Annual Review - Summary Sheet
This Summary Sheet captures the headlines on programme performance, agreed actions and learning over the
course of the review period. It should be attached to all subsequent reviews to build a complete picture of actions
and learning throughout the life of the programme.
Title: Affordable Housing in Poor States
Programme Value: £50m
Programme Code: 202867
Review Date: October 2014
Start Date: 7/10/2013
End Date:31/3/19
Summary of Programme Performance
2013/14
Year
A
Programme Score
Medium
Risk Rating
Summary of progress and lessons learnt since last review
The programme was approved by the Secretary of State in Aug 2013. The project was launched in
October 2013 with the signing of the MoU and the Loan agreement.
The total DFID commitment is £40m debt and £10m technical assistance to the National Housing Bank
(NHB) for a period of 7 years.
(a) £25m debt to finance the construction of low cost houses,
(b) £15m to finance home loans for low income households.
(c) £10m as Technical Assistance (TA) to strengthen policies to promote affordable housing, and to test
innovative technologies and new approaches to provide green technologies, low cost rental and
incremental housing,.
In the first year of the programme, we have:





Provided a £7.3 million loan to finance the construction of 6,488 affordable housing units in
Rajasthan. More than one lakh (10,000) homes have now been planned under the affordable
housing policy in the State.
Provided a £6.7 million loan to finance home loans for 2,208 low income households, with
beneficiaries in each of the 8 low income states (LIS). Discussions with Housing Finance Companies
(HFCs) in Rajasthan revealed that the default rate of this loans is very low – adding confidence about
the commercial viability of the sector.
The construction of the affordable housing units has created 2680 direct jobs (including 602 for
women) and 3082 indirect jobs.
Conducted a baseline evaluation in Rajasthan to look at the supply side initiative.
Institutionalised good mechanisms for donor coordination (through a joint Project Management Unit
and coordinated Environmental Social and governance (ESG) framework).
The programme has also helped to create wider strategic shifts to the affordable housing market, and
improve institutions. For example, it has
 Mobilised £27 million additional private capital in affordable housing1.
 Catalysed the housing finance sector to target low income groups in low income states. At the
beginning of the programme, 2 HFCs operated in low income states. One year on, 8 HFCs are now
operational in those states.
 Supported 3 State Governments to improve their Affordable Housing policies.
 Led to the opening up of 2 NHB offices in the low income states (LIS) (Rajasthan and Odisha)
1
Please see description on page 4, outcome indicator 1, to understand how we have calculated how much private
capital we have mobilised through this project.
1

Contracted an agency to help identify and design pilots to demonstrate innovations in green
technology, rental and incremental2 housing.
The progress in Year 1 has met expectations.
Summary of recommendations for the next year




We want to develop deeper partnerships with state governments in at least 2 additional states
(Madhya Pradesh, Odisha or Bihar) by identifying areas for TA support including strengthening their
regulatory frameworks for affordable housing, and reducing obstacles to private sector involvement
(by for example, promoting single window clearances).
We will provide TA to for strengthening systems (especially project financing) to improve the NHB’s
capacity to meet the demand for affordable housing project finance.
We want to ensure we get the best use out of our ESG assessments. Including mainstreaming ESG
criteria both at NHB as well as with its borrowers, and develop in-house capacity within the NHB to
conduct ESG assessments
We will provide TA to further improve affordable housing policy in Rajasthan. DFID can play a
catalysing/market building role by facilitating learning, dissemination of success stories, and
introducing private sector players to new markets in the low income states.
By ‘incremental’ we mean loans or other financial products that will enable low income households to make home
improvements.
2
2
A. Introduction and Context (1 page)
DevTracker Link to Business Case:
DevTracker Link to Log frame:
3816268
3897105
Outline of the programme
UK will provide:
Up to £ 50 million over 7 years (2013 -2019), with disbursements in the first four years.
DFID in partnership with the National Housing Bank (NHB) will:

Incentivise NHB and housing developers to develop affordable housing projects in the low
income states by providing a £25 million line of concessional credit earmarked for this purpose,
encouraging developers to consider projects they otherwise would not have done.

Incentivise NHB and Housing Finance Companies (HFCs) to provide housing loans to low
income households by providing a concessional line of credit of £15 million. The HFCs do not
easily obtain credit from NHB and our offer will enable them to grow their operations in the low
income states. Once a critical mass of loans is built up, costs of doing business in relatively
unfamiliar areas will reduce, and lending in the low income states will become commercially
sustainable for HFCs.

Strengthen policy and build systems: £5 million of technical assistance will be used to develop
expertise and strengthen systems at both NHB and state housing departments.

Innovate: An additional £5 million of TA funds will be used to pilot green building technologies;
and to test out rental and incremental housing models that cater to low income households but
are also commercially viable.
Expected Results
This programme aims to:






support at least 12 PPP projects in the low income states (OP indicator)
mobilise additional capital of £80 million for the affordable housing sector in the eight low income
states;
create 27,000 jobs for the poor in the Low Income States: Construction sector and affordable
housing in particular are labour intensive;
construct 17,000 affordable housing units;
provide 10,000 home loans to low income families;
support the development and implementation of an affordable houing policy in at least 2 states
3
B: PERFORMANCE AND CONCLUSIONS (1-2 pages)
Annual outcome assessment
The programme began implementation in October 2013, this is the first annual review for the Affordable
Housing Programme. The first year has seen steady progress on all outputs, some of which have
exceeded expectations.
The key milestones achieved in Year 1 include:
 Loan agreement signed with National Housing Bank (NHB) in Oct 2013
 Estalished the Programme Management Unit which is shared with the World Bank in December
2013.
 Due diligence carried out for 14 developers in Rajasthan January 2014
 £7.6 m disbursed for 8 developer projects for construction of 6,488 affordable housing units
(March 2014)
 £6.7 million disbursed for provision of 2,208 loans to low-income households in each of the 8 low
income states by refinancing 6 Housing Finance Companies.
Policy :
In the first year, we have worked to influence State government policy on affordable housing in the
following ways:
o Government of Rajasthan (2013) – produced documentation and dissemination of lessons
learnt on Affordable Housing Policy formulation and implementation. There has been
great interest in sharing the process for policy formulation, and the different models the
Government of Rajasthan identified to incentivise affordable housing with other low
income states.
o Government of Odisha (2013) – we have helped the government to review and revise
their Affordable Housing Policy, and recently contracted an agency to help the
Bhubaneswar Development Authority to improve their regulatory framework.
o Government of Madhya Pradesh (2014) – DFID supported a cross-learning workshop on
private sector involvement in Affordable Housing and have helped the state Govenrment
to review and revise their Affordable Housing Policy regulatory framework.
Outcome indicator 1: Investment in the affordable housing sector (Assumption: our ability to leverage
private capital was calculated based on the infrastructure sector set formula of 1:3).
Progress : We think that the assumption of 1-3 on leverage above holds true when looking at the supply
side– DFID’s investment has leveraged additional capital to finance the construction of affordable
homes. DFID has funded one third of the 6488 houses built, with the developer paying 30-40% of the
project cost and raising 30% from the market. Therefore, in the 1st year of this project DFID leveraged
£27 million additional capital against the target of £50 million by March 2015.
However, on the demand side (loans to housing finance companies (HFCs) to on-lend as mortgages to
low income borrowers) the assumption of 1-3 on leverage (or £18 million) may not hold true. This is
because at the moment DFID simply refinances loans to HFCs – they are not obliged to also borrow
from the market. The team will review the assumption as a part of the portfolio review currently being
conducted.
Outcome indicator 2: Employment generated for men and women (direct and indirect)
Progress: 2680 direct jobs created of which 602 were for women. Leading to an estimated 3082 indirect
jobs being created.
The direct jobs for men and women are measured as part of data collected under the ESG report.
4
The National Council of Applied Economic Research estimates that for every £10,000 of investment into
residentical construction, 2.9 jobs are created3: 2.34 direct jobs, and 1.15 indirect jobs. We use this
methodology to calculate the number of indirect jobs created (2682 multiplied by 1.15).
Based on the progress to date, we are confident that we will achieve the outcome by the end of the
programme.
Overall output score and description
The programme has 4 outputs:
Output 1: Enhanced Project Financing for Affordable Housing by NHB in the low income states
Output Indicator 1.1 : Number of affordable housing units built
Output Indicator 1.2 : (a) Number of projects funded by the NHB
(b) Disbursements by NHB
For the first year, this output has moderately exceeded expectation as evidenced by the fact that all
output indicators have been achieved within the prescribed timelines. DFID funding has been used by
the NHB to support project financing of 8 affordable housing projects in Rajasthan, resulting in the
construction of 6,488 low cost units for low income households in the state.
Output 2: Improved access to low cost refinancing of HFCs/ MFIs in low income states
Output Indicator 2.1 : Number of HFCs operating in the affordable housing sector in poor states
Output Indicator 2.2 : (a) Refinancing of home loans by NHB
(b) Efficiency (time taken) of disbursements by NHB
This output has moderately exceeded expectation, with DFID funding being used to refinance the
portfolios of 3 housing finance companies who lend to low income households (with annual income <
£4,000) in the low income states. Prior to DFID’s intervention, only one of these HFCs had portfolios in
the LIS.
Output 3: Improved policies, systems and capacities of key central and state based institutions
Output Indicator 3.1 : Project rating norms for affordable housing
Output Indicator 3.2 : States with single window clearance operational
Output Indicator 3.3 : Reviewed state policies and norms
Although this output moderately did not meet expectations, progress has been made on the various
indicators; relationships have been established with housing authorities three state governments
(Rajasthan, Madhya Pradesh and Odisha) through support provided by DFID for (a) revising affordable
housing policies (Odisha), (b) documentation and dissemination of affordable housing policy (Rajasthan)
and (b) facilitating cross learning workshops for policymakers/townplanners in Madhya Pradesh.
Output 4: Innovative pilots/approaches particularly for greentech, rental and incremental housing for the
poor established
Output Indicator 4.1 : Approaches piloted, evaluated and widely disbursed
Output Indicator 4.2 : ESG screening score at (a) Portfolio (b) Project level
This output has met expectations, with all project financing and refinancing activities of the NHB
supported by the DFID programme undergoing ESG assessments. In total, 24 assessments have been
Impact of Investments in the Housing Sector on GDP and Employment in the Indian Economy, NCAER, Feb 2014,
table 2.12
3
5
undertaken. A study has been commissioned, through which key stakeholders including the NHB,
donors, DFID, etc have been consulted to identify gaps/needs where the TA can be deployed. A ToRs
has been issued to agencies to identify pilot projects in the thematic areas.
The NHB is organizing workshops for HFCs to disseminate information about the DFID and World Bank
refinance programmes, with a particular focus on Environmental, Social and Governance issues. The
first such workshop was held in Bangalore in May 2014 and subsequent regional workshops are
scheduled in 2014-15.
Key lessons
1. Encouraging private sector investment in affordable housing (both in constructing as well as home
loans) requires a favourable policy environment. For this the government is a critical stakeholder, and
DFID can maximize the impact of the programme by influencing affordable housing policy in the LIS.
2. The market for mortgages for low-income households in the LIS remains untapped, and it is the
newer, professionally managed HFCs that have the risk appetite, willingness and systems to enter
these niche markets. The programme should be geared towards supporting these institutions to
further scale up their operations in the LIS. The repayment rate of the HFCs (dedicated to low
income households) that DFID has supported has been exceptionally high at over 98%.
3. DFID can play a huge role in bringing stakeholders together and establishing partnerships to address
gaps and challanges. The Rajasthan experience has been very encouraging where DFID with its
limited capital helped the government unlock a major bottle neck (providing start up capital to
developers through NHB) to ensure the implementation of the state policy. DFID can also add avalue
by facilitating interactions between the private sector (developers and HFCs) and state government
officials through workshops and cross learning visits. Two such workshops were facilitate in Bhopal
and Orissa, where lessons from Rajsthan were shared.
Sharing the learnings between states is one of the ways that we can achieve scaleability of this project.
Key actions
The policy development has been supported in MP and Odisha it will be important to now ensure a
steady flow of affordable housing projects with private sector involvement. Team to focus on
implementation of the policy.
We will review the assumption for capital leveraged on the demand side as a part of the portfolio review
by Dec 2014.
Has the logframe been updated since the last review?
Yes
The logframe has been modified to incorporate the new timelines of the programme.
6
C: DETAILED OUTPUT SCORING (1 page per output)
Output Title
Enhanced Project Financing for Affordable Housing by NHB in the low income states
Output number per LF
1
Output Score
A+
Risk:
Medium
Impact weighting (%):
30%
Risk revised since last AR?
n/a
Impact weighting % revised
since last AR?
n/a
Indicator(s)
1.1 Number of affordable housing
units built
1.2 (a) Number of projects funded
by the NHB
1.2 (b) Disbursements by NHB
Milestones
5,000 affordable housing units
built
6 projects funded by NHB
£6m disbursed
Progress
6,488 affordable housing units
built in Rajasthan
8 housing projects funded by
NHB
£7.3m disbursed
Key Points

This output has exceeded expectations, with the progress on all indicators surpassing milestones as
per the log-frame.

Of the £25 million allocated to project financing, £7.3 milion was disbursed to the NHB in two
tranches (£5m in Dec 2013 and £2.7m in Mar 2014) for financing developments in the LIS.

NHB on-lent DFID funds to Rajasthan Avaas Vikas Infrastructure Limited (RAVIL), which is the nodal
agency for the implementation of Rajasthan’s Affordable Housing Policy for supporting 8 developers
with start up costs as loans. NHB’s loan to RAVIL is backed by a guarantee by the Government of
Rajasthan.

While 11 projects were considered for funding through this programme, 3 were subsequently omitted
as they did not clear the ESG assessment.

The support has resulted in the construction of 6,488 affordable housing units across 8 projects in
Rajsthan. The total project cost of the 8 projects was £19 million (excluding the cost of the land) of
which £11 million was jointly disbursed as loan by DFID and NHB.
DFID Project Finance Portfolio by Developer
Name of Developer
Bhairav Township Pvt Ltd
Majestic Realmart Pvt Ltd
Sintex Industries Pct Ltd
Siddha Infra Project Pvt Ltd
Amit Colonizers Pvt Ltd
Patni Builders Pvt Ltd
Shiv Shakti Real Homes Pvt Ltd
Regency Buildhomes Pvt Limited
TOTAL PROJECT FINANCE
Location
Jaipur
Jaipur
Jaipur
Jaipur
Dausa
Chaksu
Jaipur
Jaipur
Category of Household
EWS
LIG
MIG
Total
320
608
256
224
224
1,104
384
672
3,792
576
960
432
400
416
1,880
704
1,120
6,488
7
192
224
128
128
128
648
192
256
1,896
64
128
48
48
64
128
128
192
800

Developers consistently referenced the incentives under the Government of Rajasthan’s affordable
housing policy (such as transfer of development rights (TDR)) as what prompted them to enter into
this new sector. However, they also said the rising cost of construction would make them hesitate
before bidding for future affordable housing projects. DFID can provide real value by sharing this
learning at a policy level with other low income states.
Summary of responses to issues raised in previous annual reviews (where relevant)
Not applicable
Recommendations
To ensure that the benefits of the programme are geographically diversified, a cap of £10m (40% of
project financing component) has been placed for a single state. Subsequent project financing support is
therefore expected to flow to other states. Recommended actions towards this end include:



Supporting NHB to identify a pipeline for project financing. Relationships have been established
already with MP, Bihar and Odisha to support them in taking forward viable models with the private
sector. We will work with them in Chhatisgarh to appraise and finalise proposals.
In Madhya Pradesh work with NHB to identify 2-3 Urban Local Bodies (ULBs) as nodal agencies for
affordable housing projects in their cities (eg. Indore, Bhopal, Gwalior).
NHB to proactively look for projects and review their own terms where possible to provide a push to
generate private sector activities in the identified states.
Output Title
Improved access to low cost refinancing of HFCs/ MFIs in low income states
Output number per LF
2
Output Score
A+
Risk:
Medium
Impact weighting (%):
30%
Risk revised since last AR?
n/a
Impact weighting % revised
since last AR?
n/a
Indicator(s)
Number of HFCs operating in the
affordable housing sector in poor
states
Milestones
Minimum of 2 HFCs
Refinancing of home loans by
NHB
£1m
Efficiency
(time
taken)
disbursements by NHB
Progress
6 HFCs for loan portfolios to low
income households in each of
the LIS. 3 of the HFCs started
operating post DFID
intervention.
£6.7m lent to NHB to refinance
2,208 loans for households
earning less than £4,000 p.a
of none for this review period
Key Points

This output has exceeded expectations, with the progress two indicators surpassing milestones. As
highlighted in the review meeting 3 HFCs were approved by NHB post DFID support.

Of the £40 million loan component of the programme, £15 million is a llocated to refinancing of
housing finance companies (HFCs) and MFIs. The originally loan terms stipulated that the
beneficiary households should (a) belong to the LIS (b) earn annual income less than £2,000 (c) be
engaged in the informal sector. Criteria (b) was subsequently revised to include households with
annual incomes of below £4,000 to keep this consistent with the Government of Indias Low Income
Housing scheme.
8

There has been a request both at the state and NHB level to review criteria ‘C’ on lending into the
informal sector. The argument is that even though salary slips are provided to people employed as
taxi drivers, or “class d” government employees, they are not currently the target segment for
mainstream banks and are therefore financially excluded. Field visits as part of the annual review
revealed however that it was informal workers in particular that face the biggest barriers in accessing
finance for affordable housing. Some of the housing finance companies we supported lend entirely to
informal workers, and had developed assurance systems around this.

2,208 to poor households in each of the LIS , originated by 6 HFCs, were refinanced through DFID
support as on September 2014. ESG assessments were carried out on all institutions.
DFID Refinance Portfolio by State in detail
State
Bihar
Chattisgarh
Jharkhand
Madhya Pradesh
Orissa
Rajasthan
Uttar Pradesh
West Bengal
Totals
Loan Portfolio in
INR mln
7.3
62.0
16.3
0.4
213.1
4.9
314.0
29.2
647.3
% of Total
1.1%
9.6%
2.5%
0.1%
32.9%
0.8%
48.5%
4.5%
100.0%
No of
Households
47
74
3
536
7
1257
54
230
2208
% of Total
2.1%
3.4%
0.1%
24.3%
0.3%
56.9%
2.4%
10.4%
100.0%
DFID Refinance Portfolio by Institution Refinanced
Name of HFC
AU Housing Finance
Gruh Finance Limited
HDFC Limited
India Shelter Finance Corporation
Mahindra Rural Housing Finance
Micro Housing Finance Corporation
TOTAL
Loan Portfolio
in INR mln
39.7
163.2
201.8
135.2
131.3
8.5
679.8
% of Total
5.8%
24.0%
29.7%
19.9%
19.3%
1.3%
100.0%
No of
Borrowers
71
146
533
528
879
51
% of Total
3.2%
6.6%
24.1%
23.9%
39.8%
2.3%
100.0%
2,208

Sensitization programmes: have been organized for HFCs to inform them about the refinancing
programmes that DFID and the World Bank support. The first of these was organized in Bangalore in
May 2014, and the second will be held in Mumbai in October 2014. These workshops are intended to
increase awareness among the HFCs about the availability of concessional credit from the NHB
through the DFID programme especially in the low income states.

Workshops have also been conducted in states to link HFCs with state government programmes
example Rajasthan and MP.
Summary of responses to issues raised in previous annual reviews (where relevant)
Not applicable
Recommendations

Particular emphasis must be laid on the new-generation HFCs (set up in the last 4-5 years,
professionally run with relatively small portfolios). DFID should support workshops for HFCs to
9

increasing awareness about the affordable housing programmes and availability of concessional
DFID credit from the NHB.
DFID should provide TA support to the NHB to help them review and simplify their processes to
encourage HFC loaning especially in the low income states.
Output Title
Improved policies, systems and capacities of key central and state based institutions
Output number per LF
3
Output Score
B
Risk:
Medium
Impact weighting (%):
20%
Risk revised since last AR?
n/a
Impact weighting % revised
since last AR?
n/a
Indicator(s)
Project
rating
norms
affordable housing
Milestones
for Setting up a committee to review
rating norms and implications of
compulsory rating of affordable
housing projects
Progress
Initial discussions carried out. As
HUPA was leading it was agreed
the project would support TA as
and when there was
requirement.
States with single window 1 state
Currently supporting Orissa
clearance operational
(Bhubaneshwer Dev Athourity)
and Madhya Pradesh to review
their regulatory frameworks
Reviewed state policies and
a) 2 states with a revised policy DFID TA has supported the
norms
on affordable housing
revision of the affordable
b) 2 states incentivising
housing policy of Odisha in 2013
registration of houses on
womens’ name or joint
ownership
Key Points

While significant progress has been made in establishing relations with state governments in four of
the eight LIS, this output has moderately met expectations. £5m of TA has been allocated to this
output.

There has been little progress on the first indicator though initial discussions were held with the
Housing and Urban poverty alleviation development

In 2013, DFID supported the government in Odisha in revising its affordable housing policy. This was
followed up in Sep 2014 with support in developing the regulatory framework for the Bhubaneshwar
Development Authority.

The government of Madhya Pradesh has requested a review of the regulatory framework and
support to look at the organisational structure of the housing board. The ToRs and scope of work are
currently being finalised.

In 2013, DFID supported the government in Rajasthan in the documentation and dissemination of its
Affordable Housing Policy of 2009. We have also facilitated cross-learning visits where the Rajasthan
experience could be shared with policymakers/town planners from the other LIS. We believe that
demonstrationg the modle and facilitating cross-learning between low income states to improve
policy environment and incentivise affordable housing market will be very important to ensure
upscaling of interventions.
10

DFID commissioned Meghraj Capital Advisors Pvt Limited to develop a TA needs assessment plan
to identify areas which DFID TA could support state governments and the NHB to build capacity. The
results of this study will be used to identify specific actions that will lead to improved policies,
systems and capacities. We will share this study with the World Bank (and KfW who are the other
donors in this space. We will agree a division of responsibility across the identified areas for TA and
take forward this work in partnership.
Summary of responses to issues raised in previous annual reviews (where relevant)
Not applicable
Recommendations


The government of Rajasthan is interested in DFID TA to further improve their affordable housing
policy, including support to help monitor results and to improve data on the scheme. We could
also consider how they can raise awareness of the affordable housing scheme with potential
home owners (currently they advertise in a newspaper, but this may not be the best way to target
beneficiaries.)
Field visits as part of the annual review helped us to identify additional ideas for TA to the NHB
that we will explore with Meghraj, for example, simplifying the process for HFCs to access the
interest subsidy on loans to poor borrowers, and improving transparency over the availability of
funding lines, and the process to apply for them to stimulate the HFC sector.
Output Title
Innovative pilots/approaches particularly for greentech, rental and incremental housing
for the poor established
Output Score
Output number per LF
4
A
Risk:
Low
Impact weighting (%):
20%
Risk revised since last AR?
n/a
Impact weighting % revised
since last AR?
n/a
Indicator(s)
Approaches piloted, evaluated
and widely disbursed
ESG screening score at (a)
Portfolio (b) Project level
Milestones
n/a for this review period
Progress
n/a
Average rating at 1
ESG assessments carried out on
22 enterprises
Key Points

This output has met expectations for the review year on both indicators.
Pilots

The MoU for the TA component was signed with the NHB in October 2013. Of the TA, £5m is
allocated towards identifying pilots/approaches in greentech, rental and incremental housing.
Through demonstrating the commercial feasibility of these pilots, we hope to increase the NHB’s
focus on these areas which we identified as having significant development benefits.

We invited bids from consultants / specialists in the field for the task of specifically identifying pilots to
implement in the suggested areas. IIEC and EDS who have a particular focus on the environmental
green technology side were selected for this consultancy. The contract will be issued shortly, and at
least two pilots are expected to be identified by December 2014.
ESG assessments
11

Our ESG framework helps to assure DFID and the NHB that the developers and HFCs we lend to
meet minimial environmental, social and governance standards, and make improvements in key
areas such as labour standards for construction workers.

NHB has procured an ESN specialist as part of the joint Project Implementation Unit of the NHB
(which will oversee implementation of projects of DFID, World Bank and KfW).

ESG assessments have been conducted on 15 developers and 8 HFCs, of which DFID has funded
8 developers and refinanced 6 HFCs as on September 2014. In all cases, a roadmap has been
identified to improve standards, and recommendations are discussed at the company level and the
portfolio level (with the NHB).

We are supporting the NHB to organize workshops for HFCs on the DFID and World Bank refinance
programmes, with a focus on ESG issues. The first workshop was held for south-based HFCs in
Bangalore in May 2014 and the second is scheduled in Mumbai in October 2014.
Summary of responses to issues raised in previous annual reviews (where relevant)
Not applicable
Recommendations
ESG assessments


Currently the ESG process is conducted by third party agencies. Over the next 6-12 months the NHB
should develop sufficient in-house capacity to conduct these assessments themselves and integrate
it into their lending criteria.
To ensure maximum value from the ESG, DFID will encourage NHB to share the ESG reports with
the companies assessed. We will also suggest monitoring arrangements to encourage companies to
take action on the identified areas for improvement.
D: VALUE FOR MONEY & FINANCIAL PERFORMANCE (1 page)
Key cost drivers and performance
Since the programme is being implemented by the NHB, there is no direct management cost charged to
DFID.
DFID’s loan to, and repayments from, the NHB are denominated in £ sterling, and the NHB enters into
currency hedging operations to ensure that its repayments to DFID are unaffected by currency
fluctuations. The cost of this hedge is passed on to the NHB’s borrowers, to whom the NHB lends in
rupees.
Macroeconomic conditions at the time of each disbursement can therefore have implications on the VfM
on the programme. Other things being equal, a weakening of the INR against £ will usually result in (a)
more rupee lending by NHB for the same £ amount lent by DFID, and (b) a higher borrowing rate for
NHB’s borrowers when the cost of hedging is high due to macroeconomic volatility.
The NHB has also co-financed the programme with DFID, thereby increasing the magnitude of the
leverage that has been achieved.
As stated in the business case, NHB takes the credit risk on individual projects or HFCs funded. Given
the NHB’s AAA rating and the size of its balance sheet (DFID’s loan is <1% of the NHB balance sheet),
the risk of non-payment by NHB remains highly unlikely. The annual reports and audited financial
statements of the NHB are available at http://www.nhb.org.in/Publications/AReport.php
VfM performance compared to the original VfM proposition in the business case
12
The business case identified the following measures through which VfM could be assessed.


Cost of housing units constructed in the low income states (input level) –
Number of housing units constructed by developers in the low income states (input level measure to
demonstrate scale and sustainability)
6,488 housing units constructed against milestone target of 5,000 in Year 1. All housing units fall
under the affordability criteria set by the Govt. of India for Economically Weaker Section (EWS) and
Low Income Group (LIG) households

Number of direct and indirect jobs created per project (Outcome level)
Total of 5,762 (including 2,680 direct and 3,082 indirect) jobs created in the 8 projects supported,
against milestone target of 10,000 jobs in Year 1. The milestone was based on an assumed project
size of 500 houses per project. In Rajasthan, a state with an established affordable housing policy
and private sector participation, the average was closer to 800. As the programme funds projects in
newer geographies like Odisha and Madhya Pradesh, the average project size is likely to reduce,
and the job targets achieved.

Amount of additional capital leveraged from other commercial sources
We think that the assumption of 1-3 on leverage above holds true when looking at the supply side–
DFID’s investment has leveraged additional capital to finance the construction of affordable homes.
DFID has funded one third of the 6488 houses built, with the developer paying 30-40% of the project
cost and raising 30% from the market. Therefore, in the 1st year of this project DFID leveraged £27
million additional capital against the target of £50 million by March 2015.

Benefit cost ratio (BCR) – it is too early in the programme (less than 50% of loan disbursed, and
100% of project finance in a single state) to comment on the BCR.

Cost of TA including of pilots
It is too early in the programme to comment on this measure. We expect to identify suitable pilots by
Dec 2014, and will be able to address this in the next annual review.
The business case mentions that the following principles of engagement would be adopted to ensure
results and VfM.

partnerships with institutions committed to quantifying attributable results, systematically assessing,
and reducing over time, cost-benefit ratios; - logframe incorporates quantitative measures under
outputs 1 and 2 (eg. no of housing units built, institutions supported etc)

use of competitive processes and/or benchmarking to ensure value for money; - all procurement
under the project is done competitive proceses which evaluate technical and financial criteria of the
bids

use of performance against results (and input costs) as an important criterion, to be reviewed
annually, for continued support; - the logframe and quantitative indicators have been shared with the
NHB and these are reviewed periodically at the meetings of the Project Management Unit

avoid duplication and ensure complementarities with existing donor and government funded
programmes – a Project Implementation Unit (PIU) has been set up within the NHB and is
responsible for overseeing the delivery of the donor projects (DFID, World Bank and KfW). We have
actively sought inputs from donors and NHB to avoid duplications along complementary areas of the
programmes – eg. the ESG resource to be recruited by the NHB will be responsible for ESG delivery
of both DFID and WB projects. Efforts are underway to avoid overlap in the delivery of TA
programmes of donors.
13

a combination of financial and development returns will be sought from every investment. The
financial returns will be set by NHB based on their risk assessment and requirement for minimum
returns from each investment. The development returns will be monitored for each investment and
cumulatively add up to the results projected for the programme – development returns are monitored
for every project that is financed through DFID funds.
Recommendations
 The volume of NHB’s project financing over recent years has been low, which can be attributed to
lack of adequate human resources, stringent project finance guidelines, and fairly long approval
processes. We will explore offering technical assistance to strengthen the Project Finance wing to
help them cater to the growing demand for project financing requirements.
Assessment of whether the programme continues to represent value for money
Yes, given the available evidence and progress made to date, we feel that the project represents good
value for money.
Quality of financial management
As the main financial component of the partnership is returnable capital the disbursements are made
against the approved investments that meet the DFID criteria. An agreed amonatization schedule which
includes repayment schedule is a part of the agreed loan documentation.
NHB follows banking procedures to assess the financial viability of the projects and independent board
takes all investment deicisions. A due diligence assessment of the NHB by PWC (Quest: 4678014)
observed that “there is existence of strong internal controls reviewed by professional internal and
statutory auditors “. The PWC report also provided further comfort on on the robustness of NHB’s
financial management system
DFID is represented in and has a veto over the investment decisions as a part of the Project
Management Committee (PMC) of the programme, which approves loans as per the investment policy of
the partnership. As per the financial sector regulations the Annual Audit reports are published and
shared with DFID. We have reviewed these reports and remain satisfied with the financial stability,
internal controls and the financial management systems at the NHB
On technical assistance DFID standard systems and compatative procedures VfM are being followed.
The total project spend to date is £14m – in line with targets
Date of last narrative financial report
Date of last audited annual statement
30th June 2014
30th June 2014
E: RISK (½ page)
Overall risk rating: Medium
Overview of programme risk
The programme risk continues to remain at Medium; the key risks identified in the business case persist
and mitigating measures have been implemented. Although there have been changes – government. of
India, government. of Rajasthan, leadership team at NHB – all stakeholders have reaffirmed their
commitment to the affordable housing sector and we do not expect the risk profile to change as a result
of these changes.
Review of key risks identified in the BC that affect the successful delivery of expected results
14
1. Limited capacity of NHB in areas such as private sector project financing and social risk
management processes : strengthening of the project financing team (currently a 3 member team in
Delhi) of NHB has been identified as a key priority for the programme.
2. Capacities of the state government to take forward reforms: partnerships and willingness of state
governments in LIS is critical to the delivery of expected results, especially for project financing, as
NHB will lend only where there is a state guarantee. We are supporting state governments’ capacity
building through support on affordable housing policy review, documentation and dissemination and
cross-learning workshops and visits.
3. Reluctance of developers to operate in low income states: this continues to remain a risk as state
governments need to provide sufficient incentives for developers to enter into this segment of the
market. States like Rajasthan have models that can be replicated elsewhere in the LIS through DFID
TA support.
4. Unfair working norms and conditions for construction workers: criteria of selection of developers to
include adherence to, and compliance with labour laws, etc which are included in the ESG
assessment process. ESG compliance is a minimum and necessary condition to avail funding
through the programme.
5. Inability of the target income group to purchase the houses due to limited access to finances: lack of
access to affordable loans will mean that poor households will be unable to purchase houses which
are priced within their range. DFID is working with NHB to incentivize HFCs to commence/expand
operations to benefit poor households in LIS.
6. Low-cost houses allocated to households who maybe financially better off than target groups: it
remains a risk that despite the checks put in place by the authorities, some households may underreport their income to qualify for low-cost homes. Demanding formal income documentation from
these households can be difficult given that most of them are employed in the informal sector. In
Rajasthan, this risk is mitigated through the involvement of NGOs/ civil society organizations which
are tasked with identifying and screening of beneficiaries in a neutral and transparent manner.
Risks under the ACCF framework have been assessed and the mitigation measures are being
implemented.
Outstanding actions from risk assessment None
15
F: COMMERCIAL CONSIDERATIONS (½ page)
Delivery against planned timeframe
The project is progressing as per approved timescales, with spend targets being achieved and key
quantitative outcome indicators on project financing (Output 1) and refinancing of HFCs (Output 2) being
exceeded.
On Output 3, pertaining to capacity building of / and partnerships with state governments, there has been
steady progress on establishing relationships with 4 state governments (Rajasthan, Odisha, Bihar and
Madhya Pradesh), and this is expected to result in definite outcomes/policy measures over the next 1218 months. The marginal delay in delivery of results against milestones – as a result of time lost due to
portfolio changes, and national elections and state elections in some states during 2014-15 - will not
have any outcome on the cost of the programme and will not require any remedial action.
Performance of partnership (s)
The partnership with the NHB has strengthened during the period, with regular communication between
DFID and NHB. NHB is a willing and enthusiastic partner, and remain aligned to the objectives of DFID
and the programme.
The contractual agreements are working smoothly, and DFID is represented in (and has a veto over the
investment decisions of) the Project Management Committee (PMC) of the programme, which approves
loans as per the investment policy of the partnership.
Asset monitoring and control
As this is a line of credit to the NHB there are no physical assets created under the programme. DFID’s
loan to NHB is hypothecated on the book debts/financial assets of the NHB.
16
G: CONDITIONALITY (½ page)
Update on partnership principles (if relevant)
There were no conditionality attached to this programme. DFID has ensured adherence to the four
principles to support poverty reduction and the MDGs, human rights and international obligations, public
financial management, good governance and transparency, and domestic accountability to all
development partnerships where possible.
H: MONITORING & EVALUATION (½ page)
Evidence and evaluation
Baseline Evaluation
In April 2014, the beneficiary households of Rajasthan’s affordable housing scheme had been allotted
their new houses and were expected to move in shortly. These included many of the 6,488 houses that
were financed through DFID funding.
Since these households were currently living in shared / slum accommodation and were likely to have
moved into their new houses by the time of the evaluation, DFID commissioned a survey to establish a
baseline for a sample of 992 of these households. The results of this survey will feed into the larger
evaluation of the programme.The final report was received in July 2014.
Summary and Key Findings from Baseline Evaluation

The 992 households surveyed were located in 9 different areas in Jaipur.

30 percent of the head of the households worked as petty traders while 19 percent are associated
with office work for private or government agencies. Around 20 percent of all households belong to
EWS category (Economically Weaker Section), whereas around 53 percent of them can be classified
as LIC (Low Income Group)

Based on household level asset ownership an asset index has been calculated. 39 percent of
households can be classified as low asset ownership households while 58 percent belong to the
medium asset ownership category.

Majority of the families (48 percent) have been living in their current residence for over 10 years or
more. Around 58 percent of residents were found to be living in self-owned households. Of the
remaining residents, 35 percent lived in rented houses. Rest either lived in tented dwellings or had
houses build on encroached/illegal land. Of the households that paid rent more than 50 percent paid
between 1000-3000 INR.
Progress on Evaluation
The ToRs for the evaluation of the programme were issued in July and 8 bids have been received for the
PQQ stage. We expect to issue the contract to the evaluation agency in November 2014.
At this stage, it is too early to comment on Theory of Change and assumptions on programme design
and how this is working out in practice.
Monitoring progress throughout the review period
Project level indicators are collected by the NHB as part of its regular credit underwriting process, and
through data collected during ESG assessments of beneficiaries. Programme monitoring takes place
regularly through field visits and regular interactions with the Project Management Unit at the NHB, as
well as the beneficiaries (HFCs and developers).
The NHB also provides financial information as part of the information covenants of the loan agreement.
It was too early to speak to beneficiaries who were now occupying DFID supported affordable houses.
However, in addition to meeting with developers and HFCs, we met with a small number of beneficiaries
in Rajasthan as part of the annual review. Three key challenges were identified from these interviews:
the need to raise awareness about the opportunities available under the affordable housing scheme; the
difficulties informal workers face in accessing finance; and that the 1% discount on stamp duty if the
house is registered under the woman’s name was nominal, and not a sufficient incentive to do so. We
will seek to speak to a greater number of beneficiaries as part of the annual review next year, as more
people start to live in the new affordable homes.