Innovations in incremental housing finance take hold despite an adverse policy environment
"Housing for All" in India focusing on the poor will remain a key electoral mandate for successive government irrespective of party affiliations. The only expectation with the upcoming national elections in India later this year 2014 is for a change in policy perspective to truly facilitate housing for the poor. There are workable and scalable housing solutions abound and the policy makers need only look at field practices to design policy that is flexible and accommodates these innovations rather than stifling them.
While I share innovations of a housing finance model in rural India I believe it has key insights and relevance for design of inclusive cities and problem solving in housing in urban areas where complex property documentation is a norm rather than the exception. Swarna Pragati (SP) is a relatively new housing finance company with a niche in providing incremental housing loans in rural areas of Maharashtra, Orissa and Tamil Nadu. The housing loans are creatively designed to encourage modular additions to existing homes - ideal for households that have comfort of small borrowing from microfinance companies. The finance can be for renovating of a leaking roof, installing of toilets, room-extension for new space requirements, and even vertical additions for rent or family expansion. The loans have ranged from Rs 50,000 (USD 1000) to Rs 1.5 lakhs (USD 3000). The team works closely with the Panchayat (local government in rural areas) and Gram Sabha (a public hearing) to create para-legal documentation that asserts a claim on the property against which a loan is undertaken but for which no records on registered legal title (ie mortgage document) is available. Consistency between e-governance land documents, tax records and electricity bills come in handy to verify the original owner and other residents.
Paradoxically, national housing schemes for the poor require a primary security i.e a mortgage document as mandatory to availing any benefits. It is a requirement by most housing finance companies, the asset protection act by the Reserve Bank of India (SARFESI) only provides protection to the lenders that have mortgage-backed loans. Even the mortgage guarantee fund directed towards informal sector borrowers makes title and mortgage loan a necessary condition. True that the alternative security documentation is yet to be tested in the courts and while one can understand the principle behind the legislation what financial risk would a registered title document reduce anyway?
Rural properties have relatively low marketability and re-sale options are few and far between. Effective recoverability of loan requires upfront due-diligence and the financial institutions working in such markets design strategies and dedicate resources to minimize the risk of eviction, rehabilitation or default. SP works in partnership with micro finance organization through a Business Correspondent model. While loans given are individual or co-borrower basis, social-group dynamics are leveraged and financial literacy imparted. Amount, length and quantity of exposure in any one neighborhood is limited even as loan officers look at other potential uses of the new housing addition such as location, rentals, small business shops, home base work and extra income joining the family.. i.e questioning the current policy outlook that housing is not a productive asset. Not to take away from the innovation and given my ‘baggage’ of working in disaster risk reduction and building safety, I would love to see complementary efforts being made to further improve construction quality in addition to more formal finance reaching these areas. These large-scale experiments adapted for different states and regions undertaken by mainstream financial companies are genuine social businesses and truly impressive in their efforts to extend the financial frontiers in housing finance.
The innovations in urban India are following similar documentation processes around issue of security of tenure. They handle additional complexity as the decision authorities go beyond the Municipality, involving visits to the town planning, tax and revenue departments. For a household designated as urban location, the planning documents don’t adapt guidelines to cater to different construction processes and types- each poor household must to directly hire services of professionals such as lawyers, engineers and architects that make a home improvement effort with or without finance a prohibitive dream.
The perspective of our policy makers and municipalities does need to move from a lop-sided supply side approach that has thus far dealt largely with builders and construction companies and real estate partnership proposition to a demand side approach that concerns itself with housing finance, access to trained construction workforce, better governance on land tenure. The supply side bottlenecks that need focus are inclusive urban planning in smaller towns and cities, better quality material for building homes and bringing access to decentralized water and sanitation services in under-served areas.