1. Workshop on Housing Finance, Mongolia
Experience with Low Income Housing – Pro Poor Housing Finance Initiatives
Workshop on Housing Finance, Mongolia
June 28, 2011

2. 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.
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.

3. Housing Deficiency – Recent Trends
Estimated Housing Shortage during
Urban Areas
26.53 million units
(24.71 million units in beginning of 2007)
Rural Areas
47.43 million units
Total (All India)
73.96 million units
In Urban Areas, more than 99% of the total housing shortage i.e 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 million units pertain to BPL Households. (As per Working Group Report on Rural Housing, MORD, GOI)
Average Per annum Funds Requirements during = INR 1,20,00 crores
Buoyant growth of India’s housing finance sector (CAGR of 21% during ) 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 on sustainable lines to the poor/EWS.

4. Housing Finance Market
Financial
Market
NHB
HFCs
Banks
MFIs
Fiscal and Credit Policy Support
Capital
Market
Financial Sector
Informal
Sector
Affordability
Real Sector
Housing
Market
Land
&
Construction
Infrastructure
Public
Agencies
Private
Developers 4 4

5. Banks and HFCs – Performance Indicators
Housing Finance Companies
Outstanding housing loans of HFCs at the end of March, 2010, registering a growth of per cent year-on-year.
Rural lending has increased from 13.87% during to 16.25% during
Housing loans above INR 1 million accounted for per cent of the total housing loans disbursed during
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 per cent in March 2005 to 7.13 per cent in March 2009.

6. 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

7. 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

8. Affordability Concerns
Real Sector Issues
Land supply
Cost of land
Infrastructure provision
Construction & Delivery
Construction agencies including Public Agencies
Financial Sector Issues
Trends in financial market
Supply of funds
Cost of funds
Project finance
Individual loans – eligibility
Lending institutions and role of NGOs/MFIs

9. 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.

10. 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.

11. 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 housing to poor/EWS/LIG through fiscal concessions.
Encourage formulation and implementation of UHHPs by the States focusing on poor/EWS/LIG housing and encourage appropriate amendments in State/Municipal laws.

12. Policies & Measures Bharat Nirman Programme
5 lakh houses to be built in rural areas per year.
Rural infrastructure to be developed.
Indira Awas Yojana
Cash subsidy scheme for rural BPL families.
Funding by Centre and State in the ratio of 75:25.
Jawaharlal Nehru National Urban Renewal Mission (JNNURM)
Integrated housing and slum development programme.
Basic Services to the urban poor.
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.
Rajiv Awas Yojana
Slum eradication program involving accordance of title rights to slum dwellers.
Centre initiative with support from states.
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

13. 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 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.

14. 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.

15. 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
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
EMI/Rent
Not exceeding 30% of
gross monthly income
Not exceeding 40% of

16. 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.

17. 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.

18. ROLE OF NHB

19. Initiatives of NHB
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.

20. NHB’s 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)

21. 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 21

22. HMF: Risks and Mitigants
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

23. 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. 23

24. 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 24

25. NHB’s FINANCIAL ASSISTANCE TO HMF
(Rs. in Crore)
Sanctions
Disbursements
Houses
Rural
40.35
28.41
13337
Urban
52.37
12.93
10918
Total
92.72
41.34
24255
Madurai, TN
Mumbai, Maha
Warangal, AP 25

26. 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 26

27. NHB - Monitor Group Study on Low Income Urban Housing
Housing situation for lower income segment in urban India is quite poor.
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.
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.
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.
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.

28. POLICIES & STRATEGIES FOR PRO-POOR HOUSING

29. For Governments
Transparency in identification of beneficiaries under Govt. sponsored Schemes.
Land be provided by Govt. free of cost/at affordable rates .
Complete waiver of stamp duties/registration charges on plot/house/flats for EWS/LIG sections.
Restriction on resale/transfer of Land/House/Flat allotted to Poor/EWS for at least 10 years.
Customized housing cum Saving linked/insurance linked/income generating loan products be introduced.

30. For Institutions Regulators, Apex Housing Banks
Setting up of a Risk Fund to cover housing loans to be given to Poor/EWS
Premium on such risk covers be borne by the Govt.
National Shelter Fund be set up for providing lesser cost refinances to FIs for such loans.
Risk Weight on housing loans to poor/EWS should carry lesser weight.
The time limit for recognizing such loans as NPAs should be increased.
Fixing of sub-targets within the ceiling of priority sector lending for poor/EWS.

31. For Institutions Public Agencies Financial Institutions
Public Agencies should be strengthened and encouraged to acquire land and build houses/flats for Poor/EWS .
Financial Institutions
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

32. For Institutions Public Private Partnerships/Builders
Encouraging housing projects with “High Volume –Low Margin” concept for poor/EWS.
Conversion/Development charges or any other cess/charges levied by Govt. be waived for such projects.
Additional FSI equal to Poor/EWS housing projects be allowed in other housing projects.
No VAT/taxes on the building material used for Poor/EWS housing projects.

33. THANK YOU