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Guiding Principles for
Housing Finance Schemes a cue from the existing paradigms of success Amit Chojar S helter, one of the three basic necessities of life, is essential so that human beings can lead dignified and meaningful lives. However, despite the so called economic progress made in the last 50 years, a good roof with four walls is still a dream for millions in our country. The majority of the population, both in urban and rural areas, lives in poorly constructed and unhealthy dwellings, greatly undermining its productivity at work and hence stymying its capacity to earn more.This is not to gainsay the fact that various efforts have been made in the past to bridge the ever increasing demand - supply gap for shelter. However, the many government schemes aimed at providing subsidised housing to the low income groups have left much to be desired in terms of coverage of the targeted population. This has lead to the realisation of the need to focus on enabling policies especially related to land and housing finance. Much of the recent literature on housing for poor focuses on innovations in the design of delivery mechanisms for provision of basic shelter facilities; and various systems are being studied for their pros and cons in order to develop more efficient models. The conventional approach has primarily focused on reaching low income groups through subsidies and lower interest rates with an over emphasis on mortgage security (Mehta, 1994). This has led to the exclusion of the poorest who are unable to offer any collateral. This also leaves very little scope for rotational financing since the majority of the finance goes into irrecoverable subsidies. On the contrary, the ‘new wave’ on housing finance advocates ‘wider’ access to housing finance for low income groups than greater access to a limited few at lower costs. This addresses the aspect of financial sustainability for the programme. Financial sustainability implies the ability of a programme to revolve the limited finance through timely repayments and coverage of the following costs viz. costs of funds, operating costs, loan write-offs and inflation. Two case studies in this regard are that of SEWA (Gujarat) and the Grameen Bank (Bangladesh), both having financial sustainability and coverage of low income groups as their dual objectives (Sewa, 1996; M. Khalid, 1992, 1993). At a first glance, these objectives may appear to be in contradiction with each other where pursuance of one forfeits the achievement of the other. One might expect that removal of subsidy from a scheme would have the negative impact of transferring the benefits from the poor to the better off who can afford to pay for the savings. But, in general, experience has shown that increasing emphasis on sustainability of savings and credit programmes not only covers more people, but serves poorer people as well (Havers, 1996). The following factors are significant in this:
Therefore, achievement of financial sustainability of a savings and credit programme is the logical step towards the coverage of low income groups who hitherto have been getting crowded out of credit schemes. Some key issues that relate to achieving financial sustainability in credit programmes, in general, and for housing finance, in particular, can be culled from the experiences of SEWA and Grameen Bank which have been pursuing the above mentioned dual objectives. These are: Importance of savings: It has been increasingly found that savings should be a pre-requisite to the disbursal of loans as the process identifies people who are unable to manage their money and are therefore likely to prove a bad loan risk. From the scheme’s point of view, savings provide an important source of funds, as well as a source of collateral security. Also, being an important facility in its own right, it often attracts many more clients than a credit programme would, particularly from the among the poorest.Gender: Women are better at repaying than men as they are less likely to mis-spend the money. They also have more experience in handling money and budgeting, through their role in managing the household.Group loans: It has been found that group loans work because groups put pressure on individual borrowers to repay loans as collective stakes are involved.Repayment periods and intervals: The repayment period of the loans should match the income flows of the individual borrowers; otherwise chances of defaulting on loan repayment are higher due to the mismatch in cash flows. Regular intervals also ensure that the loan repayment amount is small and hence easily repayable due to increased frequencies of loan repayments.Realistic interest rates: It has been observed that low interest rates and subsidies attract richer people, crowding the poor borrowers out. Therefore, what really matters to the poor borrowers is access to money and not really the interest rates. In fact, the interest rates the poor pay to informal sources (the main source of credit for most poor) are actually higher than the formal institutional interest rates.Scale: In order to achieve financial sustainability (and cover establishment overheads)
it is important that the scale of operation be commercially viable
to keep the operating cost per borrower at the minimum.
The above factors may not be exhaustive when
trying to achieve a financially sustainable credit programme but
nonetheless they are critical for its operation. They act as the
guiding principles for designing the structure of any model on
housing finance, especially at the interface between the borrowers
and the immediate creditors. Conclusion The current policies for provision of housing to millions in our country have been fraught with inadequacies, mainly due to the exclusion of the low income groups who have the greatest need for basic shelter facilities. This has led to much research on the design of efficient delivery mechanisms to ensure financially sustainable housing finance schemes for low income groups. However, any structural model attempting to serve the dual objectives of financial sustainability and coverage of low income groups can only be ensured, as experiences of SEWA and Grameen Bank have shown, through the inclusion of basic (guiding) principles which
References 1. Gujarat Mahila Housing Trust (1997) City - Women partnership in Ahmedabad: Lessons Learnt, September, 1997 2. Havers, M. (1996) Financial Sustainability in Savings and Credits Programme, Development in Practice, Vol. 6, No. 2, May, 1996 3. Khalid Shams, M. (1992) Designing Effective Credit Delivery System for the Poor: The Grameen Bank Experience, Denmark, 1992 4. Khalid Shams, M. (1993) Raising the Productivity of the Poor: Grameen Bank Experience in Managing New Technologies, Denmark, 1993 5. Mehta, M. (1994) Strategy: Down Marketing Housing Finance through Community Based Financial Systems, Source Book on Community based Shelter Finance, 1995 6. Sewa(1996) ‘SEWA’ - 1996 7. Otero, M. and E. Rhyne (1994) The New World of Microenterprise Finance: Building Healthy Financial Institutions for the Poor, West Hartford: Kumarian Press. q
The
author is a Management Trainee with the |
