Keya Sarkar: NHB takes up the challenge

OUT OF FOCUS

Lately in meetings with the microfinance companies or in the newsletters that I regularly receive from them, there have been increasing discussions on housing credit for the poor. It is of course a natural progression. For those working in the microfinance sector, once the need for livelihood finance and to some extent asset finance has been met, the need for housing finance for the same borrowers stares them in the face.

Since the crux of micro lending (normally in amounts of Rs 5,000 to Rs 10,000) is lending without collateral, what microfinance companies have been grappling with is how to increase the loan size manifold and yet keep the EMI affordable.

Little wonder that all the "housing" loans that microfinance companies have been able to disburse have been for house renovations, extensions and in some cases (in urban areas) loans to meet the deposit payment requirement for rented accommodation.

Clearly these are not housing finance in the strict sense and it is necessary to find structuring options for housing loans to the poor, which would enable them to get loans of upwards of Rs 30,000 (in some cases with dodgy collateral) and affordable EMIs. And the task is huge. Estimates for housing requirements during the 11th Plan Period (2007-12) are about 27 million houses in urban areas and 47 million in rural areas, of which an overwhelming portion (above 80 per cent) is for the economically weaker sections and the low-income groups.

While the task is daunting what is heartening is that some people have started addressing the issue and focusing on it. Last month I received an invitation from the National Housing Bank to join a discussion on housing for the poor with participation from the NHB and members of the INAFI (International Network of Alternative Financial Institutions). And it seemed that the NHB was paying the issue more than lip service, as demonstrated by the fact that the chairman and managing director, S Sridhar, sat through the entire three-hour meeting (listening to suggestions of the INAFI members) and by the fact that the NHB has already initiated a lot of action befitting its role of an apex institution in a sector so critical.

While there may be many housing finance technicalities, what needs to be done for financing housing for the poor is to first find ways to bring down the cost of dwelling itself, so that the principal loan amount is reduced and then find ways through subsidies and loan guarantees to bring down the rate of interest.

For the first time, the NHB is open to ideas (in fact, a project is already on with the Dhan Foundation) on refinancing low-cost housing (from any MFI or NGO MFI which has a proposal) and is willing to take an initiative to start a dialogue with building material companies for subsidies. If the beneficiaries in certain cases, could be convinced by the funding unit (either NGOs, MFIs or SHG Federations) to contribute labour, a substantial reduction could be achieved in the cost of the dwelling.

And for the second, the NHB has already initiated or is in the process of finalising its plan of action to:

lobby for housing loan-linked savings schemes for the poor;

draw attention of the government to the fact that the NHB be allowed to access funds from multilateral agencies like the World Bank, ADB or IFC, which are keen and have articulated their intentions to lend to the NHB for refinancing housing loans to the poor;

facilitate better co-ordination between different government departments to fully utilise all monies meant for housing for the poor. There may be a need to convince the central as well as the state governments to use monies available to subsidise interest rates on loans rather than straight grants;

provide a title guarantee where clear land titles are not available especially in rural areas but where ownership is not in doubt based on certification from village panchayats or land revenue officers. A title guarantee would substantially decrease the risk perception of the primary lending agencies;

create a rural risk fund which could provide credit guarantee covers for loans up to Rs 1 lakh taken by the poor in rural areas where either no collateral is available or the title is defective;

The NHB has proposed to the RBI its intention to set up a mortgage credit guarantee company with foreign equity participation. The company would cover all loans above Rs 1 lakh (with separate window for rural loans) given by primary lending institutions. While the NHB and partners will bring in the initial corpus, the banks and MFIs would pay the premium for the credit cover;

last but not least, popularise residential mortgage-backed securitisation, which the NHB has pioneered in the country to enable an increased flow of funds into the housing finance market.