Housing Microfinance NHB's Initiative

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    Housing Microfinance:NHBs Initiatives

    P.R.JaishankarAssistant General Manager

    National Housing Bank

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    PRESENTATION STRUCTURE

    Housing: An Agent for Financial Inclusion

    Housing and Housing Finance

    Housing Micro Finance: Role of NHB

    Housing Micro Finance: NHBs Experience

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    HOUSING: AN AGENT FOR FINANCIAL INCLUSION

    Housing has direct impact on employment andincome generation - An engine for Equitable andBalanced Economic Growth.

    Impact in terms of Improved habitat, Living,Educational, Social and Cultural standards leading toHuman Capital Formation and thereby the futureIncome capabilities

    Improved productivity leads to enhanced Income,

    Savings and Repayment potential on sustainable lines Sustainable Human Settlement: An Effective tool

    towards Financial Inclusion with FinancialStability and Social Inclusion

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    HOUSING DEMOGRAPHICS

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    HOUSING SHORTAGE

    Housing Shortage estimate at the end of the 10thPlan:

    24.7 million for 67.4 million households

    Expected to increase to 26.53 million units for 75.01million households by end of 11th Plan period

    99% of the shortage exists in EWS / LIG segments

    Pressure on Urban Services due to Migrating populace.

    Still vast non-formal segments remain un-served.

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    HOUSING & FUND REQUIREMENT 2007-12

    Particulars Housing Requirements (2007-12)

    (in million units)

    Funds Requirements (2007-12)

    (in 000 crores)

    R U T R U T

    Additional Houses 32 16 48 344 645 989

    Of which

    EWS including BPL, MAPL 14 7 22 36 74 110

    Upgradation of Existing Pucca/

    Semi Pucca/ Katcha Houses

    23 9 32 35 24 59

    Total (Additional Houses +

    Upgradation / Repairs etc.)

    55 25 80 379 669 1048

    48 million additional houses are required during Eleventh Plan Period2007-12;

    There is need for diverse sources of finance and diverse financialinstruments

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    Institutional Finance Emphasis on loans above Rs.5 lakhs

    Source: BSR, RBI & T&P, NHB Reports

    CAGR No. of Accounts - 12.3%CAGR O/s Housing Loan - 28%

    Housing Finance Market is

    Value Driven rather then Volume Driven

    Increased emphasis on loan categories

    above Rs. 5 Lakhs Trend Continuing

    Increased emphasis in lending

    in Metropolitan areas

    Rural Housing Finance stagnant at 10%

    (Source: BSR Reports, RBI)

    Need to develop New Financial Architecture

    forAffordable Housing

    CAGR on Housing Loans of SCBs for 2000-06

    2

    .49

    40.

    4

    81.

    56

    103.

    6

    14.

    33

    42.

    38

    81.

    6

    102.9

    6

    13.

    2

    41.

    44

    81.

    93

    105.3

    3

    -10

    .09

    -6.

    15

    -6.

    19

    -20

    0

    20

    40

    60

    80

    100

    120

    140

    upto 0.25 L >0.25 L to 2 L > 2 L to 5 L > 5 L to 10 L > 10 L to 25 L

    Loan slabs (Rs. in Lakhs)

    CAGR(%)

    Accounts Credit Limit Outstanding Loan

    CAGR on Housing Loans of HFCs (2002-06)

    -1.

    22

    6

    52

    -10

    0

    10

    20

    30

    40

    50

    60

    upto 1 L >1 L to 3 L > 3 L to 5 L > 5 L to 10 L > 10 L

    Loan Slabs (Rs. in Lakhs)

    CAGR(%)

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    AFFORDABLE HOUSING

    Housing is the combined matrix of following elements:

    Land Supply and Management; Land Use Optimization;

    Infrastructure On-site and Off-site;

    Building Technology, Materials and Labour;

    Finance; Equity/Capital and Borrowing

    Liquidity

    Profit Component;

    Affordability:

    A Relative Term Depends on Income/Capacity to afford the above elements.

    Target Segment Affordability (Deepak Parekh Report):

    Price: 4 times Gross Annual Household Income, AND

    Carpet Area: upto 600 sft, AND

    Rent: Upto 30% of Monthly Household Income8

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    MICROFINANCE: TOOL FOR POVERTY ALLEVIATION

    Emergence of Microfinance to enable institutional creditflow to the poor and replace informal credit sources

    Microfinance: "Theprovision of thrift, credit and otherfinancial services and products of very small amounts to the

    poor in rural, semi-urban and urban areas for enabling themto raise their income levels and improve their livingstandards

    Enhance the poor households to

    Increase income

    Building assets

    Empowerment

    Active partners in development process

    Reduce their vulnerability in times of economic stress

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    Microfinance Sector

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    Client Base: 22.6 million (2009) 13.2 million Rural; 9.4 million Urban YoY Growth 60%

    Total Outstanding Microfinance Loans: Rs.35,939 crore (09) Loan Portfolio of MFIs: Rs.11,730 crore (09)

    At current levels Microfinance constitutes 1.29% of Gross BankCredit of Scheduled Commercial Banks Average Loan Size: Rs.5400/- (4200/- in 2008)

    38% of clients with average loan size over Rs.10,000/- Constitution:

    Non Banking Finance Companies

    Not for Profit MFIs (Sec 25 Co.s, Public Trusts, Societies) Mutually Aided Cooperative Societies

    Market Shares: 34 NBFCs 76% of overall MF Portfolio; 133Societies -10%

    Penetration: Greater in Southern Region 54% of Clients ; 58% of loans

    Source: Micorofinance India: State of Sector Report 2009

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    MICRO FINANCE INSTITUTIONS:EFFECTIVE DELIVERY CHANNELS

    Timely and adequate credit and other financialservices to the poor at their doorstep - an edge

    Credit histories of the poor borrowers

    Good systems and procedures for giving andcollecting loans. Most of the MFIs have maintained recovery rates

    in excess of 95%. Very few MFIs have ventured into providing

    housing loans to the poor.

    Need to tap the potential of MFIs which canprovide housing loans to the poor.

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    NHBs STRATEGY FOR FINANCIAL INCLUSION

    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: NHBs ROLE

    Focus Un-served and Under-served 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 InstitutionsFinance, Co-finance,Capacity building,Portfolio Securitization,Equity support to Rural HFCs

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    NHBs HMF KEY FEATURES

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    Amount of

    Loan

    Generally 2 to 7 times larger than average micro-credit loans

    Loan Term 2 - 5 years for improvement and up to 10 years for fresh

    construction

    DeliveryChannel

    Framework

    Housing Micro Finance Institutions Non Government Organizations

    Societies registered underSocieties Registration Act, 1860 Section 25 Companies

    Any other institution approved by Govt. / RBI forpurposes

    of undertaking microfinance

    Security /Collateral

    Hypothecation of Book debts Agreement to mortgage

    Groupguarantee of SHGs

    Otherforms of security like FDRs, etc.

    Wherevertitle deeds are available, they are mortgaged.

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    Selection of

    borrowers

    Poor people (in Urban and Rural areas) with means of

    repayment like artisans, craftsmen and people in the

    informal sector. Should have completed atleast 3 loan

    cycles successfully with MFI.

    Co-Financing

    MFIs

    A productive loan may also be extended by MFIs (as co-

    finance) to enhance repayment capacity.

    OtherSalient

    Terms

    MFI Borrowers to on-lend to SHGs.

    Trackrecord forwith MFI borrower.

    Members of SHGs to have successfully completed atleast

    three loan cycles.

    HMF KEY FEATURES

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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 GuaranteeMitigants:

    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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    NHBSIGNIFICANCE OF HMF

    Creation of Assets

    Enhanced Social Security

    Increased Productivity

    Increased Bargaining Capacity

    Increased Volume of Business

    Saving in Recurring Expenses

    Providing Sustainable Employment

    Women Empowerment

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    NHBs INITIATIVE

    NHB has experience in HMF on pan India basis.

    Leading Micro Finance institutions across the countryare 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 toimprove 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 ofsanitation facilities.

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    NHBs Partnership with UN Habitat

    NHB and UN Habitat have signed Agreement ofCooperation for collaborating in the field of waterand sanitation in India.

    Delivery of credit to targeted segments at relativelylow interest rates for water and sanitation facilities isenvisaged through the Micro Finance Institutions andUrban local Bodies.

    Typical HMF loan under this programme to have twoparts

    Housing loan for construction / repairs /upgradation / incremental housing (at competitiverates) - with NHB funds

    Loan for water and sanitation facilities (atsubsidized rates) - with UN Habitat support

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    (Rs. in Crore) Sanctions Disbursements Houses

    Rural 33.55 17.80 6289

    Urban 48.12 11.88 9318

    Total 81.67 29.68 15607

    20

    5.25

    3028.3

    2.6 2.49

    20.41

    0

    10

    20

    30

    40

    2006-07 2007-08 2008-09

    NHBs FINANCIAL ASSISTANCE TO HMF

    Madurai, TN

    Mumbai, Maha

    Warangal, AP

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    NHBs HMF STATE-WISE

    S.No State Sanction Disbursements Houses

    1 Andhra Pradesh 24.55 8.07 2801

    2 Assam 0.30 100

    3 Gujarat 10.00 0.30 1300

    4 Karnataka 14.00 10.89 2475

    5 Maharashtra 5.82 3.16 147

    6 Orissa 7.00 4.50 1085

    7 Tamil Nadu 19.00 2.26 7576

    8 Kerala 1.00 223

    Total 81.67 29.68 15607

    (Rs. in Crore)

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    SHG housing at Tirupati, Andhra Pradesh

    A house before sanction of NHB loan

    A house after construction aided by

    NHB loan

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    NHBSlum Rehabilitation Project, Mumbai

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    NHBTamil Nadu

    A house constructed in Madurai A house constructed in Sivaganga

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    Tamil Nadu

    House in Pudukottai House in Sivaganga

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    NHBAndhra Pradesh

    House constructed in Warangal (AP) House Constructed in Hanamkonda (AP)

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    A Few Toilet Designs

    Toilet designs under implementation by one of the

    MFI partners of NHB27

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    HOUSING (MICRO)FINANCE: IN SUM

    Vast untapped market Urban and Rural Market based inclusive finance feasible, and Requires range of:

    Customized financing products, Risk mitigants, Securitization Viability gap funding (in certain segments), Specialized Delivery systems,

    Dedicated Financial intermediaries, Capacity building

    An entirely Specialized financial architecture forHousing Microfinance

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    NHBs MARKET DEVELOPMENT ENDEAVOURS TOWARDSCREATION OF APPROPRIATE FINANCIAL ARCHITECTURE

    Risk MitigationMortgage Credit Guarantee

    Title IndemnityCredit Guarantee Fund

    Securitization: Creation of Secondary Mortgage MarketLiquidity and Credit Enhancement

    Other MeasuresCapacity building Training, Research and Development

    A Specialized HMF Corporation

    Equity Support

    Facilitating Regulations

    THE WAY FORWARD

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    Thank You

    Visit us at : www.nhb.org.in

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