Experience with Low Income
Housing – Pro Poor Housing
Finance Initiatives
Workshop on Housing Finance, Mongolia
June 28, 2011
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Housing: Tool for Social & Financial Inclusion
 Housing not only serves as a place of shelter but a platform
through which a plethora of essential utilities and services
could be accessed.
 Housing has a direct impact on an individual’s employment
and income generating capabilities.
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Impact is in terms of improved habitat, living, educational,
social and cultural standards leading to human capital
formation and boosting productivity.
•
Improved productivity leads to enhanced income, saving and
repayment potentials on sustainable lines.
Housing Deficiency – Recent Trends
Estimated
2007-12
Housing
Urban Areas
Shortage
during
26.53 million units
(24.71 million units in
beginning of 2007)
Rural Areas
Total (All India)
47.43 million units
73.96 million units
In Urban Areas, more than 99% of the total
housing shortage i.e. 24.71 million units
(beginning of 2007) pertains to EWS/LIG
households. (As per MH&UPA, GOI)
 In Rural Areas, more than 90% of the total
housing shortage i.e. 47.43 million units pertain
to BPL Households. (As per Working Group
Report on Rural Housing, MORD, GOI)
Average Per
during 2007-12
annum Funds Requirements
= INR 1,20,00 crores
 Buoyant growth of India’s housing finance sector (CAGR of 21%
during 2003-11) has not been inclusive from the perspective of the
poor/weaker sections.
 Poor/slum dwellers lack access to institutional sources of finance.
Depend on informal sources which are inadequate and expensive.
 Growing population and increasing urbanization trends have
exacerbated pressure on available land resources and demand for
housing.
 Need to develop a new financial structure as also Policy and
Regulatory Framework for the provision of Affordable Housing
3 on sustainable lines to the poor/EWS.
Housing Finance Market
Financial
Market
NHB
HFCs
Fiscal and
Credit
Policy
Support
Affordability
Banks
MFIs
Capital
Market
Financial Sector
Real Sector
Informal
Sector
Housing
Market
Public
Agencies
Private
Developers
Land
&
Construction
Infrastructure
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Banks and HFCs – Performance Indicators
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Housing Finance Companies
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Outstanding housing loans of HFCs at the end of March, 2010, registering a growth of 20.79
per cent year-on-year.

Rural lending has increased from 13.87% during 2007-08 to 16.25% during 2009-10.

Housing loans above INR 1 million accounted for 76.66 per cent of the total housing loans
disbursed during 2009-10.

Scheduled Commercial Banks

Outstanding housing loans of Scheduled Commercial Banks growing at approximately 20
per cent on a year-on-year basis.

As at end of March, 2009, a majority of bank lending towards housing (around 67 per cent
in terms of number of a/c’s) was in the credit category of Rs. 25,000 to Rs. 5 lakhs.

Share of bank lending towards housing in rural areas has come down from 10.27 per cent in
March 2005 to 7.13 per cent in March 2009.
Issues in Low Income Housing
 Rapid growth in housing sector has by-passed Low-
Income Households
 Demand Identification
 Risk Perception
 Price Rise, Interest Rates – Impact on Low Income
Households
 Market/Subsidy based Approach
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Issues in Low Income Financing
 Cannot contract debts on terms of the financial market
 Unstable income and cash flows
 High risk & high cost-to-service customers
 Need for long-term and low cost funds
 Role of Government & Financing Institutions in Market
Environment
 Role of NGOs/MFIs as Intermediaries
 Role of Multi lateral Institutions
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Affordability Concerns
 Real Sector Issues
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Land supply
Cost of land
Infrastructure provision
Construction & Delivery
Construction agencies including Public Agencies
 Financial Sector Issues
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Trends in financial market
Supply of funds
Cost of funds
Project finance
Individual loans – eligibility
Lending institutions and role of NGOs/MFIs
Issues in Pro-Poor Housing Finance
 Supply-side
constraints: Inadequate supply of
dwelling units under EWS/LIG schemes of the
Government. Virtually no supply/initiatives from
private developers.
 Affordability gap: There is a significant gap between
borrower repayment capacity vis-à-vis the price of the
dwelling unit.
 Limited access of the poor to sources of institutional
funding.
 Apprehension
of loan delinquency have made
institutional lenders wary of lending to the
poor/weaker sections.
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Government Initiatives
 Initial adoption of a two-pronged approach to pro-poor housing development
comprising of (i) sites and services program and (ii) permanent housing
program.
 Under sites and services program, basic infrastructure facilities like drinking
water, internal roads, drainage, etc. were provided to develop layouts and also
help the beneficiaries by providing construction assistance for building shelters.
 Provision of housing and housing finance at subsidized interest rate.
 Special schemes for the EWS/LIG segments introduced in each of the five year
plans.
 National Housing and Habitat Policy 2007 focus on EWS/LIG segments.
 Emphasis on Public Private Partnership focusing on housing for poor/EWS.
 Policies and Task forces for Affordable Housing.
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Policies & Measures
 National Urban Housing & Habitat Policy (NUHHP), 2007
 Implemented by Ministry of Housing and Urban Poverty
Alleviation, it is focused on resolving habitat related issues
through a regional planning approach.
 “Affordable Housing for All” on Sustainable lines.
 Facilitating accessibility of land for housing to Poor/EWS/LIG
through earmarking and subsidization.
 Encouraging
larger flow of funds for
poor/EWS/LIG through fiscal concessions.
housing
to
 Encourage formulation and implementation of UHHPs by the
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States focusing on poor/EWS/LIG housing and encourage
appropriate amendments in State/Municipal laws.
Policies & Measures
 Bharat Nirman Programme
 5 lakh houses to be built in rural areas per year.
 Rural infrastructure to be developed.
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Indira Awas Yojana
Cash subsidy scheme for rural BPL families.
Funding by Centre and State in the ratio of 75:25.
•
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Jawaharlal Nehru National Urban Renewal Mission (JNNURM)
Integrated housing and slum development programme.
Basic Services to the urban poor.
•
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Two Million Housing Programme
Finance for 20 lakh additional houses.
13 lakh units to be financed in rural areas and 7 lakh in urban areas per year.
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Rajiv Awas Yojana
Slum eradication program involving accordance of title rights to slum dwellers.
Centre initiative with support from states.
•
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Interest Subsidy Scheme for housing the Urban Poor
The Scheme provides for interest subsidy of five per cent per annum on the loan amount for
the economically weaker section and lower income group in the urban areas for
acquisition/construction of houses
Focus on Affordable Housing
 Realizing the magnitude of housing shortage and the importance of housing
in stimulating economic growth, the Govt. and RBI are directing their focus
towards affordable housing and financial inclusion aimed at the EWS/LIG
segments.
 National Urban Housing and Habitat Policy was announced in the year 2007
with the initial corpus from the Government, to serve the underserved
segments.
 Launch of the Affordable Housing in Partnership Scheme under the
Jawaharlal Nehru National Urban Renewal Mission.
 To strengthen the recovery mechanism, the SARFAESI Act, 2002 was enacted
and Housing Finance Institutions included in the eligible list of institutions.
 Foreign Direct Investments (FDIs) allowed up to 100 percent under the
automatic route in townships, built-up infrastructure and construction
development projects to catalyze investment in a vital infrastructural sector of
the economy.
 Launch of the Interest Subsidy Scheme for Housing the Urban Poor (ISHUP)
by the Government of India for the EWS and LIG segments.
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Affordable Housing
 Affordable housing is a combination of the following three elements;
 Affordable Land and infrastructure
 Affordable building design, technology, materials and labour etc.
 Affordable housing finance
 “Affordability”
 A relative term
 Depends on an individual’s income/capacity to ‘afford’ the above
elements
 In India, however, the term ‘affordable housing’ is often confused
with low income housing, which is a different concept. ‘Affordable
Housing’ does not necessarily translate into poor/low quality
housing.
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Affordable Housing
 The NUHHP, 2007 does not define “affordability” with respect to
housing. The Government had set up a task force to look into various
aspects of affordable housing.
 According to the Report of the Task Force, affordability may be
defined as follows:
Parameter
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EWS/LIG
MIG
Size
300 – 600 sq ft carpet
area
Not exceeding 1,200 sq
ft carpet area
Cost
Not exceeding 4 times
household gross annual
income
Not exceeding 5 times
household gross annual
income
EMI/Rent
Not exceeding 30% of
gross monthly income
Not exceeding 40% of
gross monthly income
Recommendations of Task Force
 Affordable land
 Simplification of land approval procedures for development and
conversion.
 All Land related information to be put in the public domain.
 Affordable Technology
 Need to encourage the innovation and implementation of cost
effective housing materials/technology through subsidy/incentives.
 The concept of core housing needs to be considered in smaller towns
as it is cost-effective.
 Affordable Housing Finance
 Allocation of additional budgetary resources.
 Incentivizing investment flows into the housing sector.
 Need for creating a resource pool.
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Challenges & Key Issues
 Developing innovative financial instruments for increasing supply of
affordable housing finance to Economically Weaker Sections (EWS)
and Low Income Groups (LIG).
 Examining the framework of Regional
Planning and Master
Planning with a view to enhance the supply of developed land and
recommend legislative measures for accelerating the supply of
housing units to the urban poor.
 Formulation of measures for the promotion of low cost building
technologies and materials for bringing down housing costs.
 Formulation of policies for increasing the supply of rental housing
stock.
 Need for an integrated strategy for in-situ slum up-gradation for
improving the quality of habitat with the provision of income
generating options.
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ROLE OF NHB
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Initiatives of NHB
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100% refinance support to scheduled commercial banks, HFCs and
co-operative sector institutions.
Launch of special scheme for the poor such as the Refinance
Scheme for Top-Up Loan to beneficiaries under Indira Awas
Yojana.
Launch of Productive Housing in Rural Areas (PHIRA).
Announcement of equity support guidelines for setting up HFCs
catering to the LIG/EWS segments.
Project finance assistance to public agencies, public-private
partnerships joint ventures, NGOs, MFIs etc.
Special Funds & Schemes – Slum Improvement, Rural Housing
Fund, Golden Jubilee Rural Housing Finance Scheme
Flow of Funds into the Construction Industry (Affordable
Housing): The scheme proposes the Refinance of Construction
(project) Finance for Affordable Housing to the Primary Lending
Institutions (PLIs) with special focus on Tier II and Tier III cities
through various intermediaries.
Catalyze market based institutional finance for the low and
moderate income households.
NHB’s Strategy for Financial Inclusion
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CUSTOMIZED FINANCIAL PRODUCT INTERVENTION:
RURAL HOUSING:
Supplementing Government Schemes
Productive Housing in Rural Areas
Financing SHGs - Partnership Approach - NGOs/MFIs/Sec.25
Rural Housing Development Fund
 URBAN HOUSING:
◊ Supplementing Govt. Schemes e.g. JNNURM
◊ Financing SHGs – Partnership Approach - NGOs/MFIs/Sec.25
◊ Slum Redevelopment and Up-gradation
◊ Integrated Township Development Projects (PPP projects)
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Housing Microfinance : NHB’s ROLE
 Focus – Low and Moderate Income
 Housing Micro Finance (HMF)
 Integrated Habitat Approach
 Productive, Income Generating Housing
 Savings-induced Housing
 Incremental Housing
 Water and Sanitation,
 Women oriented
 Partnership approach –
MFIs, Community Based Institutions
Finance, Co-finance,
Capacity building,
Portfolio Securitization,
Equity support to Rural HFCs
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HMF: Risks and Mitigants
Risks:
 Affordability of Borrowers
 Viability of MFIs
 Limited access to medium and long term funds
 Insecure land tenure
 Requirement of high element of savings
 Difficulty in obtaining Group Guarantee
Mitigants:
• Proper selection of clients – Seasoned clients
• Flexible funding mechanisms
• Insistence on Standard Corporate Governance of MFIs
• Need for co-ordination between formal credit institutions to
mitigate geographical concentration risks
• Capacity building – Training, Research and Development
• Use of information technology & Micro insurance
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NHB’s Initiative
 NHB has experience in HMF on pan India basis.
 Leading Micro Finance institutions across the country are
partnering with NHB for rolling out HMF programmes for
their members.
 Financial support is provided on self sustainable lines.
 Composite loan products are being promoted to improve the
viability of the programme by helping in increasing income of
beneficiary.
 Separate Water and Sanitation component in the housing has
been included to improve penetration of sanitation facilities.
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NHB’s Partnership with UN Habitat
 NHB and UN Habitat have signed Agreement of
Cooperation for collaborating in the field of water and
sanitation in India.
 Delivery of credit to targeted segments at relatively low
interest rates for water and sanitation facilities is
envisaged through the Micro Finance Institutions and
Urban local Bodies.
 Typical HMF loan under this programme to have two
parts
 Housing
loan for construction / repairs /
upgradation / incremental housing (at competitive rates)
- with NHB funds
 Loan for water and sanitation facilities (at subsidized
rates) - with UN Habitat support
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NHB’s FINANCIAL ASSISTANCE TO HMF
(Rs. in Crore)
Disbursements
Houses
Rural
40.35
28.41
13337
Urban
52.37
12.93
10918
Total
92.72
41.34
24255
Madurai, TN
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Sanctions
Mumbai, Maha
Warangal, AP
Market Infrastructure
NHB’s MARKET DEVELOPMENT ENDEAVOURS TOWARDS
CREATION OF APPROPRIATE FINANCIAL ARCHITECTURE
Risk Mitigation
◊Mortgage Credit Guarantee
◊Title Indemnity
◊Credit Guarantee Fund
Securitization: Creation of Secondary Mortgage Market
◊Liquidity and Credit Enhancement
Other Measures
◊Capacity building – Training, Research and Development
◊A Specialized HMF Corporation
◊Equity Support
◊Facilitating Regulations
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NHB - Monitor Group Study on Low Income Urban
Housing
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Housing situation for lower income segment in urban India is
quite poor.
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Initial data from pilot projects reveals that it may be commercially
viable to build housing for a large number of households ~20
million households in the Rs 5,000-Rs 11,000 household income
range.
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The pilot projects were aimed to showcase and test the new idea.
Until June 2009, three projects and close to 5,000 units have been
launched in Ahmedabad and Mumbai. The units were priced
between Rs 3 lakh and 8 lakh in sizes ranging from 231 square feet
carpet area to ~ 400 sq ft carpet area. All three projects launched
were very well received.
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The successful pilots have also spurred the interest of players from
outside the real estate industry including an entrepreneur with a
proven track record of running successful business ventures.
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As new players emerge in low income housing segment, the NHB
continues to play an important role in promoting market based
solution for the low income housing.
POLICIES & STRATEGIES FOR PROPOOR HOUSING
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For Governments
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Transparency in identification of beneficiaries under Govt.
sponsored Schemes.
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Land be provided by Govt. free of cost/at affordable rates .
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Complete waiver of stamp duties/registration charges on
plot/house/flats for EWS/LIG sections.
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Restriction on resale/transfer of Land/House/Flat allotted to
Poor/EWS for at least 10 years.
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Customized housing cum Saving linked/insurance linked/income
generating loan products be introduced.
For Institutions
 Regulators, Apex Housing Banks
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Setting up of a Risk Fund to cover housing loans to be given to
Poor/EWS
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Premium on such risk covers be borne by the Govt.
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National Shelter Fund be set up for providing lesser cost
refinances to FIs for such loans.
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Risk Weight on housing loans to poor/EWS should carry lesser
weight.
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The time limit for recognizing such loans as NPAs should be
increased.
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Fixing of sub-targets within the ceiling of priority sector lending
for poor/EWS.
For Institutions
 Public Agencies
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Public Agencies should be strengthened and encouraged to acquire
land and build houses/flats for Poor/EWS .
 Financial Institutions
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Income from housing loan financed to poor/EWS be exempt from
income tax and/or
FIs be allowed to tap funds from multinational agencies
Risk Mitigants be introduced to cover smaller loans without any
cost to FIs
For Institutions
 Public Private Partnerships/Builders
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Encouraging housing projects with “High Volume –Low Margin”
concept for poor/EWS.
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Conversion/Development charges or any other cess/charges
levied by Govt. be waived for such projects.
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Additional FSI equal to Poor/EWS housing projects be allowed in
other housing projects.
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No VAT/taxes on the building material used for Poor/EWS
housing projects.
THANK YOU
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