January 2010

Alok Prasad

27th January 2010, Delhi

Micro Housing Finance – Scaling up

Conference on Affordable Housing & Housing Finance

India: Microfinance and Housing

Housing MicrofinanceHousing Finance Microfinance

Outstanding mortgage loans - US $ 80 Billion**+ Annual originations of ~ US$ 24 Billion

Outstanding loans US $ 7.8 Billion Annual originations of ~ $2 Billion

No hard data. Est -less than 5% of total microfinance lending

• Housing Finance – Rapid growth over last two decades with CAGR of 25% +

• Microfinance – Explosive growth in last 5 years with CAGR of 60% +

• Housing Microfinance – Nascent & struggling

Source: Sa-dhan, Access, NHB ** Includes HFCs and Commercial Banks

India - Housing Finance Growth

Prime Lending

Institutions

FY 05 FY 06 FY 07 FY 08 FY 09 (Est)

Commercial Banks

11200 13022 15555 18178 20000

Housing Finance Companies

5777 6089 8911 10444 12222

Total 16978 19111 24467 28622 32222

Annual Growth (%)

42% 13% 28% 17% 13%

Growing Disbursals

Source: NHB, RBI

$ million

• Large & growing Industry

• Strong RBI / Government support

India - Microfinance Sector Growth

• Microfinance has witnessed dramatic growth - loan portfolio of MFIs + the SHG-Bank linkage model at US$ 7.8 Billion covering over 87 million borrowers. 

• Increased flow of commercial capital

• MFI’s evolving from NGOs to NBFC structures

• Evolving regulatory framework

Outstanding Portfolio*

FY 07 FY 08 FY 09 % Change 09

NABARD SHG’s

2756 3778 5200 38%

MFIs 768 1323 2608 97%

Total 3524 5101 7808 53%

Client Outreach (Million Households)*

FY 07 FY 08 FY 09 % Change 09

NABARD SHG’s

41 51 64 26%

MFIs 10 14 23 65%

Total 51 65 87 34%

In Million$ Million

Microfinance Growth

Microfinance Growth

Microfinance- The Sunrise Sector

Rapid growth but limited coverage

* Source- Sa-dhan 2009 Report

Microfinance & Housing Finance – Key Success Factors

What Poor Women

Want

Development of Ecosystem

Appropriate Products

Institutional Framework / Delivery

Mechanism

Low Cost Funding

Successful Business & Lending Models

Government & Regulatory

Support

Microfinance and Housing Finance - Ecosystem

Customer

MFI Network / SHGs Funders

Commercial Banks

Private Equity

Investors

Regulators

RBI

NABARD

Networks

Sa-dhan

Access

Microfinance

Credit

Infrastructure

Valuers

Lawyers

Credit Bureaus

Lenders

HFCs

Commercial Banks

Co-ops Institutions

Apex Body

NHB

(Promotional & Developmental role)

Housing Finance

Customer

Regulators

RBI

NHB

India Micro Housing - Experiments

1

• SEWA Bank (Ahmedabad) - Total housing loan portfolio (for the FY 08-09) - $ 8 Million representing 40% of their total micro loan portfolio.

• Bhavanashree (Kerala) - Kerala State government's poverty eradication programme has a housing microfinance scheme administered in partnership with NABARD and Community Based Organizations. So far, around Rs. 53 Million has been disbursed to construct a total of 1,345 houses.

• MFIs - introduced Micro Housing Product for borrowers with good credit history of 3-5 years. Loans are in the range of Rs.50,000-Rs.1.5 lakhs for a tenure of 2 to 5 years. Some MFI products are:

• Adhikar (Orissa) – Has started Adhikar Basa Gruha Loan (Housing Loan) in 2008

• ESAF (Kerala) - Housing loans are dependent on ownership of certain minimum amount of land and do not carry a group guarantee.

• SKS (AP) – HDFC tied up with SKS in 2009 for a Micro Housing pilot in AP

• Sanghamithra (Karnataka) – Housing loans while retaining the group lending mechanism.

• Micro Housing Finance Corporation – Started in 2008 with plans to scale to 50,000 loans with an outlay of Rs.2000 crores in next 5 years. 2010 plan for 1,500 loans with outlay of Rs. 60 crores.

• NHB's Pilot 'Productive housing in rural areas' or PHIRA - Loans given to self help groups that have a proven track record of repayment & to members who have land. It has plan to cover 10,000 members in the next 5 years with an outlay of $25 million. In 2008 NHB tied up with Repco bank to cover 10,000 members in 5 years with an outlay of Rs.100 crore under rural housing Microfinance scheme

                   

International Micro Housing - Products

1*Source: IFMR report 2007 ** Low Housing Interest rate is subsidized by Microfinance business

MFI / Program Loan Amount

Loan Term

MF Interest Rate

MH Interest Rate

Collateral Product

ADEMI (Dominican Republic)

Up to $ 5MUp to 60 months

18-24% NAUnsecured, guarantee

of 10% of loanHousing Purchase +

Improvement

BancoSol (Bolivia) Up to $ 10MUp to 60 months

32% 23%Mortgage & Personal

guarantee

Housing loan to Microfinance clients for

New house

CALPIA (El Salvador)Up to 60 months

32% 23%Mortgages, fixed assets,

depositsHousing loan for

upgrade, rebuild, etc

CARD (Philippines) Up to $ 350Up to 3 Years

20% 20%Completion of previous

loan cycleHousing Purchase +

Improvement

FUNHAVI (Mexico) $500-$2500Up to 3 years

NA 54% Co-Signer100% Home

improvement projects

Genesis (Guatemala) 30 months 35% 25% Infrastructure loans

Grameen (Bangladesh) Up to $600120

months20% 8%**

Completion of previous loan cycle

Housing loan to Microfinance clients for New house & Upgrade

MiBanco / MiCasa (Peru)Up to 120 months

60-85% 50-70%Affordable New housing including Government

subsidies

Micro Housing – Scaling up

Information Gap Information Gap

Illiterate PopulaceIlliterate Populace

InfrastructureInfrastructure

Accessibility & Reach Accessibility & Reach

Foolproof IdentityFoolproof IdentityInstitutional Framework

Products

Client Delivery

Business Model

Risk Model

Information Gap Information Gap Market

Scaling N

ew Business

ActivityScalin

g New B

usiness

Activity

Micro Housing Math

Two Scenarios

Cost of Unit

Assumptions

IIR* 30%

Income Required per Month

90%

Loan to Value

Rs. 90,000

Rs. 100,000

Purchase Price

5 years

Tenure

15% reducing

Rate of Interest

*Income/Installment ratio

Rs. 5250 Rs. 7000

Rs.2100

EMI

Borrower

BankMFI IIR* 40%

Micro Housing - Way Forward

Way Forward

• Specialized Housing Micro Finance Institutions

• Partnership Approach - Government programs, Banks, MFIs, RRBs, Cooperatives, Corporates

• Regulatory / Government Support

• Customized financing products

• Appropriate Credit infrastructure

• Increased supply of low cost housing

Micro Housing Finance & Financial InclusionMicro Housing – An agent of Financial Inclusion

Micro Housing Impact

• Housing has direct impact on employment and income generation - An engine of Equitable and Balanced Economic Growth

• Indirect impact is in terms of improved habitat, living, educational, social and cultural standards leading to human capital formation and thereby the future income capabilities

• Improved productivity leading to enhanced income, saving and repayment potentials on sustainable lines

• Sustainable Human Settlement an Effective tool towards “Financial Inclusion” with Financial Stability and Social Inclusion

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