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EXECUTIVE SUMMARY • Housing is a basic need and is known tocontribute to the social, physical and psychological

wellbeing of the communities. Besides providing shelter and security, it also enables easy access to the credit by working as collateral comfort / security. Overall, good quality housing has a long term impact on the productivity of individuals and hence growth of the economy as a whole.

• Housing shortage has always been a major problem over the years. The total housing shortage in rural areas is 43.67 million units and 18.78 million units in urban areas. It is important to mention here that most of the shortage can be attributed to the lower income and informal sector households.As an initiative to understand the housing microfinance space better, and develop solutions to address this vast gap, the National Housing Bank (“NHB”) had developed a program to partner with non-profit microfinance institutions (“NGO-MFIs”) that in turn would utilize the financing to provide housing loans to its customer base.

• A study on housing microfinance was commissioned by the NHB and the Department for International Development (“DFID”) with the following objectives

1. To evaluate the performance of the housing microfinance program (HMF) initiated by the NHB

2. To conduct a representative study across rural and urban poor and ascertain credit and savings patterns and other relevant information for product design

3. To prepare recommendations on scaling up the HMF Program for lower income and informal sector households, product design and an underwriting guidelines framework for housing microfinance

• The NHB and DFID selected IFMR Capital Finance Private Limited (“IFMR Capital”) to conduct the study. The study covered the states of Tamil Nadu, Uttarakhand, Odisha, Madhya Pradesh, Bihar, West Bengal, Uttar Pradesh, Karnataka, Rajasthan and Maharashtra and covered multiple NGO-MFI partners and existing and potential housing microfinance clients across different economic and social strata.

• A brief summary of the recommendations of the study is presented below:

Underwriting Guidelines

• The report includes detailed underwriting guidelines for evaluation of housing microfinance NGO-MFI partners. These underwriting guidelines cover the following aspects: (A) Management, governance and organisation, (B) Systems, origination, credit & collection processes, and technology and (C) Financials and portfolio quality

• Given that this is a high-touch consumer finance business, with significant operational, cash management and fraud risk, it is absolutely necessary to have strong monitoring process focused on identifying areas of improvement and suggesting best practices to each entity on a quarterly basis.

Scale Up

• The findings and suggested processes from the reportcan be used by banks to evaluate NGO-MFIs to build partnerships for JLG/ SHG Bank Linkage. Based on the agreed framework, the NHB can, together with bank, initiate a dependable funding channel tied to covenants which push the entities to improve upon the existing operations.

• It is recommended that the NHB starts working with a small number of NGO-MFIs to begin with. This will ensure that a handful of good quality NGO-MFIs are chosen to

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partner with banks. By increasing the share of funding for Housing Microfinance enabled by banks in these institutions, the NGOs would take up the housing microfinance program more seriously and invest time and resources. The NHB will also be able to have greater focus and control on the smaller base to permit a rapid scale up in future.

• While the banks do carry out regular and rigorous inspection processes, the approach has to be data driven and forward looking with active engagement with the NGOs and helping them improve their operations. Key areas of improvement include improving the granularity of data collection, improved efficiency of operations and credit appraisal processes that go beyond group lending. If the NHB, along with banks, is able to concentrate its efforts and funding lines on a smaller number of NGO-MFIs, it would be in a better position to encourage the NGO-MFIs to take up Housing Microfinance seriously. The NHB can also support smaller number of NGO-MFIs with better training support and then as MFIs build capabilities, the NHB can focus on the next set of NGO-MFIs.

Product Design

• The lessons learnt and insights gained from the study reveals that about 30 % of low income households have regular income stream that can pay off a monthly amortising housing loan. It is also seen that the requirement of home improvement loan would be more than that of the home loan requirement.

• The required loan size for would be in the range of INR 50,000 to INR 200,000 with an

affordable EMI of around INR 1000. Given the current low penetration of formal financing in the segment, there is scope for formal credit institutions to expand their existing market share multi-fold.

• While a significant market remains to be addressed by formal financial institutions, one of

the key obstacles faced by financial institutions is lack of title documents.

• Significant support from NHB would be required to train the NGO-MFI staff on helping their clients in formalizing their land titles during the course of the loan disbursal process.In terms of product design, given that while some households do have savings in banks, most households save in the form of cash. The lack of land titles will require NGO-MFIs to build products which can use paralegal documents for creation of security for lower ticket sized loans or dependupon alternate sources of security like vehicles, where available.

Wholesale Financing

• In order to enable continuous and dependable flow of finance for wholesale financing of housing microfinance, the funding model proposed in this study is based on the principles of incentive alignment and active risk management.

• It is imperative that for the purpose of ensuring an efficient system design for housing microfinance. A structure is built where there is first loss provision from the originator MFI.

• In order to facilitate confidence amongst banks to lend through the MFIs, a structure where NHB provides a second loss protection in the form of a guarantee is much required. The idea is to partner with a forward looking bank and demonstrate a model of funding which can then be replicated in future by other guarantee agencies partly replacing the NHB in its role as the second loss provider in the structure.

Role of the NHB

• Further, the NHB should proactively work towards developing sound financing structures to support the program. Providing second loss guarantees that add an additional line of

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protection for participating banks, would incentivise banks to participate in such a program, while at the same time ensuring that the banks retain risk over and above the first loss provided by the NGO-MFI and second loss from the NHB

• NHB should also consider continuing its focus on capacity building specifically targeting NGO-MFIs for this purpose. Assistance in the form of imparting skills required for originating housing loans as a departure from the conventional group liability product would be key in ensuring that the NGO-MFI originates high quality loans.

• The NHB has to play a role in training staff on institutionalizing the process of formalizing land titles. This would not only have a widespread impact on the land rights of the lower income households but would also unlock a huge market which currently is served by the informal sources of finance. In addition, the housing finance companies will have a larger market of properties with good title to finance

• The NHB has a large mandateand may not be able to keep a strong operational control on a widespread program. NHB may not have sufficient bandwidth for a program with such deep penetration. It may consider the role of piloting and demonstrating the model suggested above so that it can be replicated by others.

• There is a clear need for institutions which can keep a direct tab on the NGO-MFI partners and push improvement. In scaling up the housing microfinance program, NHB can consider partnering with market participants, such that NHB plays the role of a facilitator and enabler.

• IFMR Capital works with a large number of banks and understands the interests and bandwidth of different banks to implement a SHG/JLG Bank/HFC linkage program for housing microfinance. IFMR Capital can play an active role in implementing the pilot and scale-up.

• IFMR Capital has a strong risk and monitoring team. IFMR Capitalcan play an active role in monitoring the operations of the program and also providing a risk analytics support to banks and other investors.

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List of abbreviation APL Above Poverty Line

BPL Below Poverty Line

CH Chattisgarh

CMF Center For Micro Finance

DFID Department for International Development

EWS Economically Weaker Section

GDP Gross Domestic Product

HH Household

HMF Housing Micro Finance

IFMR Institute for Financial Management and Research

INR Indian Rupees

KGFS Kshetriya Gramin Financial Services

LIG Low Income Group

MFI Micro Finance Institution

MHUPA Ministry of Housing and Urban Poverty Alleviation

MIS Management Information System

MP Madhya Pradesh

NABARD National Bank for Agriculture and Rural Development

NCAER National Council of Applied Economic Research

NHB National Housing Bank

NPA Non-Performing Assets

NREGA National Rural Employment Guarantee Act

NSSO National Sample Survey Organisation

SHG Self Help Group

UK Uttarakhand

UP Uttar Pradesh

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Contents EXECUTIVE SUMMARY ........................................................................................... 1 

List of abbreviation .................................................................................................. 4 

1.  Introduction ..................................................................................................... 8 

2.  Background ..................................................................................................... 9 

Urban Housing Shortage: ....................................................................................... 9 Rural Housing Shortage: ...................................................................................... 10 

Housing for urban residents: .................................................................................. 10 

Housing for Rural residents: .................................................................................. 10 

Favourable Developments: ................................................................................... 11 

3.  Introduction to the Project .................................................................................. 11 

Evaluation of the NHB’s Housing Microfinance Program ................................................. 12 

Study of Savings Pattern and Credit Behaviour of Informal Segment Households and Understand the Potential of Housing Micro Finance ..................................................................... 12 

Model for scaling up access to housing finance for lower income and informal sector households 13

Evaluation of NHB's Housing Microfinance Program 

1.  Introduction ................................................................................................... 15 

2.  Observations and suggestions ............................................................................. 15 

2.1.  Observations related to the Entity Level Operations: ............................................ 15 

2.2.  Observations/Feedback related to the Housing Microfinance Program Design: ............. 18 

3.  Underwriting Framework .................................................................................... 20 

4.  Monitoring & Risk Management ........................................................................... 20

Study of Savings Pattern and Credit Behaviour of Informal Segment Households and Understand 

the Potential of Housing Micro Finance 

1  Review of Literature ......................................................................................... 23 

1.1  Market potential ....................................................................................... 23 

1.1.1  Rural Housing ...................................................................................... 23 

1.1.2  Urban housing ...................................................................................... 23 

1.1.3  Housing among vulnerable groups .............................................................. 23 

1.2  Savings and credit behaviour of low income households ....................................... 24 

1.2.1  Household Income ................................................................................. 24 

1.2.2  Household saving .................................................................................. 24 

1.2.3  Household credit ................................................................................... 24 

1.3  Housing Finance product ............................................................................ 24 

2  KGFS customer database review ......................................................................... 25 

2.1.1  Annual household income of KGFS customers ................................................ 25 

2.1.2  Annual surplus income of KGFS customer’s households .................................... 25 

2.1.3  Source of Income .................................................................................. 26 

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2.1.4  Asset Ownership ................................................................................... 26 

2.1.5  Utilization of loan for housing ..................................................................... 27 

3  NABARD SHG Bank Linkage Program ................................................................... 28 

3.1.1  Savings .............................................................................................. 28 

3.1.2  Credit................................................................................................. 28 

3.1.3  Credit behaviour .................................................................................... 29 

4  Individual Survey ............................................................................................. 30 

4.1  Individual Survey Results ............................................................................ 31 

4.1.1  State-wise Insights ................................................................................. 31 

4.1.2  House Ownership .................................................................................. 32 

4.1.3  Monthly Income..................................................................................... 32 

4.1.4  Household income pattern ........................................................................ 32 

4.1.5  Dependence on Secondary Income ............................................................. 33 

4.1.6  Household monthly Expenditure ................................................................. 33 

4.1.7  Household expenditure pattern .................................................................. 33 

4.1.8  Household saving .................................................................................. 34 

4.1.9  Household saving pattern ......................................................................... 34 

4.1.10  Consumptions Shocks .......................................................................... 34 

4.1.11  Capacity to save ................................................................................. 35 

4.1.12  Household credit ................................................................................ 36 

4.1.13  Loan providers ................................................................................... 37 

4.1.14  History of expense on housing ................................................................ 37 

5  Market potential for housing finance ...................................................................... 38 

5.1  Household capacity to avail credit .................................................................. 38 

5.2  Market Demand ....................................................................................... 39 

5.3  Required loan size .................................................................................... 40 

5.4  Affordable EMI ......................................................................................... 41 

5.5  Scope for formal lending institutions ................................................................ 41 

6  Conclusion .................................................................................................... 42

Proposed Model for scale up of housing microfinance 

1.  Background of the Bank-SHG Linkage ................................................................... 44 

2.  Structure of the Proposed Program ....................................................................... 44 

3.  Role of Stakeholders in Detail ............................................................................. 45 

3.1.  Role of MFI ............................................................................................. 45 

3.2.  Role of IFMR Capital ................................................................................. 46 

3.3.  Role of Bank ........................................................................................... 46 

3.4.  Role of the NHB ....................................................................................... 46 

4.  Revenue structure ........................................................................................... 46

Summary of the Workshop on "Scaling up of Housing Microfinance" 

References: ........................................................................................................ 49 

Websites, articles ................................................................................................. 50 

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1. Introduction  

Housing is one of the basic needs of every individual.Besides providing shelter and security, it also enables easy access to the credit market by working as collateral comfort / security. With time, there has been expansion and improvement in the housing finance market in India by way of various financial reforms; however the housing loans as a %age of GDP have remained at around 7 %, significantly lower than the levels achieved in most of the developed countries. This indicates the extent of opportunity for deeper penetration in such markets. Housing shortage has always been a major problem over the years. The total housing shortage in rural areas is 43.67 million units and 18.78 million units in urban areas. The situation is appalling with 95% of the housing shortage pertaining to the Economically Weaker Section (EWS) and Low Income Group (LIG) categories. However, low income segment housing sector across in the country is constrained by several factors that arise from issues relating to land, access to housing finance, fund mobilization, stringent regulatory framework etc. Considering the huge need for housing among the low income households and the lagging of business initiatives of the housing sector indicates the extent of opportunity for deeper penetration of this market.

The absence of documented evidence of income among the segment of low income and informal households makes it very difficult to estimate their repaying capacity, which is especially important for providing long term debt products for housing and allied needs of such households. In this scenario, a study was taken up by IFMR Capital with the support of IFMR Research to look at the saving pattern and credit behaviour of low income and informal segment households, so as to explore new market potential. To achieve this, the research was carried out in two parts

- by conducting the database review of an existing retail financial institution called IFMR Rural Channels & Services Pvt. Ltd. (“IRCS”), which provides various financial services to remote rural households under the brand Kshetriya Gramin Financial Services (“KGFS”)

- by conducting an in-depth individual survey in eight selective states of India among the sampled low income households.

The lessons learnt and insights gained from the study reveals that about 30 % of low income households have regular income stream that can pay off a monthly amortising housing loan. It is also seen that the requirement of home improvement loan would be more than that of the home loan requirement. The required loan size for low income households would be in the range of INR 50,000 to INR 200,000 with an affordable EMI of around INR 1,000. There scope for formal credit institution to double its existing market shareowing to the current low coverage in financing low income housing.

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2. Background

Housing indirectly contributes to the social, physical and psychological wellbeing of the communities. Besides providing shelter and security, it also enables easy access to the credit by working as collateral comfort / security. Overall, good quality housing has a long term impact on the productivity of individuals and hence growth of the economy.

In addition, the housing sector has strong linkages with other ancillary industries which include construction workers, builders, developers, suppliers, civil engineers, property consultants, furnishers, interior decorators etc. Housing sector ranks fourth in terms of the multiplier effect on the economy and third amongst 14 major industries in terms of total linkage effect. After agriculture, the housing and real estate industry is the second largest employment generator in India. The sector is labour intensive and, including indirect jobs, provides employment to around 33 million people.

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, housing for lower income segments in developing countries is undeveloped and constrained by several factors that arise from issues relating to land, access to housing finance, fund mobilization, stringent regulatory framework etc.

As per the latest Government estimates, the housing shortage in the urban areas of India is 18.78 million units. As per the Working Group on Rural Housing for the 12th Five Year Plan, the total housing shortage in rural areas is estimated at 43.67 million units. On the other hand, housing loans as a %age of GDP have remained at around 7 %, significantly lower than the levels achieved in most of the developed countries.

It is observed that the housing shortage is typically in the lower income and informal sector households. Most of this segment consists of salaried employees within the informal sector (e.g. drivers, domestic help, casual labourers, employees in the micro-enterprise sector), or self-employed micro entrepreneurs running their own businesses (e.g. vegetable vendors, restaurant owners, small fabrication unit owners). In the rural space, the income is mostly dependent on agriculture and highly seasonal. One of the key constraints in tapping this market is the lack of conventional documented income proof. Mainstream housing finance is dependent entirely on the availability of formal documented income proof. Owing to the lack of documented proof of income, the informal sector, which also constitutes most of the low income households, remains largely under-served by mainstream housing finance companies.

Urban Housing Shortage:

As per the Census 2011, only about 31 % of the country’s population live in urban areas. It is noteworthy that this is a smaller proportion compared to other developing countries.

China 45% Indonesia 54% Mexico 78% Brazil 87%

However, projections are that by 2031, about 600 million Indians will reside in urban areas, an increase of over 200 million in just 20 years. While the Technical Group on the Estimation of Housing Shortage projects the total shortage of dwelling units in urban areas in 2012 to be 18.78 million units, the projected slum population in India is 94.98 million in 2012. Further, the Group has also estimated

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that 73 % of the shortage in self-occupied housing is in bottom 40 % of the urban households in terms of income strata.

It was further estimated that the most of this shortage pertains to Economically Weaker Sections (EWS) and Lower Income Group (LIG)i segmented on the basis of monthly per capital expenditure.

Rural Housing Shortage:

One of the major reasons for continued lack of proper housing in rural India is lack of access to finance. According to the NSSO, about 66 % of the financing of new construction in rural areas in 2010–11 was done by rural families with their own resources. It has also been found out that about 27 % construction had some amount financed from non-institutional agencies such as moneylenders, family and friends. Only 9 % of the housing construction was financed by a formal financial institution.

A Committee constituted by the Ministry of Rural Development for formulation of Concrete Bankable Schemes for Rural Housing (2011) found that although overall credit flow to the housing sector witnessed a growth of about 30 % over a period of five years preceding 2010, lending to rural areas grew only about 10 %.

Housing for urban residents:

Developing housing for the lower income segment in Indian cities faces a wide array of challenges due to economic and regulatory issues. Lack of availability of cheap urban land, rising costs of construction, high cost finance, regulatory issues coupled with expected low margin possibilities keeps private builders out of the low income housing segment leading to supply-side constraints. On the other hand, lack of access to home finance is a serious demand-side constraint, which impacts the ability of low-income groups and the informal sector customer to buy housing in the organised sector. While it is assuring to know that some of these are gradually being mitigated with concerted efforts from both from Government and private institutions to facilitate development of this sector, a lot is still left to be done.

In India, private developers target luxury and upper-mid housing segment, since it fetches a premium over low income housing. This leads to a situation where there is sustained supply for the high end segment. On the other hand, the housing for the poor and EWS is primarily seen as prerogativeof the government for welfare purposes. Thus, it is the housing requirements of the lower and middle income groups that are grossly neglected, and there exists a huge gap in the supply of affordable houses primarily demanded by this segment of households in India.

It is very necessary to attract market based solution providers to come into this segment to ensure that the critical problem of access to housing is addressed at scale. We believe that a tremendous opportunity is thus available for private project developers with a focus on the lower income housing segment to come up with effective solutions backed by appropriate strategy and technological know-how that can ensure good quality housing at costs that are affordable for the lower income segment.

As per the Monitor Group study, the potential size of the urban mortgage market for low-income housing segment (Monthly Housing Income of INR 5,000 – 20,000) has been pegged at INR 880,000 Crores.

Housing for Rural residents:

While estimates on mortgage market in India in the rural areas are not available, the market is huge as indicated by the findings of several agencies. However, primarily due to the lack of reach and uncertainty over titles of properties, the mortgage market remains highly under-penetrated in India. In fact, very few of the new age housing finance companies have ventured into the rural housing finance space. It is estimated that while the housing needs of the rural population may be considerably

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different with home improvements, incremental constructions or construction of toilets being the key purpose. The 65th Round of NSSO study revealed that only 55 % of the rural households lived in pucca houses. Moreover, sanitation facility was not available for nearly 65 % of rural households.In fact only 18 % of rural households had all three facilities (drinking water within premises, latrine and electricity). This indicates the potential for use of financing for provision of amenities in the household. It is also observed that the ownership of houses is more than 95 % in rural areas. This reduces the need for construction of entirely new houses as required in urban centres where the ownership is as low as 62 %.

Favourable Developments:

Having identified this gap in the low income housing sector, a number of affordable housing finance companies (AHFC) and low income housing projects have started operations over the last few years targeting the low income informal/semi-formal segment customer.

We believe that tremendous opportunity is available to new and existing HFCs who can innovate in the low income/informal sector housing finance by leveraging their expertise of lending in the informal markets. Also, the role of the affordable housing finance companies catering to this segment is key in bridging the gap of availability of finance to such potential home owners who are not financed by the mainstream financial sector. Given the huge gap between the supply and demand in the affordable housing finance market, there is opportunity for newer HFCs to enter the market while the existing HFCs continue to grow. It is crucial that the access to capital is ensured for these HFCs in India.

While the affordable housing finance sector has seen a number of players enter the segment in the last few years, affordable housing construction companies have been few. In most cases, there have been some established builders who cater to the luxury/high-end segment that also launched affordable housing as a business line.

We understand that a long term solution to the problem of lack of quality housing for the lower income households can be achieved only if there is focussed and scalable market based intervention on both the demand and supply sides. It is necessary to harness the enthusiasm, identify and promote scalable models to address the housing shortage problem.

3. Introduction to the Project

Keeping with the spirit of developing scalable solutions mentioned above, a study was taken up by IFMR Capital with the support of IFMR Research to study on the savings pattern of low income and informal segment households so as to explore new market potential by understanding the possibilities of developing long term debt product for housing.  

The National Housing Bank (“NHB”) has recognized the fact that Micro Finance Institutions have been able to penetrate into remote locations and they can serve as delivery channels for housing finance to the underserved sections of society. Based on this understanding, the NHB, in its endeavour to provide housing to the under-served segments of the society pioneered a Housing Microfinance Program(the “HMFProgram”).

As per the NHB’s records, the HMFProgram of the Bank is spread across 11 states which include Andhra Pradesh, Karnataka, Tamil Nadu, Maharashtra, Odisha, Gujarat, Kerala, Assam, Uttar Pradesh, West Bengal and Madhya Pradesh. The beneficiaries include farmers, housemaids, petty traders, artisans, dairy workers and other low income segments. More than 90 % of the beneficiaries are women. The approximate income levels of the beneficiaries range between INR 5,000-7,000 per month. Besides, the NHB has also opened a specialized window for Water and Sanitation programs being taken up by microfinance institutionsfor their members of Self Help Groups (“SHGs”). These programs form an integral part of the HMF Programof the NHB.

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A study on housing microfinance was commissioned by the NHB and DFID with the following objectives

1. To evaluate the performance of the HMFProgram initiated by the NHB

2. To conduct a representative study across rural and urban poor and ascertain credit and savings patterns and other relevant information for product design

3. To prepare recommendations on scaling up the HMF Programfor lower income and informal sector households, product design and an underwriting guidelines framework for housing microfinance

The NHB and DFID selected IFMR Capital Finance Private Limited (“IFMR Capital”) to conduct the study. IFMR Capital, together with other sister institutions within the IFMR group, has developed significant understanding of institutional and operational models across microfinance and affordable housing finance, for providing financial products to informal segment households. Based on this experience and expertise,IFMR Capital partnered with the NHB and DFID with the overarching goal of enabling efficient and reliable access to finance to help meet the housing, sanitation and allied needs of informal segment households in India.

While the three components of the study is covered in detail in the later part of this report under respective sections, a brief description of each study is given below.

Evaluation of the NHB’s Housing Microfinance Program The NHB has supportednon-profit microfinance institutions(“NGO-MFIs”) and other institutions with financial and technical assistance for providing loans to their clients/beneficiaries to help them improve their housing conditions and enable them to own a home of their own. The NHB has around 22 partner NGO-MFIs that have been supported under the housing microfinance program. IFMR Capital evaluatedthe NHB’s housing microfinance program with the objectives of:

1. Documenting the strengths, weaknesses and best practices of the implementation of the housing microfinance program by the NHB’s partner institutions, based on a sample study

2. Suggesting the opportunity and gaps that need to be addressed, to scale up the housing microfinance program

3. Provide technical assistance to the NHB on developing a due diligence and evaluation framework for MFIs, to be potentially enrolled as partners under the housing microfinance program

Study of Savings Pattern and Credit Behaviour of Informal Segment Households and Understand the Potential of Housing Micro Finance In the absence of documented evidence of income, it is difficult to estimate the repayment capacity of customers from informal segment households, which is especially important for providing long-term debt products for housing, sanitation and allied needs of such households. However, information on the savings pattern of such households can be a proxy for estimating the household level disposable income. Informal sector households may not have access to banks for savings, but typically save with other institutions/instruments such as post office savings schemes, chit funds, self-help groups (SHGs), NGO-MFIs etc. IFMR Capital partnered with IFMR Research to conduct field research on the credit behaviour and savings pattern of informal segment households, to assess the possibility of offering products to such households.

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The specific objectives of the study are to:

1. Identify, enumerate and compare the different means of savings, credit availed and investment utilised by informal segment households

2. Document the pattern of savings across periodic savings and occasional savings made by the households and the credit profile of the households.

3. Assess the possible outreach and the potential financial impactiiof housing finance through SHG-Bank Linkage Model through a desktop review of the data collected in the survey, as well as data available through public sources (including RBI/NABARD data) on the SHG-Bank Linkage program across various parts of the country

Model for scaling up access to housing finance for lower income and informal sector households Based on the study conducted, propose an appropriate model for scale up of the housing microfinance program and enable access to housing finance for the informal sector households.

1. Assess the potential market for informal housing finance in rural/urban areas (including defining criteria for eligible beneficiaries)

2. Specifically, designing a Self Help Group - Bank (“SHG-Bank”) or Self HelpGroup - Housing Finance Company (“SHG-HFC”) linkage product, where the NHB can play the refinancing / credit guaranteeing role

3. Document the risks, design mechanisms of risk sharing and risk mitigation in housing finance under a SHG-Bank/SHG-HFC linkage product

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Evaluation of Housing Microfinance Program

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1. Introduction The NHB has supported NGO-MFIs and other institutions with financial and technical assistance for providing loans to their clients/beneficiaries to help them improve their housing conditions and enable them to own a home of their own. The NHB has around 22 partner NGO-MFIs that have been supported under the housing microfinance program. IFMR Capital proposes to evaluate the NHB’s HMFProgram with the objectives of:

1. Documenting the strengths, weaknesses and best practices of the implementation of the housing microfinance program by the NHB’s partner institutions, based on a sample study

2. Provide technical assistance to the NHB on developing a due diligence and evaluation framework for NGO-MFIs, to be potentially enrolled as partners under the HMF Program

3. Suggesting the opportunity and gaps that need to be addressed, to scale up the HMF Program

In order to understand the current strengths and weaknesses of the HMF Program and suggest measures of improvement, an initiative was taken by IFMR Capital to conduct due-diligence of a sample of the NHB’s partner institutions. The geographical scope of the proposed project was decided such that NHB’s partner NGO-MFIs situated across different parts of the country are covered. A list of NGO-MFI partners doing housing finance was agreed upon and due diligence of the NGO-MFIs were conducted based on a due diligence and underwriting framework prepared by IFMR Capital. The next section outlines the observations made by IFMR Capital during the due diligence process.

2. Observations and suggestions The NHB has put in a tremendous amount of effort to promote housing microfinance in the country by getting into active partnerships with several NGO MFIs. However, the scale up of the program is affected by practical challenges. Given that the NHB has run this program for some time now, it was an opportunity to learn from the brilliant work done already, assess the situation and bring about modifications in the approach towards housing microfinance to ensure a more sustainable scale up.

2.1. Observations related to the Entity Level Operations: Positives

Observation Impact/Possible Impact

Synergy with existing microfinance program, where matured SHGs are provided with housing loans.

Easy to replicate and provide huge opportunity for scaling up. Separate infrastructure cost and efforts are reduced.

Advantage of having credit and repayment history.

Group guarantee established

Based on existing social collateral system helps taking responsibility of each other in stress period.

Loans only to 3-4 cycle customers

Better selection of client as credit and repayment track record has been already established. Client awareness regarding the organization and its processes are very high.

Potential Areas of Improvement

Observation Impact/Possible Impact Suggestions

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Origination &credit evaluation is conducted by the same team

Less rigour in credit evaluation process

The housing microfinance loans should be made based on a more rigorous credit appraisal involving separate credit and business verticals.

This is a significant departure from the conventional microfinance procedures.

Credit Bureau is not in use.

Client screening is not fool proof. Use of a credit bureau would be an additional source of useful information in credit evaluation.

Highmark or Equifax should be used for better client screening process and build in healthier data base for others as well.

It also creates a track record of customers in the credit bureau enabling good customers to have an established credit record improving the possibility of enabling access to credit from traditional financial institutions in future.

Fear of a default history can induce good repayment behavior – already witnessed in conventional microfinance.

Clients were given concurrent loans

It may be beyond their capacity of customers to pay the debt of 2-3 loans and in stress situation loan might lead to default.

Could be avoided as a policy; or fix a maximum limit of loan outstanding with similar kind of profiles.

Develop a de-dupe process within internal systems to remove risk of multiple loans to the same person.

Detailed cash flow analysis is missing

The loan appraisal is very much the same for microfinance where social collateral is focus for lending consideration.

However, housing microfinance loans are slightly bigger and longer tenorthan normal microfinance loans, a detailed cash flow analysis of the household is necessary to verify its loan repayment capability.

Develop a system of collecting informal income proof – this is a practice followed by many of our partners to cross check against verbal answers. Our partners check such informal proof for over 3-6 months

Photographs of business and also of the property to be constructed could be taken

Verify the above assumptions / client’s business on at least an annual basis, as customer’s business could change significantly

Commence work on templates, which can be used for training staff & recording credit decisions.

End use verification is not ensured

Clients might use the money for other purposes than originally communicated.

Should start using loan utilisation checks on each and every loan to verify end use and check diversion of loan obtained.

Current audit doesn’t capture the housing microfinance program

Credit and documentation risk.

The lending process for housing microfinance is not in the scope of the regular internal audit process may result into various process related

Inclusion the same within the in-house internal audit scope will strengthen the credit process and will ensure that checks and balances are in place.

17

gaps. Variation in security creation

In most of the cases, the loans are effectively collateral-free

To explore strengthening of security creation where possible – this could significantly strengthen the originators’ balance sheets as well as open up a huge market for housing loans.

Need for Insurance cover

Family of customer in a stress in case of death of the customer

Should be made compulsory

Customer protection measures are not implemented fully

May lead to issues related to inappropriate practices being adopted on the field and hence leading to customers having to deal with wrong products or inappropriate behavior from staff.Reputation risk for the NGO-MFI.

Strengthening customer protection measures, like grievance cell, suggestion box at branch place etc.

To include this in internal audit scope.

Staff understanding on Housing Microfinanceless.

Staff will not able to appreciate the different process and underwriting of housing microfinance and will lead to process gaps in the system and understanding gap among customers.

Focus on staff training. the NHB should take up active role in training of staff within the carefully chosen NGO-MFIs

This could especially focus on templates, understanding businesses, measurement of cash flows, triangulating business & household information

In general, the board of the NGO is active but clarity of vision with regards to Housing Finance was missing. Lack of future direction.

The organisation may lose focus on housing microfinance, resulting in inadequate investment in critical areas like training, internal audit and other functions.

Active engagement and handholding carefully identified NGO-MFIs by the NHB.

Inadequate incentives for housing loans business.

Loan officers are not incentivised for new business development and will focus into business which give them incentive.

Designing appropriate incentive structures to encourage housing finance.

Mostly computerized but MIS provides basic level information.

No system knowledge being built. This can result in significant deviations as operations scale up.

Should explore better featured MIS and start using the existing report for management decisions.

Training of senior management in using the MIS for their strategic and management decision.

Compliance are Credit and Inclusion the same at house internal audit

18

not recorded, no penalty for not meeting the compliance.

documentation risk.

scope will strengthen the credit process and will out checks and balances in place.

2.2. Observations/Feedback related to the Housing Microfinance Program Design:

Observation/Feedback Received

Impact/Possible Impact Suggestion

The NHB had started the Housing Microfinance Program with a large number of small originators with small amount of exposure in each.

Lack of stickiness amongst the NGO-MFIs. The NGO-MFIs does not allocate adequate resources required to carry out serious housing finance business.

Need to focus on a smaller number of high quality institutions and initiate a dependable funding channel tied to covenants which push the entities to improve upon the existing weaknesses.

Larger amount of funding will contribute significant revenues to the NGO-MFI and this will encourage them to take up the housing microfinance program seriously.

NHB should alternately identify other specialised players to play the role of identifying and partnering with the NGO-MFIs to do Housing Microfinance. The NHB should limit itself to a capacity building and facilitation role.

The NHB proposed a margin cap of 5%

Inability of NGO-MFIs to manage costs within the margin specified.

The NHB should begin with at least the RBI benchmarkand look at a portfolio size linked step down in margins.

The loan approval from NHB is long drawn process - typically more than 6 months

Clients and NGO-MFIs may lose interest in the program.

Housing Finance may beviewed as a one-off project by the NGO-MFI.

Focus on a smaller number of entities with stringent processes will make the NGO-MFIs strive to improve their processes and make it easier for the NHB to expand the housing microfinance program.

Clear communication and feedback on the areas of improvement to be tracked

19

over time.

While the NHB allows loan sizes of more than INR 50,000 for housing microfinance, the NGO-MFIs generally consider INR 50,000 as the upper limit given that mortgage security is required beyond that. The upper limit of INR 50,000 is viewed by the clients as very low amount, even for renovation and repairs, owing to rising cost of construction materials and the clients end up borrowing from other costly sources for balance amount.

Clients may not be interested in a smaller ticket size loan.

Encouragement to informal lenders to meet further requirement.

The NGO-MFI staff should be trained appropriately regarding the process of formalising titles.

Product structures with paralegal documentation or alternate collateral.

In order to facilitate active interest and commitment from the NGO-MFIs, a continuous stream of funding is to be enabled with adequate hand-holding support.

NGO-MFIs are required to lend either for housing or sanitation depending upon the sanction but not both.

NGO-MFIs are unable to tap the potential client segment.

The funding to the NGO-MFI may be given to assist both housing and sanitation without limiting the purpose to one of them.

In general, limiting purpose of loan without the ability to track ground operations will result in misuse/ fraud

20

3. Underwriting Framework IFMR Capital understands that evaluation of financial performance is a lag indicator of performance of an organisation. Even in cases where the current financials are good, the future performance of the company is dependent on key operational and structural aspects of the organisation. The NHB should consider focussing on these key structural and operational parametersin addition to the financial performance to evaluate the suitability of an organisation to partner with the NHB. The central parameters to be evaluated as a part of the NGO-MFI evaluation are given below.

Governance, Management, Organisation

Board and Management

Relationship and Credentials

Location and Organisation specific factors

Systems, Processes & Technology

Human Resources

Origination

Collection & Cash Management

MIS & Technology

Risk Management & Control Systems

Financial Evaluation and Portfolio Quality

Profitability Ratios

Portfolio Quality

Liquidity and ALM

Detailed underwriting guidelines are provided in a separate spread sheet along with this package.

4. Monitoring & Risk Management

Once on-boarded, each partner NGO-MFI needs to be kept under strict monitoring. An appropriate monitoring and risk management framework needs to be built to ensure that the MFI continues to originate high quality portfolio. The risk framework should consists of risk monitoring, portfolio- level risk reporting and analytics and risk modelling across the portfolio. Continuous due diligence must be conducted on every partner MFI at least three to four times a year. In the follow up monitoring, emphasis should be on checking the operations in the field and the quality of systems vis-à-vis the growth of the NGO-MFI. The monitoring visit must cover process adherence and adherence to their internal guidelines as well as status of being tuned to any political or other external risk. In addition, adherence to Customer Protection and Fair Practice Code has to be established.A detailed indicative list of questions is attached with this package that can be used take updates on various aspects of the operations during the monitoring visit. In addition to this, off-site monitoring is conducted on a quarterly basis, based on specific operational and financial reports that the NGO-MFI is required to send. The format in which information is sought is also provided along with this package. The quarterly financial

21

and operational information is analysed, and any patterns or observation of concern are investigated and followed up with. Using all the aforementioned strategies, the risk monitoring function is responsible of detecting early warning signals and geographic stress signals that may have the potential to adversely affect the partners' serviceability of the portfolio.

IFMR Capital has a strong risk and monitoring team. IFMR Capital can play an active role in monitoring the operations of the program and also providing a risk analytics support to banks and other investors.

22

Study of Savings Pattern and Credit Behaviour of Informal Segment Households and the Potential of Housing Micro Finance

23

1 Review of Literature This section presents the empirical literature dealing with past studies on low income households in India with reference to their income, saving and credit behaviours.

1.1 Market potential

1.1.1 Rural Housing The Working Group on Rural Housing for the Twelfth Five Year Plan (2012-17), has estimated the total housing shortage in rural areas at 43.67 million units. It is a major concern that 90 % of the rural housing shortage (approximately, 39.30 million units) are in respect of Below the Poverty Line (BPL) categories.

The vulnerabilities to the rural housing sector are often thought to be limited to the delivery system for housing materials, services and finance. Formal housing finance in rural areas is rather inconspicuous. The lack of vibrancy in the market for village properties and the marked volatility in agricultural incomes combine to dampen the prospects of this sector.

There are two ways in which the total potential size of the affordable rural housing finance market can be estimated, one is on the basis of the condition of the structure and the other by type of the structure. According to the 65th round of National Sample Survey conducted only 31 % of rural households are good in condition whereas 51 % are satisfactory and 18 % are bad in conditioniii. Taking a very conservative estimate with this fact, even if one considers that all the households who are living in bad condition houses will require finance for major repairs/construction, the total number of home loans needed in rural area will be to a tune of 3.13 crore.

1.1.2 Urban housing As per the latest Government estimates, the housing shortage in the urban areas is 18.78 million units. The situation is appalling with 95% of the housing shortage pertaining to the Economically Weaker Section (EWS)ivand Low Income Group (LIG)vcategories which does not translate into economic demand due to lower affordability by the poor.

For the first time since Independence, the absolute increase in population is more in the urban areas. The level of urbanization increased from 27.81 % in 2001 Census to 31.16 % in 2011 Census. This spurt growth of population in urban areas of India has increased the number of homeless people, slums and squatters which has resulted the concept of low income/affordable housing for such segments to gain importance.

1.1.3 Housing among vulnerable groups

1.1.3.1 Housing situation in female headed households The total number of female headed households in the country is 2.69 crore, out of which 1.75 crore are in the rural areas and 0.94 crore are in the urban areas (Census 2011).

The census reveals that the female headed households living in urban areas is considerably better compared to the rural female headed households. As against 21.1% in case of rural areas, the proportion of female headed households living in the houses with roof made either from grass/thatch/wood/mud or plastic/polythene is only 6.5% in urban areas. Similarly, the proportion of female headed households living in houses with walls made from grass/thatch/bamboo etc. or plastic/polythene or mud/un-burnt brick is 16.3% in urban areas compared to 44.1% in case of rural areas.

1.1.3.2 Housing situation in SC & ST households The total number of SC households in the country is 4.42 crore, out of which, 3.29 crore are in rural areas and 1.13 crore are in urban areas (Census 2011). The census data reveals that the condition of houses is relatively poor in the case of ST households than SC households. Around 42% of the SC rural households are living in houses where the roof is either of Grass/thatch/ bamboo/ wood/mud etc. or Plastic/ Polythene or Hand-made tiles, as against 57% of the rural ST households. Considering the

24

material used to construct walls, 45% rural SC household live in houses with walls made from Grass/thatch/bamboo etc. or Plastic/ Polythene or Mud/un-burnt brick, while a significantly higher 68% of ST households are living in houses with walls made from similar materials.

1.2 Savings and credit behaviour of low income households

1.2.1 Household Income According to NCAER report authored by Raj Shukla, (2007), the average household surplus income per annum, i.e. the difference between the income and expenditure, was INR11,613 for rural household and INR 26,762 for urban household. Raj Shukla (2007) also reported that 41 % households in rural area depend upon agriculture as the source for income compared to 3 % in urban areas of India. On the other hand the regular salaried households in the rural and urban areas of India were 10.6% and 36.9% respectively.

1.2.2 Household saving Mukesh et al (2011) reported that 73 % of households in rural areas and 84 % of households urban areas save through fixed deposit. In addition to this, instruments like UTI Scheme, LIC, RDs in Post Offices are equally popular in rural areas, while instruments such as bonds, preference shares, EPF/PPF etc. were mainly restricted to urban areas. Similar findings were also reported by several research works like NCAER, (2011) and Akhand et al (2011).

As per the Microsave study reported by Akhand et al 2011, volatile cash flows, unanticipated events and unplanned expenditures are the major factors inhibiting the mobilization of savings among the EWS and LIG households. The report by NCAER (2011) sates that the EWS and LIG households are able to save even after meeting the daily food expenses and setting aside money for health emergencies, education of children etc.

1.2.3 Household credit Abhijit et al (2013), from his research which involved a random experiment to understand the impact of the micro-finance reported that when microcredit becomes available, the households tend to sacrifice short or even medium-term consumption in order to get some durable goods or to invest in a business.

Anirban et al (2012), conducted a qualitative study among the beneficiaries of MFI and found that Informal source of credit is still prevalent among low income households. The report also states that clients of MFI find the MFI loans very convenient as they can be easily repaid in fixed weekly instalments over time. SHG loans are liked because of low interest rates charged and the flexibility of the loan tenure. However, inadequate loan size is a major drawback of the SHG loans. Informal sources are preferred when the households require quick loans.

1.3 Housing Finance product The housing market in India is influenced by both demand and supply side constraints. The major supply side constraints include the lack of availability of land, finance at reasonable rate, infrastructure, legal and regulatory framework and the limitations of the private and other stakeholders to provide low income housing. The current financing mechanism prevalent in the country mostly targets middle and high income sections of the society while the households falling under low income and economically weaker sections category especially from the unorganized work force have no or limited access to housing finance. This can be attributed to the reluctance of the formal housing finance providers to cater to these segments due to seasonal incomes, lack of collateral, lack of title deeds, no regular payments and high transaction costs.

MHUPA, 2011 in its guidelines for Housing has defined that the minimum size of built up area for EWS and LIG households as 300 and 500 Sq. Ft respectively, with EMI not exceeding 30 to 40 % of the monthly income of buyer.

Minakshi and Stuti (2010) in theirstudy explored how best to design and provide a housing micro-finance (HMF) product through an MFI which is specifically targeted to new home construction by low-

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28

3 NABARD SHG Bank Linkage Program

3.1.1 Savings Under the NABARD SHG Bank Linkage Program, there are 79.6 Lakh Savings Linked SHGs (1.03 crore households) with a balance outstanding of INR 6551.41 crore as of March 2012. Interestingly, internal lending constitutes about 70% of the savings accumulated. Only the surplus portion of savings accumulated is maintained in bank accounts. The surplus average savings balance of the SHGs is INR 8230. While there is a wide variation in the volume of savings in the bank accounts, we observe that Karnataka has the highest average savings balance per SHG at INR 1.6 lakhs.

3.1.2 Credit Out of the total SHGs created under the program, only 50% of the SHGs avail of bank credit. As mentioned in the earlier section, the credit needs of the members are met from the resources accumulated within the group. The total outstanding amount of bank credit is at INR 36,340 Crores and Average Loan Outstanding of INR 835,000 per group. It has been observed that while the volume of lending increased at 14%, the number of SHGs financed has been declining over the past 3-4 years. The highest rate of decline in bank funding has been in the states of West Bengal, Odisha and Kerala. It is also observed that 77% of the fresh lending has happened in the Southern States which has historically been a stronghold of the SHG Bank Linkage Program. Interestingly, while the western region has high savings balances (2nd in rank), in terms of loan outstanding, it is at the bottom of the list.

In the case of loan outstanding as well, it is observed that the commercial banks account for the largest share. This is similar to the experience in case of savings.

61754159

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Region‐wise avearge savings balance of SHGs with banks (INR)

58%27%

15%

Agency‐wise spread of the savings linked SHGs

Commercial banks Regional rural banks Cooperatives

55,568 62,307 46,987 78,884 

47,113 

107,799 

020000400006000080000

100000120000

Loan outstanding per credit linked SHG (INR)

10%

60%

30%

Agencywise spread of credit‐linked SHGs

Cooperative banks Commercial banks

Regional rural banks

29

3.1.3 Credit behaviour The SHG Bank linkage program has fared poorlyin terms of the portfolio performance. Statistics reveal that the NPA levels at a national level are at 6.1% which is quite high. The delinquency levels of the central region comprising of (MP, UP, UK, CH) has shown the highest levels of default with NPA levels as high as 13%. At the state level, Meghalaya and Madhya Pradesh has shown the highest levels of defaults with NPA as a %age of loan outstanding being 33% in Meghalaya and that of MP being 22%.

0.00%

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10.00%

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0.00

1000000.00

2000000.00

3000000.00

Northern North‐Eastern Eastern Central Western Southern

Region‐wise Loan outstanding (INR lakhs)and NPA

Loan O/s  Gross NPA Gross NPA%

30

4 Individual Survey A three-phased survey in selected areas from eight states across India was conducted. These states are: Tamil Nadu, Uttarakhand, Odisha, Madhya Pradesh, Bihar, Uttar Pradesh, Rajasthan and Maharashtra. The entire sample comprises of 1,721 households across these states located in rural and semi-urban areas. The data obtained from the sample aims to be reasonable representative of the entire population with some significance level. The portfolio of the states were designed to include more low income states in terms of per capita income and the population of these eight states cover about 47% of the entire population of the country as per Census 2011. The various steps in data collection are explained as follows:

Phase 1:Representative town and village (s) selection in each state. From the list of villages/district in each state, we selected a district which has a close resemblance to state’s per capita income with some confidence level. Among the selected districts, we selected town (s) / village (or village cluster) in that particular district that would represent an average village in a given state when compared on parameters such as population, literacy rate, income, and financial institutions, to ensure that the village data has a reasonable level of external validity at the state level.

Phase 2: A census of households (HHs) in the selected area: Conducted to stratify the area in different segments that are relevant to the strata population relevant to the study such as: income level, agri/non-agri.A random selection of HHs was selected from the selected area/segments and approximately 215 HH per state were interviewed.

Phase 3: In-depth interviews with HHs. A survey was conducted among the Head of the given HH. The survey took approximately 30 minutes and was conducted in the local language by a trained surveyor.

The details of the states and district chosen for the survey are listed below in Table 3

Table 3 Details of study sites and sample size chosen

State District Sample size State Level Per Capita Income

Uttar Pradesh Barabanki 220 INR 1,365

Uttarakhand Nainital 214 INR 3,524

Madhya Pradesh Mandsaur 206 INR 1,758

Rajasthan Udaipur 219 INR 1,971 Tamil Nadu Thanjavur 214 INR 3,891 Bihar Muzzafarpur 209 INR 1,001 Odisha Koraput 220 INR 2,022 Maharashtra Kolhapur 219 INR 6,168

In addition to a state-wise analysis, we conducted an analysis based on income categories. The sample was categorised into three groups as poor, marginal and mid-high income householdsaccording to the income levels. This categorisation was done in relation to the poverty line (PL).viTable 4 list the %age of household in the sample falling under each of this socio economic category

Table 4 Proportion of households under the chosen socio economic categories

Income category / Socio economic category

Definition Households (%)

Poor < = PL 34

Marginal > PL but < = 2 times PL 47 Mid-high income > 2 times PL 19

The results of the data analysed from the individual surveys are presented under this section.

31

4.1 Individual Survey Results

4.1.1 State-wise Insights The demographics of the surveyed households is as given below.

Table 5 State-wise insights of sampled households

Tamil Nadu

Madhya Pradesh

Rajasthan

Uttarakhand Uttar Pradesh

Odisha Bihar Maharashtra

Sample 215 206 219 214 220 220 209 219 HH Size1 4.35 3.95 5.04 5.99 4.35 3.98 5.45 4.42 Number of Children (mean)

1.7 2.1 2.9 1.9 1.6 1.7

Parents live with HH (%)

8.5 18.7 22.1 11.4 19.1 19.2

Monthly Income (mean, INR.)

7,385 7,475 7,245 7,994 4,815 2,855 6,569 4,728

Poor(%) 29.4 22.1 5.0 15.5 30.5 92.7 35.3 42.5 Marginal Poor(%) 38.3 53.8 63.5 50.7 59.5 6.8 56.2 46.1 Mid-High Income(%)

32.2 24.1 31.5 33.8 10.0 0.5 8.5 11.4

Monthly Expenditure (mean, INR)

5,993 3,954 6,927 7,229 4,104 1,906 5,038 3,970

Positive Income Balance2(%)

58.9 94.5 56.2 68.5 57.7 74.1 76.1 37.4

House Ownership (%)

60.0 96.6 96.8 97.2 100 97.3 100 93.6

Owns Agriculture Land (%)

14.0 64.6 44.3 19.6 84.1 55.0 63.2 57.5

Member SHG(%) 22.8 25.7 4.1 6.5 0.0 39.6 1.9 35.6 Taken loan past 5 years(%)

74.0 13.1 23.3 16.4 11.8 52.3 61.7 51.6

House Improvement in past 5 years (%)

34.4 6.3 11.9 3.7 9.6 32.3 50.2 31.1

1. Number of members in household including self 2. Based on (Monthly Income - Monthly Expenditure), represents % that have a positive balance monthly

 

 

 

 

 

 

 

 

 

 

 

32

4.1.2 House Ownership The data on the ownership of house and the average values of house owned by the sampled households are presented in Figure 4 and 5. The results of the study shows that 90 % of the sample

households have their own house with an average market value of INR 306,000. Remaining 10 % of the sample households stay in the rented premises with an average monthly rent of INR. 2,900. Among all the 8 states, Tamil Nadu registered significantly low rate (60%) of house ownership. Among the three socio economic categories, the mid-high income category is seen to be less likely to own a house. The market value of house owned by the mid- high income category of households (INR 544,000) is twice compared to that of the poor households (INR. 207,000).

4.1.3 Monthly Income

The data on the household monthly income is presented in figure 6.

The overall average monthly income of all the sampled households was INR 6,200. Odisha recorded the lowest mean monthly income of INR 2,900 and Uttarkhand recorded the highest mean monthly income of INR 8000. The mean monthly income of households for the three different socio economic categories of poor, marginal and mid high income households are INR 3900, INR 6045 and INR 9700 respectively.

4.1.4 Household income pattern The income patterns of the three socio economic categories of households are presented in Table 7. It was found that most of the mid-high income households (46 %) had a reliable monthly income when compared to the marginal (33%) and the poor (30%) households. Most of the poor households depend on the daily wages and ad hoc income when compared with the other two categories. From this it can be inferred that the mid-high income households are better placed in terms of being able to repay a longer term housing loan because of their reliable income pattern. In other words, we can also interpret that 46 % of mid-high income households, 33 % of marginal households and 30 % of poor households has the better reliability for getting a housing loan.

Figure 4 Ownership of house in rural and semi urban areas

Figure 6 Household monthly income

Figure 4 Ownership of house in rural and semi urban areas

Figure 5 Average value of the house owned (INR)

0.0

0005

.000

1.0

0015

.000

2de

nsity

0 10000 20000 30000 40000 50000monthly income

Poor MarginalMid-high

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Table 6 Income pattern

Income frequency Percentage Income

Poor Marginal Mid-high OverallMonthly 30 33 46 33 Fortnightly 18 22 21 20 Weekly 14 20 12 17 Daily 28 20 20 24 Ad hoc 10 5 1 6

4.1.5 Dependence on Secondary Income The data on the households and their dependce on a secondary source of income are presented in Table 8. From the data it can be found that the rate of dependence on the secondary income increases from the Mid-high to poor households. Moreover, it is only the poor and marginal households who are dependent on the government scheme for employment (NREGA). Hence it is also an indicator of the fact that the primary source of income for mid-high income customers is dependable enough to reduce dependence upon a secondary source of income.

Table 7 Secondary source of income

Secondary Income

Percentage Income Poor Marginal Mid-high Overall

Secondary Occupation

45 39 37 41

Rent 1 1 1 1 Pension 6 3 7 4 NREGA 7 2 0 3 Remittance 3 3 2 3

4.1.6 Household monthly Expenditure Figure 7 projects the total monthly expenditure of the households across socio economic categories, as well as the rural and semi-urban categories. The results shows that the overall mean monthly expenditure for a household is INR 4,900, whereas the mean monthly expenditure of poor, marginal and mid-high income households are INR 2,700, INR 5,100 and INR 8, 900 respectively. These figure shows that the mid high income households consume more than 3 times that of a poor households.

4.1.7 Household expenditure pattern Table 9 projects the household expenditure pattern across various socio economic categories.

Figure 7 Monthly expenditure of the households

0.0

001

.000

2.0

003

.000

4de

nsity

0 10000 20000 30000monthly expenditure

Poor MarginalMid-high

34

It was found that the proportion of spending for basic needs like food is the highest for the poor households. The poor households spend 85 % of their income on food. The expenditure pattern on other observed expenses seems to be almost uniform across all the categories of households. From this we can infer that the capacity to save is better with mid high income households which is a clear indicator for better repaying capacity for a housing loan.

Table 8 Household expenditure pattern

Household Expense item

Percentage of Income Poor Marginal Mid-high Overall

Food 85 65 50 63 Amenities & Services 19 16 13 16 Travel 4 3 3 3 Education 4 6 4 4

Health 10 9 7 8

Religion 4 3 3 2 Luxury Consumables 2 2 2 4

4.1.8 Household saving Figure 8 presents the data on household savings. It was found from the study that 30 % of the households across all categories, claim to save on voluntary basis. Surprisingly it was found that twice as many poor households (21 %) claim to save on regular basis relative to other socio economic categories of marginal and mid high income households (12 to 13 %). The average monthly amount saved by the marginal income households are higher (INR. 510). While the mid-high income household (INR 341) and Poor households (INR 359) stands almost comparable.

4.1.9 Household saving pattern

Figure 9 indicates the household saving pattern.

The results shows that 54 % of the total households prefer to save informal cash savings and only 35 % of households save formally through banks. It was observed that investment in property and gold accounts to 5 and 6 %, respectively. This overall trend of saving pattern is consistent across all the socio economic categories. Savings in cash by most households limits the possibility of obtaining security cover on loan extended from bank deposits.

4.1.10 Consumptions Shocks A shock is an unexpected or unpredictable event that affects an economy, either positively or negatively. It refers to an unpredictable change in exogenous factors which may have an impact on

Figure 8 Household saving

Figure 9 Household saving pattern

010

2030

4050

Per

cent

0 1000 2000 3000monthly regular compulsary savings

35

endogenous economic variables. Table 10 indicates various shocks or situation for which the households utilises the saving reserves.

Table 9 Utilization of savings to manage shocks

Shocks Percentage Savings withdrawalPoor Marginal Mid-high Overall

Festival 69 58 34 59 Function 16 23 32 21 Education 24 28 17 24 Emergency 39 31 4 36 Agriculture 11 8 6 9 Business 5 0 6 3 Other 1 5 15 4

The results of this data indicates that a higher proportion of people in the mid-high income households (21%) claim to have experienced consumption shocks relative to the poorer groups (16%). However, a higher proportion of people in the mid-high wealth group (54%) were also insured against consumption shocks relative to the poorer groups (33%).

4.1.11 Capacity to save Figure 10 represents the balance between the income and expenditure. It was found that 70 % of the households had an income that exceeds expenditure but only 30 % of the households save on regular basis. The mean balance between the income and expenditure for all the sampled households was INR 1,300

Figure 11 represents the potential of household saving among the study sample. The diagonal line is where the income is equal to the expenditure. The blue dots below the diagonal line represent the households that have the potential to save. From the study it was found that income significantly exceeds even for poor income households. The study reveals that the average income expenditure balances per month for all the

socio economic categories of sampled households are almost similar registering the values of INR 1,220, INR 950 and INR1, 080 for poor, marginal and mid-high income households respectively.

Figure 11 Household saving potential

Figure 10 Balance between the income and expenditure

010

2030

40Pe

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t

-20000 0 20000 40000balance between income and expenses

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2000

030

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mon

thly e

xpen

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0 10000 20000 30000 40000 50000monthly income

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4.1.12 Household credit Figure 12 indicates the proportions of household loans taken by the households under the three different socio economic groups.

 

Figure 12 Proportion of loan taken by the households for various purpose

The study reveals that the loan taken for emergencies (likely medical) consistently represents highest proportion under all the three categories of households. The mid high income households tend to take more business loans, whereas the poor tend to take a relatively higher proportion of loans for agriculture, daily needs and festivals. The proportion of land /home loan increases with the increase in income.

Figure 13 represents the value of loan taken by the households. The overall loan value ranges between few thousand rupees to three and a half lakh rupees. For wealthier income groups, home loan is the second highest value loan and it accounts to an average value of INR 1.75 lakhs. For lower income households, land or home loan is the highest value loan accounting to an average of INR 0.5 lakh.

Figure 13 Value of loan taken by the households

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4.1.13 Loan providers Figure 14 shows the proportion of loan provided by various sources for the households. The results show that the informal money lenders have the largest market share across all the socio-economic categories. MFIs capture only a very proportion of the market. The proportion of bank loans is higher for the higher income segment.

Figure 15 represents the value of loan provided by different lenders to the sampled households under three different socio economic categories. Banks universally provide the highest value loans for all the three different socio economic categories of households. The loan value of bank loan ranges between INR 50,000 to INR 175,000. The mid high income category of households have access to the largest ticket size loans.

4.1.14 History of expense on housing The data on table 11 highlights the characteristics of households who have purchased a new house or improved their existing house in the past five years. The table compares the demographic profile of households who have not made an expense on housing in the past five years with those who have made some expense on housing.

It was found that both categories of households had similar household monthly income, monthly expenditure, education pattern, household size and age group. Nevertheless, the households who made housing improvement or purchase in the past 5 years had more predictable source of monthly income, a stronger secondary occupation profile and lesser cash saving habit when compared with the other group of households. It can thus be inferred that greater the predictable source of income,

Figure 14 Loan providers

Figure 15 Value of loan provided by different lenders

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higher would be the investment rate in fixed assets like house. This in turn leads to lesser %age of cash savings when households spend for purchasing or improving their house.

Table 10 Households making housing purchase/improvement vs. Households not making housing purchase/improvement

Households making housing purchase/improvement (in past 5 Year)

Households not making housing purchase/improvement (in past 5 Year)

Age of HH head (yrs) 43.6 42.3 HH Size 4.85 4.62 Education of HH Head None 45.0% 41.8%

Primary 24.1% 23.4%

Intermediate 13.4% 14.7% Above Intermediate 17.5% 20.1%

HH Income (Rs, Month) INR 5,939 INR 5,807 HH Expense (Rs, Month) INR 4,738 INR. 4,861

Sources of Income Primary Occupation 93.6 % 97.4 %

Secondary Occupation 50.1 % 37.9 %

Rent 1.3 % 1.2 %

NREGA 1.1 % 3.9 % Remittances 6.6 % 1.4 %

Receive Monthly Income 21.2 % 11.9 %

House Ownership Spouse/ Parent 26.0 % 15.6 %

Spouse/Parent decides Asset Purchase

18.8 % 10.9 %

Decision to Save HH Head 69.8 % 81.6 %

Others 30.2 % 18.4 % Savings in Cash Preferred Mode 27.6 % 45.6 %

Member of Self- Help Group 23.1 % 15.5 %

Has savings to cope for shock events 51.2 % 33.7 %

5 Market potential for housing finance

From the results of the study obtained, the following aspects have been critically viewed to assess the market potential for housing finance to low income households.

Household capacity to avail credit Market Demand Required loan size Affordable EMI Scope for formal lending institutions

5.1 Household capacity to avail credit The capacity to take a housing loan can be influenced by factors like assets for collateral, capacity to make timely repayments, reliability of loan repayment and access to formal credit institutions.

Assets to serve as collateral: from the individual survey it was found that 90 % of the sample households owns their house and more than 50 % of households have other immovable

39

properties which can act as collateral in favour of influencing a housing loan.A similar situation was also found among KGFS customers, with 88 to 98 % of KGFS beneficiaries owns a house.

Capacity to make timely repayments: from the individual survey it was found that 46 % of mid-high income households, 33 % of marginal households and 30 % of poor households had constant monthly income.A similar situation was also found with KGFS customers, where 33.7 % of households listed above the poverty line category had constant monthly income, but only 13.1 % of KGFS households listed below the poverty line had a monthly income flow.

Reliability of loan repayment: It was found from the individual survey that 70 % of the

households had incomes that exceed expenditure indicating the possibility of surplus in those households. However, it has to be noted that only 30 % of the households save on regular basis.

Access to formal credit institution: It was found from the individual survey that 34 % of

households had established access to formal credit institutions.

5.2 Market Demand Figure 16 and 17 represents the market potential for home loan and home improvement loan from the individual survey conducted

It was found that the demand for home improvement loan is much higher than of the demand for home loan in all the states except for Odisha. In Odisha, both home loan and home improvement loan

saw similar demand. The demand for home loan is literally nil in the states of Uttar Pradesh and Bihar. Rajasthan registered the highest market potential for home loan with 37.14 % of the surveyed households intending to take home loan in the next few years. With regard to the potential market for home improvement loan, the states of Maharashtra and Tamil Nadu were in the forefront with more than 70 % of the surveyed households intending to opt for it in the next few years.

Figure 16 State wise market potential for home and home improvement loan for the next few years

Figure 17 Market potential for home loan according to income categories of households and Rural & Semi Urban categorisation

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On the other hand, the demand for home loan and home improvement loan is approximately double in semi-urban areas when compared with the households in the rural areas. The demand for home loan or home improvement loans did not show any significant variation across different socio-economic categories.

5.3 Required loan size Table 12 and 13 listed below gives us the average size of the home loan taken by the households. From this we can infer that the average maximum amount of loan required by the households for home purchase is around 2 lakh rupees. Among the states, Maharashtra registered the highest average home loan requirement of INR. 187,153. The least average home loan requirement was in the state of Madhya Pradesh with a value of INR 36,111.

Among the three income categories of households, the mid-high income households registered the highest value of home loan amount which was close to INR. 2 Lakhs, whereas the poor and marginal income households had taken a home loan amount of just around INR. 50,000. It can hence be assumed that the required loan size for these low income households would be in the range of INR 50,000 to INR 200,000. However, this is not an indicator of the total cost of house and land on which the house is built.

As per the findings of Minakshi and Stuti (2010), the cost of constructing a pucca structured house in rural areas is estimated to be around INR.300 per square feet, considering the fact that most households wanted a house of area in the range of 300 to 400 square feet, the construction cost wouldbe INR.90,000 to 120,000.

Table 11 State wise average amount of home loan taken by the surveyed households

States HH who have taken loan for purchasing land/home in the past 5 years (%)

Average amount of loan taken (INR)

Tamil Nadu 12.9 103930.20

Madhya Pradesh 10.7 36111.11

Rajasthan 7.5 74250.00

Uttarkhand 14.3 53000.00

Uttar Pradesh 9.2 75923.08

Odisha 4.1 12642.86

Bihar 8.8 41480.00

Maharashtra 11.3 187153.80

Table 12 Average amount of home loan taken by the households according to the income categories

Poor Marginal Mid-High HH who have taken loan for purchasing land/home in the past 5 years (%)

7.2 11.3 13.3

Average amount of loan taken (INR) 68,250 49,375 180,885

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5.4 Affordable EMI From the above paragraph it can be inferred that home loan requirement of the studied households is in the rage of INR 50,000 to INR 200,000. Moreover, the affordability limits of the household to pay a monthly EMI for these kinds of loans would be around INR1000 per month. This is clearly evident from the monthly saving capacity of households (Table 14 and 15).

Table 13Monthly saving capacity of households found from individual survey

Mean Monthly Income (Rs)

Poor Marginal Mid-high

Rural 3997.87 6738.36 9840.73

Semi-Urban 3639.84 4452.79 9296.67

Table 14 State wise monthly saving capacity of households found from individual survey

Monthly Income ( INR) Monthly Expenditure (Rs) Monthly Savings Tamil Nadu 7,385 5,993 1,392

Madhya Pradesh 7,475 3,954 3,521

Rajasthan 7,245 6,927 318

Uttarkhand 7,994 7,229 765

Uttar Pradesh 4,815 4,104 711

Odisha 2,855 1,906 949

Bihar 6,569 5,038 1,531

Maharashtra 4,728 3,970 758

5.5 Scope for formal lending institutions  

From the insights gained from the individual survey, it was found that the informal lending is the biggest source of loan to our study households (Section 4.1.14). They cater 60 to 75 % of households’ loan needs. The following figures 18 and 19 represent the business of formal and informal sector players in this space. This implies that there are huge market opportunities for the formal sector players to venture and double its current market presence.

Figure 19 Amount of lending - Formal vs. Informal sources

Figure 18 Percentage households covered by formal vs. informal sources

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6 Conclusion From the study we can broadly conclude that

The requirement of home improvement loan would be more than that of the home loan requirement

The required home loan size for low income households would be in the range of INR50,000 to INR 200,000

The affordable EMI for the low income households would be around INR 1000

There is scope for formal credit institution to approximately double its market presence in lending low income households.

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Proposed Structure for enabling housing microfinance under a JLG/SHG Bank/HFC Linkage Model with support from the NHB

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1. Background of the Bank-SHG Linkage Presently, banks have a large SHG linkage program across the country primarily supported by NABARD. In this, banks partner with NGO-MFIs that collect customers in the form of groups, and inculcate savings behaviour amongst the borrowers. Subsequently, after some track record in savings has been established, the borrowers are eligible to obtain a loan from the partnering bank. Over 95 million poor rural households are now part of thisprogram. The program has reached out to a total of 8 million groups and accounted for INR 27000 of savings corpus and a credit outstanding of INR 40,000 at of FY 2012-13.

2. Structure of the Proposed Program It is proposed that the NHB will train existing NGO-MFIs in housing and based on the proposed underwriting guidelines, the NHB will facilitate bank lending to the households. The bank will directly lend to the households identifiedby NGO-MFI. The NGO-MFI will provide provides first loss and the NHB provides second loss. IFMR Cap will support in the identification of good quality MFIs and provide on-going monitoring and surveillance services.

Figure:Structure of program and role of stakeholder

IFMR Capital can identify and propose a prospective partner (MFI) for a partnership with a scheduled commercial bank (Bank) for the purpose of originating housing microfinance loans for lower income, informal sector customers. The MFIs will be chosen after through due diligence on the entity and evaluation against stringent underwriting criteria proposed in the earlier part of the study. IFMR Capital will share a detailed due diligence report and a copy of the rating rationale with NHB and the Bank.

Once identified, MFIs recommended by IFMR Capital would be chosen to participate and originate loans on behalf of the Bank. The Bank would extend a line of credit to clients of low income households who are customers that have previously been trained and assessed by the selected MFI for the purpose of micro lending under group liability models. The MFI would assess the KYC documents and complete all other documentation required for this transaction on behalf of Bank. The assets would be originated directly on the Bank’s balance sheet.

 

SHG/ 

JLG 

Members 

Bank MFI 

IFMR Capital  NHB

First Loss 

from MFI 

Second Loss 

from NHB 

Funding 

from Bank

Collections 

Second loss 

facility, 

Training 

from NHB 

Identification, 

Monitoring & 

Surveillance 

MFI 

Origination, 

Collection 

Bank 

Funding to 

SHG/JLG 

Stakeholder 

Role 

45

It is proposed that the MFI should service the loans until maturity and ensure that clients repay according to the specified repayment schedule. This is to ensure that the MFI is incentivised to create high quality assets for the bank. Further, IFMR Capital will conduct regular monitoring and surveillance visits to make sure that the repayments are done according to the specified schedule. Based on IFMR Capital’s experience in the past with a guarantee program arrangement with the Asian Development Bank, we would like to propose a structure that blends appropriate mechanisms for alignment of incentives and rigorous risk management processes.

The proposed structure for the transaction is as under:

Proposal MFI to originate and service loans to be booked on the Bank balance sheet.

Role of MFI a. Identify, originate and service loans on behalf of Bank undera

mix of group liability and individual lending models. b. Ensure high quality of origination c. Ensure repayment is made to Bank according to the specified

repayment schedule d. Collect guarantee fee from the borrowers to be payable to and

the NHB. e. To provide first loss of 5-10% of the outstanding at any point of

time.

Role of IFMR Capital a. Identify MFIs who can originate and monitor high quality clients for Bank

b. Carry out regular surveillance and monitoring till an agreed period of time.

Role of the NHB a. To provide second loss guaranteesto the extent of 50% of the portfolio outstanding at any time.

b. To provide capacity building support to the MFI staff

We recommend that the NHB’s credit support is limited to 50% and is available after the first loss is exhausted. This ensure (i) skin-in-the-game for the Bank, which improves origination / monitoring quality and (ii) better usage of the NHB’s support in facilitating a much larger volume

Role of Bank To provide a pre-agreed volume of funding to the MFI to originate housing loans for the existing MFI customers.

Security to the Bank 5-10% of portfolio originated by MFI to be provided as First Loss Default Protection(FLDP) in the form of a cash collateral to the Bank

50% of the portfolio outstanding to be provided as Second Loss guarantee by the NHB

3. Role of Stakeholders in Detail

3.1. Role of MFI The MFI will have to pass through a rigorous due diligence process of IFMR Capital. Post clearance from the NHB and the Bank for managing its housing loan portfolio, MFI would directly originate loans on Bank’s books of accounts. It would set up additional procedures required to be adopted for the purpose of housing loan with adequate support from the NHB. The MFI would assess the KYC documents and complete all other documentation required for this transaction on behalf of Bank. The MFI will place a cash collateral as first loss guarantee to the extent of 5-10% of the total outstanding at any point of time. MFI will continue to service the loans until maturity on behalf of Bank. All

46

disbursements and collections would be made by MFI according to their pre stated standard operations and processes.

3.2. Role of IFMR Capital IFMR Capital’s role would be to conduct a due diligence and propose MFIs identified in partnership with the NHB to originate and manage a portfolio for Bank. MFIs would be recommended after they pass the rigorous due diligence by Origination Team and get an approval of Investment Committee at the Bank and the NHB. IFMR Capital would further undertake regular surveillance and monitoring after an MFI starts servicing the portfolio till its maturity. A rigorous surveillance and monitoring report based on the underwriting framework as detailed above would be submitted periodically.

3.3. Role of the Bank Post IFMR Capital’s proposal of partnering with an MFI, the Bankwould extend a line of credit to the low income households who form part of the group which is promoted, trained and assessed by the same MFI for lending under group liability models. Housing loan portfolio is originated directly on the Bank’s balance sheet. Continuous funding support to the MFI after a positive monitoring and surveillance report from IFMR Capital would be helpful in continuing the relationship with the MFI. Such partnership would be beneficial in reaching out to existing and also new clients. The partnership network could also be potentially used where the MFIs could act as Business Correspondents overtime and provide complete financial access to the clients.

3.4. Role of the NHB The NHB would provide second loss guarantees to the bank to extend loans to the customer of the MFI. The guarantee would cover the principal and the interest shortfall up to 50% of each loan and to be utilised after the first loss is exhausted. The Bank would be required to proceed for recovery / sale of acquired secured properties once the NHB second loss is drawn down upon

The NHB would play key role in capacity building of the MFIs and continuously provide focussed training support as well.

4. Revenue structure Bank: Bank will determine the rate of interest that would be charged to the customers. The assets will qualify as priority sector assets on the bank’s balance sheet.

MFI: Bank is expected to pay the cost of servicing the assets originated by the MFI. This pricing is largely determined by the cost incurred by an MFI to originate the micro loan portfolio and service it till maturity. It is indicated by the Operating expenses ratio (OER) of the MFI. The OER of MFIs with efficient operations has been in the range of 7% to 15% of the average portfolio. In this regard, IFMR Capital analyses the cost structure of an MFI for a period of last three years or since its inception whichever is lower. IFMR Capital shall report a figure after thorough analysis along with the extent to which it can be brought down in future to be able to manage the portfolio for Bank. The NHB can then structure the guarantee program to encourage the MFI to reduce its operating costs over a period of time.

IFMR Capital: IFMR Capital would incur costs on conducting due diligence and regular surveillance and monitoring visits. While IFMR Capital will not charge for conducting due diligence, the costs incurred in conducting on-going monitoring and surveillance will be payable to IFMR Capital by the bank.

The NHB: NHB will charge a guarantee fee for the guarantee provided to the MFI on a loan by loan basis.

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Summary of Discussions during the Workshop on “Scaling Up Housing Microfinance” at the Board Room, 5th Floor, National Housing Bank, India Habitat Centre, Lodhi Road, New Delhi.

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Summary of the discussions: Purpose: The purpose of the workshop was to gather feedback and additional insights on the report from practitioners and business oragnisations working in different areas of housing finance to arrive at a robust model for scale up.

Attendees:The workshop was attended by various stakeholders including the NHB, the DFID, large public sector and private sector banks, large housing finance companies and housing finance companies with a focus on the affordable housing finance sector.

There were a few key points that were discussed during the workshop as mentioned below.

All attendees agreed to the fact that providing housing finance to the lower income informal sector customers faced severe challenges. It was not just the lack of proof of income but also the lack of clear titles which caused tremendous hardships for banks and HFCs to lend to this segment.

While the affordable housing finance companies have cracked the first piece of the puzzle with innovations in assessing cash flows of the lower income informal sector borrower, there is still no solution for the lack of clear titles.

It was pointed out during the discussions that regulatory framework has placed high incentives on mortgage backed lending and hence any home loan without mortgage backingis not considered lucrative by most banks and HFCs.

The failure of the existing microfinance companies in expanding their product offerings to include housing finance was also discussed. It was pointed out that a few microfinance companies have in the recent past set up separate housing finance companies or have started housing microfinance business but were facing problems in going deep into rural pockets due to lack of availability of title. Moreover, most microfinance companies have shorter tenor funding lines which do not encourage them to lend long term housing loans. In addition, the regulatory requirement around NBFC-MFIs to restrict their funding to income generating activities for 85% of their books also restricts NBFC-MFIs from getting into housing finance in a large way.

For NGO-MFIs, given that their sources of funding are limited to small tenure and there is no dedicated source of funding for housing microfinance, the NGO-MFIs have not been able to allocate adequate resources for growing up a housing microfinance business. The lack of regulatory clarity around the lending operations of NGO-MFIs was also brought up. While, the NBFC-MFIs were regulated by the Reserve Bank of India (RBI), the NGO-MFIs are governed by a variety of structures unrelated to the lending business.

The lack of experience amongst the NGO-MFIs of doing housing finance and hence the need for adequate training was also discussed.

The large HFCs were open to the idea of funding HFCs/NBFCs/NGO-MFIs for longer tenor housing finance loans through term loans and investment in securitisation of micro-housing loansprovided there is clarity around such loans/investments getting refinanced by the NHB under the refinance programme.

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                                                            i As defined by Technical Group constituted by MHUPA ii Note: Assessing potential impact is limited to assessing the financial impact in terms of access to housing, and impact along socio-economic aspects is not proposed to be covered. iii As per the definition given by NSSO, ‘good’ means no immediate repairs required, ‘satisfactory’ implies minor repairs required and ‘bad’ means the structure required immediate major repairs without which it might be unsafe for habitation or required to be demolished and rebuilt iv Economically Weaker Sections (EWS) - Rs 1,00,000/- as household income per annum (The Ministry of Housing and Urban Poverty Alleviation) v Low Income Groups (LIG) Rs 1,00,001/- to Rs 2,00,000/- as household income per annum (The Ministry of Housing and Urban Poverty Alleviation) vi According to the definition by the planning commission of India, the PL in terms of per capita daily consumption for urban area is INR 32 and for rural area is INR 26.