Cheap housing push to boost micro finance in sector

MFI mostly serves people who work in informal sector and hail from middle- and low-income groups

The Union Budget for financial year (FY) 2017-18 providing incentives for affordable housing would give a much-needed shot in the arm to micro finance firms in the sector.

A relatively new sector, it mostly serves people who work in the informal sector and hail from middle- and low-income groups. In most cases, those who seek micro housing finance do not have documents required for getting regular bank loans.

Over the past three months, a number of micro housing finance companies have seen a dip in business because of demonetisation of high-denomination currency notes.

Most micro housing finance companies provide loan of less than Rs 20 lakh, with the average ticket size being around Rs 5 lakh. Also, like the microfinance sector, the recovery is around 99 per cent.

For example, Micro Housing Finance Corporation (MHFC) offers home loans in the informal sector, to people belonging in the low income category. While MHFC does not seek any documents from borrowers, it gauges their repayment capability through informal conversation.

“The Budget has given a boost to affordable housing. Over the past three months, growth has been very weak due to demonitisation. But these are short-term issues. In the next few years, growth in the micro housing segment would be anywhere between 50-100 per cent,” said Rajnish Dhall, managing director, MHFC.

So far, MHFC has sanctioned loans of about Rs 600 crore to about 13,000 families, with the average loan size of around Rs 5 lakh.   

Lok Capital, which has been investing in several microfinance companies, is also looking to fund several affordable housing finance companies. So far, Lok Capital has invested about $7-8 million in about three micro housing finance companies. 

“The announcement in the Budget is very consistent with the policy changes that the government has been making in the affordable housing segment. For us, affordable housing finance is a very appropriate space, given our financial inclusion focus. We will fund more companies in the space. So far, we have invested in three exclusive affordable housing finance companies,” said Vishal Mehta, co-founder and managing director, Lok Capital. 

Aptus, a housing finance company in which Lok Capital has invested, is aimed at self-employed and low-income group individuals in the informal sectors, mainly from rural and semi-urban areas. In the last few years, it has made cumulative disbursements of around Rs 988 crore, spread across 83 branches in four states. The company had received National Housing Bank certification in 2011. 

Likewise, India Shelter Housing Finance, which started in 2011, has seen a growth of about 90 per cent a year in lending, and has disbursed about Rs 600 crore as loans. Almost all of their loans are to the informal sector, with occupation groups such as domestic helps and drivers accounting for a large pool of customers. Investors in the company include Sequoia Capital, Nexus Venture Partners and Westbridge Capital.

According to data available from National Housing Bank, in the past two financial years (its financial year is from July to June), licences were granted to 17 new housing finance companies. Over the past two years, the number of licences issued got doubled. In 2015-16, 11 new licences were issued, against six in 2014-15 and three in 2013-14. A majority of new comers are exclusively focused on micro and affordable housing.

Needs A Boost

• Micro housing finance sector mostly serves people in the informal sector, falling in the mid-and lower-income group

• Borrowers in micro housing finance companies do not possess requisite documents to get regular bank loans

• Delinquency in micro housing finance companies has been less than one per cent

• The average loan size in a micro housing finance company is less than Rs 5 lakh

• In 2015-16, NHB issued 11 new licences, against six in 2014-15 and three in 2013-14. A majority of new comers are exclusively focused on micro and affordable housing