MFIs begin to fill urban home loan gap

Taking a cue from the micro-finance boom, debt is fast becoming a tool for housing dreams for the urban unbanked poor.

Anil Kumar Pandit, a computer instructor and insurance agent at Mongolpuri, a former resettlement colony, in northwest Delhi, managed to get a home loan despite not having the papers to qualify for a bank loan. Basix, a micro-finance institution (MFI), sanctioned Rs 3 lakh and technical advice from architects to help Pandit rebuild his parents’ house, which had collapsed some time earlier.

Today, the house is nearing completion and Pandit does not mind the equated monthly instalment (EMI) of Rs 5,500 he has to pay for seven years.

Similarly, Rekha and Vinod, who stitch trousers in bulk and sell these to retailers, took a home extension loan of Rs 50,000 from Basix. “We save Rs 4,000 on rent, while paying Rs 2,800 as EMI,” says Rekha.

Basix is one of the few MFIs to have launched a home loan scheme for the urban poor. Jayalakshmi is another, in Bangalore. SKS Microfinance provides this to the rural poor.

According to Rakhi Mehra, managing director of Micro Housing Solutions, which has partnered with Basix to provide advice on building houses, many MFIs are waiting to register their housing finance companies, which will bring down their costs.

Basix started offering the product at Mongolpuri and Sultanpuri in northwest Delhi three months earlier. So far, 35 people have received up to Rs 3 lakh each to build or renovate their homes. Most houses in the narrow lanes of Mongolpuri’s E-Block resettlement colony, where Pandit’s house stands, don’t belong to the original owners.

Banks are out
These are transferred on the basis of a power of attorney because the government has not given freehold rights to the owners. “No bank loans are possible on any of them,” says Riaz Mohammad, vice-president, Basix.

Since Basix has no housing finance company, it borrows at a high rate from banks and passes on the cost to the poor. The borrowers, therefore, pay interest of as high as 24 per cent, at a reducing rate for over seven years. Banks charge about 8.5 per cent interest on home loans, but these are available only for new constructions and ones that can be mortgaged.

The borrowers, however, have multiple sources of income and don’t mind paying the high EMIs. They earn between Rs 15,000 and Rs 20,000 a month, with contributions from various sources and various members of the family.

For instance, Krishna, who has taken a loan of Rs 1.8 lakh from Basix, runs a copper wire business. She earns Rs 5,000 a month, while her husband, Rajkumar, earns about Rs 6,000 from his tea stall. Their daughter, currently studying for a degree, also earns a similar amount by working for a brokering agency.

At the same time, housing for the poor is not monitored by any authority for safety or liveability, says Mehra. Besides, there is the challenge of giving a strong and ventilated house within 250 sq ft. Pandit’s house, designed by her company and funded by Basix, is a three-storey structure with a room and a kitchen on each floor and a toilet jutting out in the front. There are no windows.

Basix is spreading to new areas in Delhi next month and its housing finance company is expected to start functioning in three months. It is also partnering with construction majors ACC and L&T to build bigger projects.

Chandrashekhar Ghosh of Bandhan, which has been lending in Delhi and several other states, rules out urban home loans for now, saying it needs expertise that is not yet ready with them.

But Basix is in a hurry to scale up. “Our interest is in slum upgradation. We need to be able to contribute there in our own way,” says Anoop Kaul, head of financial inclusion in Basix.