While access to credit and associated technical services have revolutionised urban middle class housing, the families belonging to both poor and lower middle class in rural India are still struggling for the means to get a decent roof of their own under which to enjoy the fruits of a resurgent India. Availability of reliable and quality services, both technical and financial, for ‘sustainable housing and habitat’ is still a dream in the majority of rural areas in our country.

The focus of public policy on rural habitat is on the poorest. And rightly so, considering that more that 14 million rural families do not have a ‘roof on their head’, with another 3.2 million increasing annually. With congestion and other factors of repair and replacement, the demand for rural housing stock exceeds 30 million. Add to this the fact that over 65% families do not have access to sanitary toilets and an equally large number lack access to adequate quantity or quality of drinking water at their homesteads. For most of the rural poor who exist hand to mouth, construction of a permanent house usually takes a backseat.

A parallel view, however, is that unless the comprehensive needs of the ‘entire rural population’ are addressed, services to the poorest will never be viable. Village India is not homogeneous; there are varied economic and social segments, income patterns governed by natural cycles, and lifestyles and spatial needs linked closely to occupational systems. Piyush Tiwari, in his report on rural housing in the recently released India Infrastructure report, 2007, notes:

"Housing disadvantage is not only limited to the Scheduled Caste I Scheduled Tribe or economically weaker sections but to a much larger proportion of rural households. Many of the groups barred from accessing good housing in rural areas have been constrained either by low income or by their ineligibility in the formal lending market."

With a shortage in both individual assets of the house as well as community services such as water supply, drainage, etc., ‘grant-based provision of house (or rather, rooms) to the selected poorest’ without setting up services delivery mechanisms for the whole will be neither viable nor sustainable. The delivery of technical and financial services is essential for service delivery agents in rural areas. Grant-based programmes will still be required but so will the need to find a place in the larger system, delivering quality habitat services to the entire rural community.

Today, there is critical need of easy and customized credit packages that can enable rural families - whether rich, middle class or poor - to acquire homes of their choice and that can help village governments set up the much­needed infrastructure.

While there are a small number of non­government agencies extending grants in the form of revolving funds or enlarging the portfolio of micro-credit to housing credit, formal institutional credit is still not freely available. Except for a couple of schemes from the State Bank of India and one in the pipeline from NHB, there is not much in the way of rural finance for housing and habitat infrastructure.

Even where the network and infrastructure for institutional lending is adequate in rural areas, the banking sector continues to be reluctant in extending housing loans to rural borrowers due to the high amount of risk involved.

In order to fill the above-mentioned gap, NABARD has been taking small steps to understand the housing and housing credit requirements in rural India. A workshop facilitated by basin-South Asia in November 2005 was followed by the setting up of a working group ­consisting of bankers, technologists and civil society - to study the situation, understand the technical and

financial services delivery models in use by some of the NGOs and banks, and come up with recommendations for the banking sector. In the meantime, NABARD is also supporting a small action research programme, led by Development Alternatives, through the basin-South Asia platform to develop three different finance products that can cater to the housing needs while supporting livelihood needs of the rural poor, techno-financial services needs of the rural middle class and the small infrastructure finance requirements of rural institutions.

The National Workshop organized by NABARD in November 2005 concluded that the large number of schemes and efforts designed to tackle housing shortage and habitat infrastructure for the rural poor have met with negligible success. At the same time, integrating livelihoods and technical support with housing finance has been promising. Clearly, rural habitat development in India requires a multi­pronged strategy to meet the current challenge that caters to not just the availability of the physical space of a house but to also linked livelihoods and access to technical and financial services for the rural sector. Rural habitat credit products will require investments in innovation, testing and delivery. These development costs need to be supported till such time as the rural market is able to absorb the costs of credit delivery, all in a financially sustainable manner. The working group on rural habitat findings has the following agenda:

The group had recommended that building material centres should be taken up as work places; eco-friendly technologies in building materials products need to be produced; certifying agencies and building materials that can be supported by banks for enterprise-based production need to be identified; and, producers and users of eco-friendly technologies must be able to avail of interest subsidy supports. The working group took active part in the on-going discussions at the national level on a proposal to develop the first Rural Habitat Policy for India.

The Concurrent Action Research (CAR) project supported by NABARD is still in progress. It is studying credit delivery for housing by various institutions; it is also identifying the bottlenecks with respect to credit delivery’ institutions as well as the requirements and limitations of the rural customer. The attempt is to de­constrain the conditions for the frontline banker by reducing the risks and simplifying the procedures while also rightsizing the financial product in quantum, time and frequency of repayment to match the varied rural segments. The project has made it obvious that the ‘one size fits all’ approach will not work and there must be a range of products in the basket for various customers.

While many of the emerging lessons for rural housing finance come from the four states in the south, the quantum of need and latent demand in the north has not been addressed. Conditions in the north Indian villages, especially in the Hindi-speaking belt, require CAR special attention. The project has, therefore, concentrated on understanding the region’s limitations to customize financial products. Emerging lessons so far indicate:

It is heartening that right from the premier institutions in India such as the NHB and NABARD to commercial banks, village governments and grassroots agencies are now trying to find answers to servicing the housing credit needs of rural communities.

Rural housing has been identified as a key focus of NHB’s future strategy and it has been working on various initiatives to address the issue of rural housing. Considering housing not just as a shelter but also as an excellent platform for income-generating activity, NHB has promoted the concept of Productive Housing in Rural Areas (PHIRA), as a single-point delivery for housing and productive loan.

NABARD made refinancing for rural housing an eligible activity in the year 2001-02. Under the Rural Housing Scheme, NABARD extends refinance to banks for providing loans to individuals/cooperative housing societies.

The State Bank of India has its Sahyog Niwaas Scheme for self-help groups. Bank of India has adopted over 100 villages for extending financial services. HDFC and ICICI banks are extending finance for housing through various NGOs.

NGOs and Financial Institutions have played an important role in the delivery of rural housing. ‘NGOs such as SEWA, BASIX, SHARE, PRADAN and MYRADA have assisted the government in developing institutions that link formal finance to rural populations.’ (A more comprehensive discussion is available in the recently released India Infrastructure Report 2007 - Rural Infrastructure; Chapter on Rural Housing by Piyush Tiwari).

NGOs use grant funds, loan assistance from government schemes such as Habitat for Humanity onward lending finance from commercial banks and HUDCO/HDFC and NABARD, in combinations of loan and grants to develop housing in rural areas.

NGOs have been found to operate in an integrated manner, treating rural housing as part of rural development in a comprehensive way, while integrating financial services with technical support services that ensure the quality of the house, delivery of basic amenities, promotion of eco­friendly construction technologies and livelihood support systems.

The role of Micro-Finance Institutions (MFls) in rural housing finance is growing steadily. Credit for housing has been a small component of the product offerings of various MFls such as BASIX and SHARE and is mainly restricted to small - 3 to 5 year loans for improvement of houses. SEWA’s extending of loans to women members of its self-help groups for improvement in housing is an example of successful delivery of housing credit.

It is hoped that these questions and many others that emerge shall be resolved in a manner that benefits all the concerned stakeholders.

This is but the beginning. Many more initiatives will be required on a large scale if we want to bridge the rural ­urban divide.