January 2010 Alok Prasad 27 th January 2010, Delhi Micro Housing Finance – Scaling up Conference on Affordable Housing & Housing Finance

India: Microfinance and Housing Housing Microfinance Housing 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 05FY 06FY 07FY 08FY 09 (Est) Commercial Banks Housing Finance Companies Total 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 MFIs evolving from NGOs to NBFC structures Evolving regulatory framework Outstanding Portfolio* FY 07FY 08FY 09% Change 09 NABARD SHGs % MFIs % Total % Client Outreach (Million Households) * FY 07FY 08FY 09% Change 09 NABARD SHGs % MFIs % Total % In Million$ Million 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 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 / ProgramLoan Amount Loan Term MF Interest Rate MH Interest Rate CollateralProduct ADEMI (Dominican Republic) Up to $ 5M Up to 60 months 18-24%NA Unsecured, guarantee of 10% of loan Housing Purchase + Improvement BancoSol (Bolivia)Up to $ 10M Up 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, deposits Housing loan for upgrade, rebuild, etc CARD (Philippines)Up to $ 350 Up to 3 Years 20% Completion of previous loan cycle Housing Purchase + Improvement FUNHAVI (Mexico)$500-$2500 Up to 3 years NA54%Co-Signer 100% Home improvement projects Genesis (Guatemala)30 months35%25%Infrastructure loans Grameen (Bangladesh)Up to $ months 20%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 Illiterate Populace Infrastructure Accessibility & Reach Foolproof Identity Institutional Framework Products Client Delivery Business Model Risk Model Information Gap Market Scaling New Business 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. 5250Rs Rs.2100 EMI Borrower Bank MFI 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 Inclusion Micro 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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