in housing
expenditure after availing MFH (6 percent household reported less than 10 percent
106
decline and 35 percent household reported more than 50 percent decline in case of
household having average annual income more than Rs.36000/-).
Though, it is desirable that MFH should help in substantially reduction in annual housing
expenditure of all low-income households but it is not reflected in our data. There may be
several factors responsible for this including high priority for immediate self use,
dominance of new house construction and other reasons. It may be noted that households
who had completed their new houses recently may not incur any major expenditure on
housing for sometimes. Similarly, it is difficult to calculate the actual housing
expenditure where MGH borrowers were staying with their family members in ancestral
house and housing expenditure is shared either jointly or spent by other members, before
moving into the new houses.
Table -3.19: Decline in Annual Housing Expenditure during Post-MFH Period (%)
Income Groups Total
Decline in Housing
Exp
<Rs.
12000
Rs. 12000-
18000
Rs.
18001-
36000 >Rs. 36000
Karnataka
<10% 0.0 0.0 0.0 5.9 2.2
10-20% 0.0 7.7 20.0 11.8 11.1
21-30% 0.0 0.0 10.0 0.0 2.2
31-50% 20.0 15.4 10.0 23.5 17.8
>50% 60.0 76.9 60.0 35.3 55.6
No change 20.0 0.0 0.0 23.5 11.1
Total 100.0 100.0 100.0 100.0 100.0
Kerala
10-20% 16.7 30.8 0.0 0.0 23.5
21-30% 20.8 23.1 100.0 0.0 23.5
31-50% 33.3 23.1 0.0 0.0 27.5
>50% 16.7 11.5 0.0 0.0 13.7
No change 12.5 11.5 0.0 0.0 11.8
Total 100.0 100.0 100.0 0.0 100.0
Source: Field Survey
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Chart – 3.13
Decline in Housing Expenditure after MFH (%):
Karnatak
0.0
20.0
40.0
60.0
80.0
100.0
<Rs.
12000
Rs.
12000-
18000
Rs.
18001-
36000
>Rs.
36000
All
Income
Groups
% d
eclin
e<10%10-20%21-30%
31-50%>50%No change
Chart – 3.14
Decline in Housing Exp. after MFH in Kerala
0.0
20.0
40.0
60.0
80.0
100.0
120.0
<Rs. 12000 Rs. 12000-
18000
Rs. 18001-
36000
>Rs. 36000 All Income
Groups
% d
ecli
ne
10-20%
21-30%
31-50%
>50%
No change
3.13 Product Design
Microfinance for housing is relatively new and not much popular progamme in India as
compared to micro-enterprise credit programme. So much attention has not been given to
the MFH product design. Since demand for housing micro credit is overwhelming among
low income group in comparison to its supply, there is low or no market competition. All
these factors together seem resulted in poor innovation and product design in MFH sector
and low income households are the worse affected among all stakeholders. From our
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earlier analysis about the demand and supply of MFH it also appears that product design
of MFH has not been given due importance in both of the study areas. It reflected in
terms of low outreach and making housing micro-finance more difficult and less
widespread than micro enterprise credit. Major areas for improving the product design for
MFH are loan amount, repayment period, client selection process, collateral and other
loan terms and condition. Based on our previous analysis and interaction with different
stakeholders, we have following suggestions for housing micro-finance product design.
To develop housing microfinance programme, it is important to follow a proper sequence
of product design and processing. Understanding the nature and potential size of low
segment housing finance market is essential. Survey of clients profile through a demand
assessment and incorporating findings of demand assessment in designing MFH product
is crucial. Comments of partners and other stakeholders (MFI, Banks, NGO, Govt. Depts.
Housing Technology Development institute like CBRI, and low-cost house design
advocacy agency like Micro Home Solutions) are also important. Over emphasis on
credit risks, fixed repaying schedule and collateral for MFH should be rationalized and
minimized. Two major points we have noticed during field survey that many houses in
rural areas are not used as production centre unlike what is generally argued. There is
acute inadequacy of basic housing facilities for entire family that outweigh the scope of
using house for income generating activities. There are several other socio-economic
factors why rural houses are not productively used by the owners. Under this situation,
designing of housing microfinance product keeping in mind that it will also contribute
income gerating activities is a remote chance. So MFH cannot be considered in the line of
other microfinance products while designing MFH products. In this regard, MFH
products offered in both of the study areas are not very different.
Keeping the clients preference for longer tenor and larger amount of housing credit in
mind a quasi MFH product, combining the feature of microfinance and project finance
may be suitable for increasing loan entitlement and quality housing for the low income
groups. Regions and groups specific housing demand, housing activity, occupation and
other features need to be considered while designing such MFH product. Following
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points not covered in MFH in study areas may be helpful for designing housing
microfinance product design and pricing.
1. Housing Loan amount: It should be flexible depending upon client’s need,
type of housing activity plan, repaying capacity and other source of earnings.
2. Housing Loan Period: It should be longer and to the extent possible it should
be flexible depending on client’s income, housing activity plan, repaying
capacity and other source of earnings like remittance
3. Rate of interest: Though it depends on the cost of credit of the lenders but it
should be smaller than other loans. Incase there is floating rate the mechanism
must be clear to the clients before sanctioning of loan. No pre-closure charges
should be imposed rather some incentives for early repayment of the loan. Its
consequence on lenders may be readjusted rather passing on to the clients.
4. Loan Repayment: Minimum restriction on loan repayment in initial few years.
Repayment may be readjusted during loan period depending on the client’s
income pattern and sources. For instance agriculture income comes after
harvest so half yearly or quarterly repayment of housing loan may be allowed
subject to scrutiny.
5. Second Loan: Depending on the repaying record and other factors second
housing loan or top up loan for housing may be allowed.
6. Processing Fee & Other Charges: Minimum or no processing fee and other
fees, if any, should be followed. It discourages many poor borrowers.
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Appendix - II: (Chapter – 3)
3.1: Type of House Ownership & Occupancy
House Ownership & Occupancy Karnataka Kerala Total
N % N % N %
Staying with family
Yes 40 83.3 52 96.3 92 90.2
No 8 16.7 2 3.7 10 9.8
Total 48 100.0 54 100.0 102 100.0
Type of house ownership
Parental house 2 3.8 0 0.0 2 1.8
Joint ownership 11 20.8 40 71.4 51 46.8
Single & self owned 39 73.6 16 28.6 55 50.5
Rented 1 1.9 0 0.0 1 0.9
Total 53 100.0 56 100.0 109 100.0
Type of land ownership
Private 50 94.3 55 98.2 105 96.3
Municipality/Panchayat 1 1.9 0 0.0 1 0.9
Govt. 1 1.9 0 0.0 1 0.9
Don't know 1 1.9 1 1.8 2 1.8
Total 53 100.0 56 100.0 109 100.0
Land Tenure
Land Patta 49 92.5 54 98.2 103 95.4
Private land encroached 1 1.9 1 1.8 2 1.9
Govt. land encroached 1 1.9 0 0.0 1 0.9
Other 2 3.8 0 0.0 2 1.9
Total 53 100.0 55 100.0 108 100.0
N Rs N Rs N Rs
Average Market value of house
(Rs)/HH 53 211509 57 271666 110 24268
Source: Field Survey
111
3. 2: Distribution of Occupation and Income of Sample Households
Karnataka Kerala Total
Primary occupation of household N % N % N %
Agriculture 18 34.0 2 3.5 20 18.2
Livestock 0 0.0 1 1.8 1 0.9
Construction worker 1 1.9 1 1.8 2 1.8
Regular service 2 3.8 6 10.5 8 7.3
Retail trading 6 11.3 7 12.3 13 11.8
Skilled Wage laborer 3 5.7 12 21.1 15 13.6
Un-Skilled Wage laborer 22 41.5 24 42.1 46 41.8
Other 1 1.9 4 7.0 5 4.5
Total 53 100.0 57 100.0 110 100.0
Household Average Annual income
(Rs.)
<Rs. 12000 2 3.8 24 42.9 26 23.9
Rs. 12000-18000 15 28.3 28 50.0 43 39.4
Rs. 18001-36000 13 24.5 2 3.6 15 13.8
>Rs. 36000 23 43.4 2 3.6 25 22.9
Total 53 100.0 56 100.0 109 100.0
3. 3: Housing Profile of Sample HH
Karnataka Kerala Total
N % N % N %
Type of house
Kacha 10 18.9 2 3.5 12 10.9
Semi-pacca 30 56.6 26 45.6 56 50.9
Pacca 12 22.6 25 43.9 37 33.6
Others 1 1.9 4 7.0 5 4.5
Total 53 100.0 57 100.0 110 100.0
Roof Type
Thatched 13 24.5 1 1.8 14 12.7
Asbestos/Tin 15 28.3 22 38.6 37 33.6
Tiled 18 34.0 22 38.6 40 36.4
Cement Slab 5 9.4 10 17.5 15 13.6
Other 2 3.8 2 3.5 4 3.6
Total 53 100.0 57 100.0 110 100.0
Flooring
Mud 16 30.2 1 1.0 16 14.7
Brick 2 3.8 6 10.5 8 7.3
Stone/sand 1 1.9 21 36.8 22 20.2
Cement 31 58.5 27 47.4 58 53.2
Tiles 3 5.7 2 3.5 5 4.6
Total 53 100.0 56 98.2 109 100.0
Market value of house (lakh) 53 211509.4 57 271666.7 110 242681.8
112
3. 4: Preferred Source of Borrowing by Housing Activities
Sources of
fund
Karnataka Kerala Total
N % N % N %
New construction Bank 1 3.7 16 41.0 17 25.8
MFI 19 70.4 4 10.3 23 34.8
Money lender 2 7.4 11 28.2 13 19.7
Relatives 5 18.5 7 17.9 12 18.2
Other 0 0.0 1 2.6 1 1.5
Total 27 100.0 39 100.0 66 100.0
Additional room Bank 0 0.0 4 50.0 4 20.0
MFI 10 83.3 1 12.5 11 55.0
Money lender 1 8.3 2 25.0 3 15.0
Relatives 1 8.3 1 12.5 2 10.0
Total 12 100.0 8 100.0 20 100.0
Repair & maintenance Bank 0.0 1 25.0 1 20.0
MFI 1 100.0 1 25.0 2 40.0
Relatives 0.0 1 25.0 1 20.0
Other 0.0 1 25.0 1 20.0
Total 1 100.0 4 100.0 5 100.0
Strengthening roof &
wall MFI 3 60.0 0.0 3 50.0
Money lender 0.0 0.0 0 0.0
Relatives 2 40.0 1 100.0 3 50.0
Other 0.0 0.0 0 0.0
Total 5 100.0 1 100.0 6 100.0
House expansion MFI 1 100.0 0 0.0 1 50.0
Money lender 0 0.0 1 100.0 1 50.0
Total 1 100.0 1 100.0 2 100.0
Livestock Bank 0.0 0.0 0 0.0
MFI 1 50.0 0.0 1 0.0
Relatives 1 50.0 0.0 1 0.0
Total 2 100.0 0 0.0 2 0.0
Others MFI 3 100.0 3 100.0
Total 3 100.0 0 3 100.0
Finishing & flooring Bank 0 1 100 1 50.0
MFI 1 100 0 1 50.0
Total 1 100 1 100 2 100.0
All Activities Bank 1 1.9 22 40.7 23 21.7
MFI 39 75.0 6 11.1 45 42.5
Money lender 3 5.8 14 25.9 17 16.0
Relatives 9 17.3 10 18.5 19 17.9
Other 0 0.0 2 3.7 2 1.9
Total 52 100.0 54 100.0 106 100.0
113
3. 5: Gap in Demand and Supply of Housing Credit by Housing Activity
HH involved in
Housing
Activity
(No)
Fund
Demanded
for
Housing
Activity
(Rs)/HH
Self-
Arranged
before
MFH
(Rs)/HH
Pre-MFH
Housing
Credit
Gap*
(Rs)/HH
Post-MFH
Housing
Credit
Gap**
(Rs)/HH
Preferred
loan
Repayme
nt period
(years)
Pre-
MFH
Housi
ng
Credit
Gap it
(%)
Post-
MFH
Housing
Credit
Gap (%)
Karnataka
New construction 27 190185.2 69600.0 120585.2 70585.2 3.1 63.4 37.1
Additional room 12 80083.3 11818.2 68265.2 18265.2 3.1 85.2 22.8
Repair &
maintainance 1 15000.0 0.0 15000.0 -35000.0 4.0 100.0 -233.3
Strengthening roof
& wall 5 84000.0 8000.0 76000.0 26000.0 3.0 90.5 31.0
House expansion 1 150000.0 30000.0 120000.0 70000.0 3.0 80.0 46.7
House for
Livestock 2 67500.0 17500.0 50000.0 0.0 3.0 74.1 0.0
Other 3 45333.3 5333.3 40000.0 -10000.0 88.2 -22.1
Finishing &
Flooring 1 16000.0 0.0 16000.0 -34000.0 100.0 -212.5
Total 52 134000.0 40632.7 93367.3 43367.3 3.1 69.7 32.4
Kerala
New construction 39 211026.0 15512.8 195513.2 145513.2 12.5 92.6 69.0
Additional room 8 84687.5 17812.5 66875.0 16875.0 8.0 79.0 19.9
Repair &
maintained 4 46265.0 0.0 46265.0 -3735.0 100.0 -8.1
Strengthening roof
& wall 1 300000.0 0.0 300000.0 250000.0 100.0 83.3
House expansion 1 250000.0 0.0 250000.0 200000.0 100.0 80.0
Finishing &
Flooring 1 64000.0 10000.0 54000.0 4000.0 10.0 84.4 6.3
Total 54 297084.7 14027.8 283056.9 233056.9 8.7 95.3 78.4
Total
New construction 66 202500.2 36640.6 165859.6 115859.6 4.8 81.9 57.2
Additional room 20 81925.0 14342.1 67582.9 17582.9 4.4 82.5 21.5
Repair &
maintenance 5 40012.0 0.0 40012.0 -9988.0 4.0 100.0 -25.0
Strengthening roof
& wall 6 120000.0 6666.7 113333.3 63333.3 3.0 94.4 52.8
House expansion 2 200000.0 15000.0 185000.0 135000.0 3.0 92.5 67.5
House for
Livestock 2 67500.0 17500.0 50000.0 0.0 3.0 74.1 0.0
Other 3 45333.3 5333.3 40000.0 -10000.0 88.2 -22.1
Finishing &
Flooring 2 32080.0 5000.0 27080.0 -22920.0 10.0 84.4 -71.4
Total 106 217080.9 26684.5 190396.4 140396.4 4.6 87.7 64.7
*Total credit demand - Self arranged fund) Rs/HH. **Total credit demand - Self arranged fund – MFH
114
3. 6: Delay in Completion of Housing Activity as Per Plan
Extra Period Taken To Complete the Planned Activity
Karnataka
Average
Period
planned
for
Housing
Planned
Actual
Period of
Completion
of Housing
Activity
HH
Reported
Delay in
Completion
(%)
Period of
Delay in
Completion
as per Plan
(%)
Std.
Deviation
new construction 7.2 5.6 66.7 77.7 2.68
additional room 2.9 3.5 50.0 120.7 2.17
repair & maintenance 6.0 2.0 100.0 33.3 .
Strengthening roof &
wall 7.2 2.3 80.0 31.3 1.50
house expansion 0.0 4.0 100.0 .
livestock 7.5 3.0 50.0 40.0 .
6.0 0.0 0.0
others 0.0 24.0 100.0 16.97
Total 5.9 5.7 62.3 97.1 6.15
Kerala
new construction 12.8 14.4 22.5 113.3 18.19
additional room 6.4 6.0 12.5 94.1 .
repair & maintenance 4.5 1.0 16.7 22.2 .
Strengthening roof &
wall 18.0 6.0 100.0 33.3 .
0.0 0.0
0.0 0.0
Total 10.6 11.9 21.1 112.1 16.22
Total
new construction 10.5 8.6 40.3 81.3 11.16
additional room 4.3 3.9 35.0 89.9 2.19
repair & maintenance 4.7 1.5 28.6 31.8 0.71
Strengthening roof &
wall 9.0 3.0 83.3 33.3 2.12
house expansion 0.0 4.0 50.0 .
livestock 7.5 3.0 50.0 40.0 .
others 6.0 24.0 50.0 400.0 16.97
0.0 0.0
Total 8.3 7.4 40.9 88.3 10.05
115
3. 7: Household Asset Holding Pattern
Karnataka Kerala Total
No % No % No %
Cycle
Yes 25 67.6 8 16.7 33 38.8
No 12 32.4 40 83.3 52 61.2
Total 37 100.0 48 100.0 85 100.0
Radio
Yes 24 64.9 5 10.4 29 34.1
No 13 35.1 43 89.6 56 65.9
Total 37 100.0 48 100.0 85 100.0
Tape
Yes 12 37.5 5 10.9 17 21.8
No 20 62.5 41 89.1 61 78.2
Total 32 100.0 46 100.0 78 100.0
TV
Yes 31 86.1 42 80.8 73 83.0
No 5 13.9 10 19.2 15 17.0
Total 36 100.0 52 100.0 88 100.0
TV cable connection
Yes 31 83.8 38 73.1 69 77.5
No 6 16.2 14 26.9 20 22.5
Total 37 100.0 52 100.0 89 100.0
Wall clock
Yes 33 84.6 42 89.4 75 87.2
No 6 15.4 5 10.6 11 12.8
Total 39 100.0 47 100.0 86 100.0
Cooler
Yes 3 11.5 0 0.0 3 4.2
No 23 88.5 46 100.0 69 95.8
Total 26 100.0 46 100.0 72 100.0
Refregerator
Yes 0 0.0 5 10.9 5 7.1
No 24 100.0 41 89.1 65 92.9
Total 24 100.0 46 100.0 70 100.0
Ceiling fan
Yes 12 40.0 8 15.7 20 24.7
No 18 60.0 43 84.3 61 75.3
Total 30 100.0 51 100.0 81 100.0
Table fan
Yes 19 59.4 14 29.8 33 41.8
No 13 40.6 33 70.2 46 58.2
Total 32 100.0 47 100.0 79 100.0
Iron box
Yes 16 55.2 2 4.3 18 24.0
No 13 44.8 44 95.7 57 76.0
Total 29 100.0 46 100.0 75 100.0
116
Kerosene stove
Yes 28 77.8 23 46.9 51 60.0
No 8 22.2 26 53.1 34 40.0
Total 36 100.0 49 100.0 85 100.0
Gas stove
Yes 21 67.7 44 83.0 65 77.4
No 10 32.3 9 17.0 19 22.6
Total 31 100.0 53 100.0 84 100.0
Telephone/mobile
Yes 17 63.0 8 17.0 25 33.8
No 10 37.0 39 83.0 49 66.2
Total 27 100.0 47 100.0 74 100.0
Motor cycle
Yes 4 16.7 6 14.3 10 15.2
No 20 83.3 36 85.7 56 84.8
Total 24 100.0 42 100.0 66 100.0
Electric motor for drinking water
Yes 2 9.5 2 6.7 4 7.8
No 19 90.5 28 93.3 47 92.2
Total 21 100.0 30 100.0 51 100.0
Other
Yes 1 8.3 0 0.0 1 7.7
No 11 91.7 1 100.0 12 92.3
Total 12 100.0 1 100.0 13 100.0
117
Chapter – 4
Conclusions & Policy Suggestions
Microfinance for housing (MFH) programs in India is limited coverage and it is in early
stage. It is yet to cover the visible gap exists in housing sector in terms of addressing the
acute shortage of housing among the poor and low-income groups. In spite of rapid
housing finance and growth of microfinance sector in the country, it has limited impact in
addressing challenges in low segment housing finance sector, which has not drawn much
policy attention. On the other hand, within the broader spectrum of housing finance, the
comparative advantage of housing microfinance seems not explored by different
institutional lenders. Though, MFH is no panacea for the housing challenges, it can be an
important tool in provision of affordable housing credit to poor families. It can also work
as kick start for initiating housing activities among low income groups and induce other
stake holders to participate in low segment housing finance market which will generate
multiplier effects in the economy as a whole. But the potential role of microfinance for
pro-poor housing has not yet received due importance in India. The present study, based
on two different MFH models operated in two different socio-economic development
scenarios, highlight some important aspects of housing microfinance in India and offer
suitable policy suggestions for growth and wider outreach of MFH.
From our analysis it is evident that MFH progamme has the potential to achieve desired
objective and scale, but there is need to understand the nature, pattern and size of demand
and supply of housing credit for low income groups. Efforts need to be made to estimate
the potential demand for MFH to gain better understanding of low segment housing
sector. Housing microfinance in India has been limited in outreach. Most of the MFH
progammes were launched few years back and in specific regions. There is a lot more to
understand and document about the progamme before suggesting suitable policy
measures.
118
In this context our analysis captures some broader aspects of housing microfinance in
India.
- Demand for housing finance is very high and growing faster among low income
groups. But nature and potential size of housing microfinance market is not
adequately documented.
- Demand for housing credit varies across regions and income size geoups but it is
pronounced for new house construction and additional rooms for which the
required fund is much higher than the available housing loan.
- MFH loan constitutes only a limited portion of total portfolios of financial
institutions such as banks and MFI.
- Nature and pattern of housing activity and priority of low income groups for such
activity do not match the with functioning of MFH.
Major observations and findings emerging from the study, important from policy view
point, are presented below.
4.1 Major Findings
1. Demand for housing credit found very high in both of the study areas, but the
nature and type of demand vary across groups and regions. Key factors
influencing the housing demand among low-income groups are current housing
condition, purpose of housing, available housing credit (formal & informal)
family structure, pattern of employment and income, asset holding pattern like
livestock and other socio-economic features. However, demand for housing credit
found almost confined to creation of space for immediate self living and not for
income generation activity as often argued in the literature. This largely due to
acute inadequacy of housing facility and poor living conditions of low income
groups.
2. Housing credit lending institutions like banks and MFIs fail to assess low segment
housing finance market and supply credit to meet the credit need. There is grossly
underestimation of size of low segment housing finance market.
119
3. MFH loan amount found inadequate throughout, it meets roughly about one third
of the credit requirement of the borrowers. This resulted in huge gap between
demand and supply of MFH which has its own consequences such as approaching
several informal credit lenders, compromising with quality of housing, diverting
other credit for housing etc. One of the major factors for this is the nature of
housing activities in demand i.e. high cost housing activities like new house
construction, major expansion of house by additional room etc.
4. MFH, despite of its smaller quantity, found notable impacts on different
stakeholders. It has acted as kick start for planning of housing activity and
arranging for remaining fund among low-income groups hitherto excluded by the
mortgage finance markets. It has also positive impact on household decision
making, institutional credit lenders, housing sector and the local economy as a
whole.
5. However, post-MFH period was tougher for many households who had to
borrow/arrange a sizeable fund from other sources for housing and involved in
multiple borrowings. It is not easy to manage both MFH loan which was
mandatory and non-MFH loan from informal sources simultaneously. Its adverse
impact was partly reflected in terms arrears, default payment etc. There may be
other constraints of the MFH borrowers, but not within the scope of the study.
6. MFH is an appropriate housing credit lending method than traditional mortgage
lending to serve the low-income and poor families. MFH found more suitable for
existing microcredit clients because their demand for housing finance can be met
in similar way as it is in microcredit lending. It will also reduce time and
resources for selecting and extending credit, often used in mortgage financing.
Since, microcredit programme has reached millions of clients who do not possess
conventional collateral, it is easy to focusing on repayment capacity, past record,
additional income sources like remittances etc. For instance, studying Karnataka
SFRS (MFI) has extended housing loans to its clients having strong repayment
history across groups and regions without requiring mortgages. By doing this it
has minimized administrative cost and diversion of group loans for other uses.
120
7. For MFIs, MFH program sounds well without much operational cost and
planning. It will also help in expanding the programme and achieving growth
without compromising the existing microenterprise portfolio. Moreover, MFH
products may contribute to the growth of MFIs by diversifying their portfolios..
8. Lack of qualified manpower/staffs with lending institutions for operation of MFH
programme found one of the major supply side factors. In case of SRFS, credit
officers who look after the MFH programme were not trained enough to assess
client’s credit and technical needs. They follow more or less similar process as the
case of microcredit loan. There was also serious concern regarding poor
monitoring, supervision and evaluation of MFH programme. The focus was only
on regular loan repayment and selection of new clients based on past record. It
was also a big problem for Bhavanshree programme in Kerala where field
officers/staffs of the respective banks had to perform technical evaluation,
monitoring and supervision without expertise. Acute shortage of qualified staffs
for operation of MFH programme found a serious problem in both of the cases
(MFI and banks).
9. Since housing credit was extended as a stand alone product without any technical
support, it some times resulted in delay, increasing cost, multiple borrowings,
unhygienic condition and por space management. Lack of proper housing design,,
wrong estimating costs, lack of available of skilled workers and housing materials
were major problems in the study areas.
10. In case of Bhavansree loan there was downscaling of MFH programme by the
banks due to high rate of non-repayment. However, there were some non-
economic factors largely responsible for for non-repayment of housing loan in
Kerala. On the other hand MFH programme of SFRS reported higher repayment
of housing loan more or less similar to microcredit programme. In fact SRFS has
planed to “upscale” MFH where as participating banks in Bhavanshree
progarmme almost stopped the programme with utmost care to deal the risks they
perceive due to number of defaults and non-repayments
121
11. Regarding interest rates, it was lower for MFH than micro-enterprise finance
which is a positive factor for expansion of MFH. But it was much higher in case
of MFI than banks. This was defended by higher cost of credit arranged by the
MFI (SFRS) for lending MFH. Cost of credit available for credit lending
institutions for MFH loan may be compensated by housing subsidy, which is a
area for policy action.
12. In contrast to practice of incremental housing at lower segment, found in several
earlier studies, our study found that low income and poor households prefer to
complete housing activities at one stretch and earlier possible period rather going
for progressing housing activity. We also explain reasons for this. There was strict
loan condition and guideline for completion of housing activity and the housing
need for immediate self living was prominent in both of the study areas. Within
the given budget the housing needs are so urgent that people can not afford to
delay in completion of housing activity. Some MFH borrowers seems
compromised with quality of housing to complete housing activity at one go
rather doing it over a longer period.
13. Post-housing loan period is financially so stressful for many MFH borrowers as
they had to service both MFH loan and other loans including informal credit
borrowed for housing to supplement smaller amount of MFH loan
14. Inter-linkage between housing microfinance and micro-enterprise loan found low
or absent in the study areas. However, numbers of households in Karnataka had
used microcredit loan for housing activity. Since most of borrowers were wage
labourer and involved income generating activities located outside their house.
Most of the households do not have home based enterprise and their need for
housing was for immediate living purpose which outweighs the prospects of home
run enterprise. Household’s priority to invest in improving their dwellings for real
incremental income generation or their investment can produce an increase in the
asset value of the dwelling found abysmally low in the study area. This is in
contrast to earlier study (Sally Merrill and Ajay Suri 2007).
122
Findings of the study support the argument that MFH has potential role in meeting the
housing challenges of low-income groups and development of low segment housing
finance market. Suitable MHF progrmmae can be used as one of the key policy variables
for pro-poor housing development and poverty reduction measure. In a given situation,
appropriate policy measures to promote and expand housing microfinance program will
have enormous impact on the economy as a whole in terms of providing quality housing
and living condition to the economically weaker sections which will in turn improve the
quality of the work force, needed for the growth of the country. Credit lending
institutions can be a part of MFH programme, particularly, MFIs having closer exposure
to variety of clients within low-income group, seems have an edge over others. However,
all stakeholders including MFI, banks, funding agency, line departments of governments,
NGOs, academics, donors and development agency have a role and responsibility for
transformation of pro-poor housing sector.
Table - 4.1: Challenges of MFH and Potential Solutions
Issues Challenges of
MFH
Solutions
Borrowers Problems facing
Individual/Group
Lenders
Diverse demand and priority for MFH
Lack of knowledge of MFH loan products
Technical Assistance for loan products
Limited capacity to manage funds
Capacity building/management training
Shelter NGOs lacking financial expertise
Development of finance subsidiary
Collateral Credit
Risks Ill-defined land title, longer loan period
Lack of tenure security and secure land titles Land
reforms and land titling
MFH supply
Institutions
High Rate of Pre-
closer/ Foreclosure Tendency of early repayment of existing MFH/loan
(SRFS) to avail higher loan amount beyond their
repaying capacity.
Financial Sector
and Capital Market
Barriers
Limited liquidity banks and capital markets
Strengthen financial sector
Term mismatch: limited access long-term funds
Develop liquidity facilities
Limited bank/MFI/capital market linkages Utilize
credit enhancement to kick-start linkages.
Weak regulatory framework/no credit bureau
Improve regulatory and legal frameworks.
Housing
Sector
Lack of infrastructure development Use of govt./
donor funds for infrastructure
Lack of land use planning and habitat upgrading –
Land Reforms
123
Unrealistically high building standards Develop
standards for affordable housing.
4.2 Policy Suggestions
Given the complexity of demand and supply of low segment housing finance in the
country like India, it is important to understand and estimate the nature and size of
housing finance market for low income groups and design suitable policy measures in the
regional perspective. Understanding about housing demand and priority of low income
groups, poor product deign, delivery method, housing portfolio of lending agency and
overall housing infrastructure are some of the key areas for policy interventions to make
MFH more effective to address the problem of housing. Interestingly, housing subsidy
which has been a liability for the govt. over period is not a major issue for development
of MHF programme. However, there is need for policy intervention in select areas to
facilitate functioning of low segment housing market such as standardize MFH products,
improving credit delivery methods and ensuring the best practices to expand access to
housing finance by the poor low income groups. Based on our analysis on two different
housing microfinance programmes we suggest following points, important for policy
implications and wider outreach of microfinance for housing programme.
1. Intermediary Model of MFH: Instead of individual MFH model as followed by
MFIs and commercial banks an intermediary model for delivery of housing
microfinance would be better on operational and fund management ground, where
MFI will service the microfinance portfolios of established commercial banks.
The example of ICICI Bank which has formed partnerships with some MFIs to
service its specialized microfinance product lines, including MFH may be
followed by other financial institutions.
2. Housing Subsidies: Findings of the study supports the argument that microfinance
for housing programme can be a viable option to improve pro-poor housing
without liability of housing subsidy. For many low income but economically
active households, provision of MFH could be better option than extending
124
housing subsidy, which involves lengthy selection process, to improve their
housing condition. It will also make them bankable in the line of conventional
mortgage finance and creation of asset. However, housing subsidy, wherever
possible, may be used for reducing the cost of fund for credit lending institutions
like MFIs, NGOs involved in MFH. In this regard the case of Bhavanshree is an
exemplary.
3. Measuring Housing Demand & Priority: There is need to measure and document
housing demand and priority among different low-income groups and sub-groups.
In this regard, focus should be given on current housing condition, structure of
family, asset holding, income and occupation, alternate sources of credit and other
indicators to assess the actual housing credit need. For this, different housing
measure index such as housing index developed by Cashpor can be used. This is
important from policy point of view.
4. Product Design: From our analysis on exist of wider gap between housing credit
demand and supply, it appears that current MFH product fail to cater the needs of
target groups, where housing demand and activities are diverse in nature. So,
there is need for categorizing of housing credit demand based on nature of
housing activities, repaying capacity, source of income and other suitable criteria.
Variety of MFH product lines should be followed than single product line having
uniform loan amount and loan terms. We suggest following product lines and the
credit lending institutions appropriate to meet diverse housing credit needs at
lower segment. For smaller credit demand (up to Rs 30000/-) and for shorter
period (1 to 2 years), MFIs may be the ideal suppliers. On the other hand, for
relatively larger housing loans (above Rs 50000/-) and for longer term (5 to 10
years), commercial banks, housing finance companies and other credit lending
institutions can be better option.
5. Housing Loan Repayment: Since majority of the clients/borrowers are employed
in informal avenues with variations in income flows, credit lending institutions for
125
MFH should work out with borrowing households to arrive at a realistic estimate
of income, credit need and repaying capability before sanctioning housing loan.
More flexible and rationalization of individual loan amount, repayment period
and EMI should be replaced suitably by the single and uniform practice. The
nature of household occupation, income, asset holding, past records and other
specific factors should be considered while selecting and sanctioning housing
loan. For instance, agriculture income comes after harvesting when the clients can
repay more loan amount than rest of the year.
6. Beneficiary Selection & Credit Risk: The current selection process in both of the
study areas found stringent and exclusive in nature. The credit lenders have been
overcautious while selecting and sanctioning housing loan. Based on the credit
risks they perceive may not be always true. Under this situation group lending
method can be better option to use collective group liability to arrest delay in
repayment and default cases. Regarding selection of households for housing loan
some pars-legal documents like electricity bills, revenue receipts, bank accounts
and other proofs and evidences may be accepted within the legal framework and
that govern rights to property.
7. Up-scaling of Housing Microfinance: Scaling up MFH program to reach the
potential clients remains a major challenge for credit lending institutions. Since
client base of housing microfinance programs is generally lower than the
microcredit, there is huge scope for expansion and growth of MFH programme.
The focus should be given on the excluded such as landless, moderate income
households and others. A special package that includes subsidized fund supply for
MFH lending, low cost housing technology and other supports, relaxation in fund
raising etc. can help development of MFH with wider impacts. Inclusion of some
moderate-income clients, excluded in both of the programme, can improve the
financial and operational base of the MFH programme.
8. Partnership between Banks & MFIs: An effective partnership between different
stakeholders, particularly financial institutions is required for success of MFH
126
programme. It is expected that MFH will grow in India if credit lending
institutions will expand their operation on the same scale as microenterprise
credit. In particular, there is need for development of partnerships between banks
and microfinance institutions for financing and implementing housing finance
programme. In order to use comparative advantages of different stakeholders in
MFH an effective partnership between banks and MFIs partnerships, is urged for
development and functioning of low segment housing finance market is crucial..
9. Housing Plan with Low Cost Housing Technology: Suitable housing plan and
provision of technical assistance should be a part of the housing microfinance
programme. Effort should be made to document and make available suitable
housing technology matching to the local conditions. Capacity building of the
lending institutions in terms of provision of training and other support to their
staffs should be made on regular basis. Demonstration of new housing
technology, better practices of house construction, repair and maintenance should
be conducted in the client’s villages. Selection of such technology need to be
justified by simplifying it with local condition. Keeping its importance in mind
we have discussed about sources and type of low cost housing technology (see
Annexure – II: Chapter – 4).
4.3 Low cost Housing
There is a growing concern that persisting shortage of cost-effective building materials is
one of the serious impediments for improving the housing conditions in the country.
While traditional housing materials generally used by poor and low income households
are declining or short in supply, demand for new and costly housing materials are not
affordable for them. Building materials account for major share of basic inputs in any
housing programme and their costs can go up resulting in increase in cost of houses.
There are some new and alternate housing materials and construction techniques
developed which are cost-effective and environment-friendly. But due to poor awareness
and access to these materials they are yet to be translated into marketable products for
mass application.
127
There are several institutions and agencies engaged in low- cost housing of different
models for different soil and environment conditions. For instance, Central Building
Research Institute (CBRI), Roorkee is known for low cost housing technology
development and dissemination. Similarly, some new non-government organizations like
Micro Home Solutions, New Delhi offers awareness, education and training on pactice of
low cost housing at community level. Rural Buildings & Environment Division of CBRI
has been conducting studies on rural housing and is engaged in the development of
appropriate construction technologies, to improve traditional houses, new technologies
for low cost houses and other buildings and environmental improvements. Micro Home
Solutions a multi disciplinary social enterprise based in New Delhi provides
economically viable housing solutions for under-served populations, low income
communities. It has brought some low cost, hi-design housing opportunities to the urban
poor on innovative financial terms suitable to them. The approach is to introduce
sustainable design and adopt microfinance like principles to facilitate access to quality
housing. Micro Home Solutions has conceptualized Design Home Solution (DHS) as a
service that provides customized technical assistance combined with finance to low
income households interested in home-improvements.
There is missing link between these low cost housing technology and housing credit
lending institutions. There is need for collaboration of housing finance institutions and
the agencies dealing with low-cost housing technology to make it available and
accessible to the targets people. In this context, training programme on low cost housing
technology for the staffs of different stakeholders of MFH should be organized in the
different location with focus on local conditions. Similarly, educating people on use of
locally available housing material can be conducted, wherever possible. The focus should
also be given on provision of hygienic and sanitation and strength of roof and wall which
incur regular expenditure on housing. Representative from local NGO, MFIs and the
concern line departments (block and Panchayat level) and local workers (masons and
labourers) should be trained. The training should be followed by on location
128
demonstration of some housing model and housing techniques for wider use. These
activities may be conducted on regular basis and monitored from time to time.
The coordination between housing credit lending institutions, MFIs, NGO and line
departments to popularize low cost housing technique among the target groups is a vital
area fro pro-poor housing development. Regular demonstration, training and updated
information on low cost housing technology suitable to local conditions and monitoring
of the programme is essential for wider adoption. Staffs of MFIs and other housing credit
lending institutions dealing with the MFH should be given regular training on these
topics. Regarding training on different aspects of low segment housing and for different
stakeholders (credit lending institutions, MFIs, NGOs and the borrowers) collaborations
between research institutes like CBRI and training institutions like BIRD are important.
These type of inter-organization collaboration and supports can play a catalytic role in
developing and disseminating low cost housing technology, which is crucial for
development of housing sector as a whole and low segment housing finance.
4.4 Summary
Shortage of housing is commonly believed as problem of urban areas which is augmented
over period by increasing migration from rural areas. But housing problem in rural areas
is equally challenging. Low segment housing sector in terms of demand for housing
credit is large and, extremely diverse and underestimated. This is also true for each sub-
segment within the sector. With increasing in level of income and changes in socio-
economic life of the rural people their housing needs are also changing resulting in high
demand for housing credit than the supply. Poor understanding about nature, size and
functioning of low segment housing credit market followed by overcautious credit
lending practices are some major factors for larger exclusion form MFH and poor product
design. Since major issues relating to MFH are supply driven, it can be sorted out with
suitable supply side policy actions with focus on regional and group specific factors.. For
a vibrant, sustainable and inclusive housing sector MFH can play a catalytic role.
However, MFH programme should also address some non-financial aspects such as
prospect of home based enterprise, hygienic arrangement and other aspects often ignored
129
by conventional credit lending institutions. Appropriate product design is one of the most
important areas for success of MFH, particularly for the new entrants of the low-income
housing finance market.
From supply side, inadequate and high cost of fund for MFH, high administrative costs
and credit risks involved with housing finance are major problems. Suitable policy
interventions are needed to ensure supply of cheaper credit for MFH lending and
facilitating partnership between organizations to reduce administrative cost. This will
help in provision better access to low cost housing credit and of longer terms. For better
operation and expansion of MFH, role of microfinance sector is crucial because of its
large client base and experience of dealing with microfinance products. Since
microfinance sector is facing challenges in extension of financial services and
development of new products, MFH can be useful. For the new players in housing
microfinance market and launching a new MFH product, detailed market survey to
estimate the demand and identify client’s characteristics are pre-requisite. Developing
and delivering suitable housing products for different groups could be a better way out to
meet the challenges and diversify portfolios successfully.
130
Annexure - III: Chapter – 4:
Low cost Housing Technology
A. Low Cost Housing Technology: CBRI: Major Areas of R&D Activities Technologies for improvement in the performance of traditional houses made of locally
available materials like mud and thatch
New technologies for constructing houses using durable materials like brick, cement
concrete, steel , stone and timber
Construction technologies for disaster (cyclone/flood) mitigation and relief and
rehabilitation work
Low cost sanitation and waste water disposal systems
Development and design of houses for economically weaker section for different regions
Houses for hilly areas
Improvement on Traditional Materials Soil stabilized bricks using cement, bitumen, molasses, lime
Non-erodible mud plaster
Plinth protection of mud walls
Improved method of making fire-retardant thatch roof
Ferro cement plaster for mud walls
Ferro-cement plaster for fire-retardant thatch roof
Frameless doors and window fixtures
New Construction Techniques Pedestal piles for foundation
Precast concrete panel
Precast concrete joists
Ferro concrete arched panels for roofs
Pyramidal roof with triangular precast concrete panels & beams
Unreinforced pyramidal brick roof
Houses for cyclone prone areas
Instant shelter for disaster relief
Manually pressed thatch panels
Ultra low cost house
Doubly curved tiles
Houses for rural poor in different regions
Houses for hilly areas
Houses for economically weaker section
Building Systems Prefab brick panel system
Prefab concrete panel system
Prefab jack-arch panel system
Integrated thin wall and column system
Brick skeleton system
Concrete skeleton system
Timber skeleton system
Brick panels & concrete joists systems
Precast concrete system for cyclone resistant houses
Heat reflective & water proofing treatment for roofs.
Sanitation & Environmental Improvement
131
Low cost latrines
Low cost latrines for high water table area
Waste water disposal system
Ferro Cement unit for waste water disposal system
Contact Address:
R.K. Garg
Scientist Co-ordinator
Rural Building & Environment Division
Phone: +91-1332-283426 +91-1332-283426, 283361
Email: [email protected]
Website: www.cbri.org.in & www.cbri.in
B. Micro Home Solution (MHS)
Micro Home Solution (MHS) offers its expertise to implement different projects aiming
to solve the problem of low segment housing. It assists other stakeholders on the three
areas of housing concern: community, affordability and design
Bringing design where it has never been
Technical design assistance including architectural and engineering services, urban
design, water and sanitation solutions for informal low income settlements, rural housing
Innovative and creative housing models
We bring expertise and experience of working in low-income markets, strategy
formulation, program design and access to finance
Facilitating, partnering and managing
Facilitating stakeholder dialogues, collaborating with local, national, international
players, leveraging partnerships to deliver the most efficient product and service to low-
income households
Live experiments
Pilot projects to test our concepts on variety of housing and shelter like homeless shelters,
home-improvement for poor households
Research, writing, advocating and sharing
Publications, qualitative research surveys and policy advocacy
Contact Address:
Micro Home Solution
C-35 Pamposh Enclave, New Delhi 110048, INDIA
Phone: 011 41435165, Email: [email protected]
www.microhomesolutions.com
132
References:
Asian Development Bank, (2007). Housing Finance II (HUDCO).
http://www.adb.org/Documents/Profiles/LOAN/30204013.ASP
Bruce Ferguson & Heider, E.; 2006. “Mainstreaming Microfinance of Housing.”
Housing Finance International (September 2000)
Buckley, Robert; Kalarickal, Jerry and Singh, Mahavir. “Strategizing Slum Improvement
in India: A Method to Monitor and Refocus Slum Development Programs” World
Bank Working Paper (2005).
Christen, R.P. (2004), Foreword, in Daphis F. & Ferguson, B. (eds. 2004), “Housing
Microfinance: A Guide to Practice”, Kumarian Press, Bloomfiel, CT, USA,
Ferguson, Bruce and Haider, Elinor (2000). “Mainstreaming Microfinance of Housing”
Inter-American Development Bank
Harvard Joint Center for Housing Development Studies, Graduate School of Design.
(2000). Housing microfinance initiatives—synthesis and regional summary: Asia,
Latin America and Sub-Saharan Africa with selected case studies.
Hirway. I, (1987), Housing for the Rural Poor’, Economic & Political Weekly, August
22
IIM Ahmedabad (2000), “Impact of Investment in the Housing Sector on DGP and
Employment in the Indian Economy”, a study sponsored by HUDCO, Indian
Institute of Management, Ahmedabad, July 2000
Krishnan, A, M. Ramji, and Y. Taishi (2007): A Report on Low Income Housing In
India: Challenges and Opportunities for Microfinance’,
http://www.habitat.org/housing_finance/pdf/low_income_housing_in_india.pdf,
accessed on 10.10.2010
KUDUMBASHREE (2009) Annual Report, Kudumbashree (State Poverty Eradication
Mission), Trivandrum, http://www.kudumbashree.org
SRFS (2010), Sanghamithra Rural Financial Services, 15th Annual Report, Bangaluru,
http://www.sanghamithra.org/
Manoj P. K, (2009), “Emerging Technologies and Financing Models for Affordable
Housing in India”, Directorate of Public Relations and Publications, CUSAT,
Kochi, Kerala, April 2009
Manoj P. K, (2010), Prospects and Problems of Housing Microfinance in India: Evidence
from ‘Bhavansree” Project in Kerala State’, European Journal of Economic,
Finance and Administrative Sciences, Issue 19
Martin Carlos, (2008), Going to Scale with Housing Microfinance: Role of Commercial
Bank, Micro report No 32, USAID
Nair, Tara S. (1999), “Housing: The Missing Concerns”, Commentary, Economic and
Political Weekly, Vol. XXXIV, No.28, July 10,
National Urban Housing and Habitat Policy 2007 (NUHHP), Ministry of Housing and
Urban Poverty Alleviation, Govt. of India, New Delhi
Planning Commission (2007) Report of the 11th Five Year Plan (2007-2012) Working
Group on Urban Housing with Focus on Slums, Govt. of India, Ministry of
Housing and Urban Poverty Alleviation, New Delhi – 110011, p.31
133
Planning Commission, (undated), Report on Village Level Evaluation Study for Planning
Commission by SANTEK CONSULTANTS PVT. LTD. NEW DELHI, accessed
on 10.10. 2010
(http://planningcommission.gov.in/reports/sereport/ser/stdy_villgeval.pdf)
RBI, (2009)Committee on Financial Sector Assessment (CFSA), India’s Financial
Sector: an Assessment
Shah, K., 1993. Interface between government and non-government sectors. Keynote
address at the Third Congress of the Regional Network of Local Authorities for
Management of Human Settlements, 21 November
Sundaram K. and S K Tendulkar (1995) "Measuring Shelter Deprivation in India",
Indian Economic Review, Vol. XXX (2),
Turner, John and R. Fichter (1972), Freedom to Build, Collier Macmillan, New York.
Wong S (2008) Poor Living Conditions in Asia, http://www.helium.com/
Young, C (2007), “Housing Microfinance: Designing a Product for the Rural Poor”,
Centre for Microfinance Working Paper Series No. 19, IFMR, Chennai
134
Appendix – IV
Questionnaire
Household Questionnaire: CMR Study on Micro Finance for Housing
Village/Ward Gram Panchayat/CDS Block/Taluk District
A. HH Characteristics:
1. Name of head of HH/Family:_____________________, Age______, Education_________,
Caste______
2. Primary Occupation of HH Head_______________, (Agriculture/ Trading & Business/
Skilled Labour/ Unskilled Wage labour/ Regular Services/ Non-farm activity/ Income from
Migration/ Others)
3. Annual Household Income (appx): A.< Rs.12000, B. Rs. 12000-18000, C. Rs.18000-36000,
D.> Rs 36000
4. Do you have a ration card? No/Yes. If Yes, APL/BPL
B. House Type & Other Features
5. Type/structure of house you currently staying in: ______ (1- Kacha, 2- Semi-pacca, 3- Pacca,
4 – Others)
6. Type of Roof: _____ (Thatched-1, Asbestos/Tin-2, Tiled-3, Cement Slab-4,
Tarpaulin/Polithin-5, other-6)
7. Type of Flooring: ______(Mud-1, Brick-2, Stone/sand-3, Cement-4, Tiles-5, Other-6)
8. Mention number of Rooms___________, Door__________, Window________ are there in
the House.
9. Do you have access to following facilities/services at your house:1- kitchen, 2- electricity, 3-
toilet, 4- drinking water, 5- cooking gas, 6-Kitchen garden
10. How long you are staying in this house (years)____________/Months______,
11. Numbers of family members staying with you (eat/sleep in this house) :
Adult Male______, Working Male_______________
Adult Female_____, Working Female_______________
Male Child______, Aged (>60 year) members__________
Sl. No of Questionnaire:
_______
Date:
135
Female Child___ Disabled ____
12. Do you live with all family members? Yes/No, If no, where is the family?
Place_____________
13. Type of House Ownership:____________, (Parental house no ownership-1, joint ownership-
2, single & self owned-3, Relative’s house-3, Rented House-4, Other-5)
14. Type of Land Ownership on which the house is existing: __________ (Private land -1,
municipality/Panchayat land -2, Govt. land-3, Forest land-4, Other land-5, Do not
know-6
15. Land Tenure Status: (Land patta-1, Private Land Encroached -2, Govt land encroached-3,
other-4
16. Present Market Value of the House : RS________________
C. House Use Pattern:
17. Existing House Use Pattern
House Use Nos Area in
(sqft.)
Attached with
house
Yes-1, No-2,
Is it Adequate-
Yes-1, No but managable-
2, Not manageable-3
Bed room (Nos)
Dining
Kitchen
Common used area
Bath room -
Toilet -
Store room
Area used for eco
activities/entp.
Area used for Rent
Area use for livestock/
Other use (specify)
Unused Area in the house, If
any
Total House Area
Open space around the House
Total Area of the premise
136
18. Are you happy about your current housing and living conditions? Yes / No, if no
Why________________
19. What are your housing priorities/ housing development plans and source of fund?
Housing development
plans/preferences
Reasons/
Purpose
Fund
Required
Own Fund
(income,
saving, )
Preferred
source of
Fund /
borrowing**
Preferred
Loan
repayment
Period in
Years
1.New House Construction
2. Additional rooms
3. Kitchen building
4. Building Toilet
Expansion for other activity
5. Strengthening Roof/Wall
6. Repair & maintenance
8. Other
Purpose – 1- immediate self use, 2- Future use by self, 3-Business purpose,
4- other,
Source of Loan: 1- bank/cooperative/RRB, 2-MFI, 3- money lender/traders,
4-relatives, 5-Employer, 6-others
D. Housing Expenditure & Finance
20. What expenditures you made on housing Prior to receive MFH? Cost of
Repair/Thatching/Material/labour/Rent
Total Expenditure made on Housing before MFH: Yearly_______, Every 2 yrs_______ Every 5
yrs_______
Details of
Expenditure on
Housing
Total
Expenditure
(Rs)
Borrowed EMI,
incase of
house loan
(Rs)
Own
Fund/
Income
(Rs)
Family labour
Days/year
Amoun
t
Source Male Female
Maintenance & Repair
Development of House
Furnishing
Paying House Rent
Expansion of House
Others
Total
137
Source of Loan: 1- bank/cooperative/RRB, 2-MFI, 3- money lender/traders, 4-
relatives, 5-Employer, 6-others
21. Details of microfinance availed for housing through Group (SHG/NHG)/ MFI/Bank/Housing
Scheme
Name of SHG/NHG___________________, Name of Bank/MFI ___________,
Name of Housing Scheme______________, Total Loan Amount Rs___________, Loan
Period (yrs)____
Micro
Housing
Loan
Date of
sanctio
n
Date of
disburse
ment
Amount
(Rs)
Purpo
se*
RI
(%
)
EMI
*
(Rs)
Outstandi
ng (Rs)
Source of
repayme
nt
Colla
teral
given
Subsi
dy
(Rs)
1st
Installmen
t
2nd
Installmen
t
3rd
Installmen
t
Total
Purpose: 1- Expansion of existing house, 2- New construction, 3- house repair &
maintenance, 4- house development, 5- purchase of house material,
6 - other
Source of Repayment: 1. Agriculture income 2. Income from regular job 3. Wage labour, 4.
Non-farm income, 5. Remittance 6. loan from bank/cooperative/ MFI 8. Loan from
Moneylender/ relatives, 9-other sources
22. How much is the decline in expenditure on housing after utilization of MFH? In
Rs/Year________, In %_____ A) < 10% B) 10-20%, C) 20-30%, D) 30-50%,
E) > 50%, F) No Change List out the declined
Housing Exp by item: Cost of Annual Repair/ Thatching/ Material/ labour/ Rent/ other
23. Do you think your MFH was adequate fund to meet your requirement for housing? Yes/No, If no,
How much it meet your total demand for housing loan? Mention in Percentage (%)_____or Rs, _
24. Have you received any subsidy with your housing loan? Yes/No, If yes, in cash_____,
land_____, other
25. Did you have any housing plan prior to availing this MFH? Yes/No,
If yes, what was your plan? ____________________________________________,
How long you are planning (in months/years)_______________
26. Do you thing your MFH has induced you to plan for your housing activity? Yes/No,
How_______
138
Do you thing your MFH has induced you to arrange for remaining amount? Yes/No
27. Who gave the design for the current house development/repair/new construction?
______________ 1- Self designed, 2- local people, 3-funding agency/bank/MFI, 4
– NGO, 5- Govt agency, 6- other
28. Are you happy with the given house plan/design? Yes/No, If no, What is your
view/plan?_______________
29. What is your repaying capacity for MFH? How much you can pay for EMI Rs.____________
What is your preferred repayment schedule/time? Monthly/quarterly/ half yearly/annually/no
fixed term
30. Where do you repay your EMI for MFH? At Bank/Group meeting/collected by agent/other
31. When did you pay last EMI: date__________, Amount Rs_______, Place_____________
32. Have you ever failed to pay EMI of housing loan? Yes/No. If Yes, How many times __when__
33. What was the reason for not paying EMI? Explain _________________________________
34. What is the penalty for not paying EMI? 1- Monetary ___________ 2- Non-
Monetary___________
35. Do you have insurance for the house: yes/No, If yes, Sum Assured Rs___ Premium Paid Rs ___
36. Have you borrowed from other sources for housing activity? Yes/No
37. Details of Credit availed for housing from other sources:
(Moneylender/Relatives/Employer/Others)
Sources Month/
Year of
loan
taken
Amoun
t (Rs)
Purpose* RI (%) loan
period
(yrs)
Outsta
nding
(Rs)
Source of
repayme
nt
Collatera
l given
Total
Purpose: 1- Expansion of existing house, 2- New construction, 3- house repair &
maintenance, 4- house development, 5- purchase of house material,
6 – other
Source of Repayment: 1. Agriculture income 2. Income from regular job 3. Wage labour,
4. Non-farm income, 5. Remittance 6. Borrowing from
bank/cooperative/ MFI
8. Borrowing from Moneylender/relatives/other 9. Others sources
139
38. What are the constraints in availing/arranging housing loan?
Constraints Yes/no Suggestions
Loan Availability
Non-Availability of formal housing loan
Inadequate Quantity of formal loan
Non availability of Loan for furnishing
Loan Processing
Delay in Loan processing/disbursement
Availability Guarantor
Repayment
High Interest Rate
Loan period
Inflexible Timing of EMI repayment
Deposit of EMI/Receipt/
Lack of regular income/fund
Collateral
Landlessness
Problem related to Land ownership/title
Lack of Collateral/Guarantor for loan
Other problems
No or low subsidy
E. House Construction/Development/Extension/Repair Works
39. Did you have any time line/schedule for current housing activities? Yes/No if yes, mention
Month/Year of Starting _____ /____Month/Year Completion______ /______
40. When did you start house construction/development activity? _______ A - after disbursement
of loan, B - before loan disbursement, C – not yet started, D – in progress
41. Have you finished your house construction/dev/extension activity as per schedule? Yes/No, if
No, mention Completion Moth/Year _____ /______, Total construction period: Nos
of Day/months_____ ___
42. If housing activity is not completed as per schedule, mention the reasons for that:
A – non-availability of housing loan, B-Delay in loan disbursement, C- Inadequate
MFH, D- unable to arrange remaining fund, E - Non-availability of
labour/mistry F- Non- house material, E- Use of MFH for other purpose (mention the
140
purpose_____________________________________) F- Other reasons (specify)
______________________
43. Is any family member possesses any skill/training in housing activity? Yes/No If yes,
specify_______
44. Which housing activities are performed by your family members and for how many
days/months?
Activity Family members involved in housing Works (Nos
of Days)
Male Female Children Relatives/others
Supervising/manging housing works
Working as a main housing worker for
self
Working as a main housing worker for
others
Working as a Helping worker with others
Collection of local House material
Finishing/painting/washing/cleaning
45. Would you like to receive training/skill in housing activity? Yes/No, If yes what kind of skill/
training you are looking for____________
46. Would you continue as a worker in housing activity? Yes/ No, if Yes, where you will get the
work?______
F. Household Participation in Microfinance/SHG
47. If any family member is a member of SHG/NHG/other group give Details of the Group
How long you are member of this group ________/ ___________month/Year
Name of Group/Nos
of Group members
Promoted by
(MFI/NGO/GO)
Amount borrowed
from the Group/
Activities
undertaken
Amount
outstanding
48. Group Loan Activity During Last Five Years
Loan Cycle
Period Month/Year Loan amount Purpose R.I Remarks
1st
2nd
3rd
4th
5th
141
49. Household Borrowing & Saving Activities during last five years
Household Borrowing
Sources Year Purpose Demanded
Amount
(in Rs.)
Amount
obtained
(in Rs.)
Rate of
interest
Collatera
l given
Loan
outstandi
ng
Mode of
repayme
nt **
sources: [1] Group (MFI) /SHG [2] Co-operatives [3] Commercial bank including RRB [4]
Moneylender [5] Large farmers [6] Employer [7] Relatives [8] Trader/Shopkeeper [9]
Others (specify)
Household Saving
Forms of
saving
Period of
saving
(Years)
Average
saving /
month
Total
saving
(Rs.)
Amoun
t used
(Rs.)
Rate of
interest
(%)
Source
of
Saving
Specific
Purpose
of saving
Group Saving
Bank/ Co-operatives
Post-Office
Informal Saving
(specify)
Other
Source of Saving: 1- Earning from major activity, 2 – Earning from other activity, 3-Govt.
assistance/subsidy, 4- Remittances, 5- others
50. Household’s Demographic Features
Name of Working
Members
Sex
Male
Female
Age Formal
education
( Years)
Major Activity Employme
nt in
days/month
Earning/
Income in
Rs/ month
142
51. Give the following details on land holding in acres (convert local land unit into acres):
Particulars Irrigated Dry Name of Crops Grown Annual Income
Total Agricultural land owned
Total Agricultural land Cultivated
Total Non-Agricultural land owned
Total Land owned
52. Household Assets:
Livestock Assets
Number Present value (in Rs.)
Households Assets: Farm assets
Farm Assets Amount spent
(in Rs.)
Present value
(in Rs.)
1) Self
use
2) Rent
Non-Farm Assets
Total
Household Assets: Consumer durable & other Assets
Particulars 1) Yes 2) No Present value(in Rs.)
Cycle
Radio
Tape
TV
TV Cable connection
Wall clock
Cooler
Refrigerator
Ceiling fan
Table fan
Iron box
Kerosene stove
Gas stove
Telephone/Mobile
Scooter/Motor cycle
Electric motor for drinking water
Any other (specify)
Space for Field Investigators Comments on the Household
