Housing For Poor Issues And Prospects Politics
Housing is a basic need for a human being along with food and clothing. For poor section of the society it is of great importance as it represents their status in the society and the neighborhood. There was approximately shortage of 24.7% million dwelling units at the beginning of 11th Five year plan. Out of total housing requirement, about 99% is constituted by the economically weaker section and the low income group. Government of India has taken various initiatives towards achieving the goal of affordable housing for all but still the solution is far away. This paper discusses the micro housing finance sector, various initiatives taken at different levels, challenges faced by this sector and what can be done to improve the situation.
The right to housing and adequate shelter is guaranteed in the Directive Principles of state policy. Government has been considering housing as a social problem while formulating laws and policies. In all five year plans, emphasis has been given on capacity building in this area but still the problem is not solved.
In comparison of other developed countries, housing finance industry is not big and mature. It is hardly 4.5% of GDP. Most of the shortfall and un-served demand is in economically weaker section (EWS) and the low income group (LIG).
Government has sought to create an enabling and supportive environment for expanding credit flow to housing sector. Several policies and initiatives had been taken. Jawaharlal Nehru National Urban Renewal Mission (JNNRUM), Model Rent Act, Urban land ceiling act, National Slum Development Programme, are some of the initiatives taken by government.
Several institutional efforts have also been made to fund the low income consumers like, Self-Employed Women's Association (SEWA) and Indian Association of Savings and Credit (IASC) lend to borrowers. Housing and Urban Development Corporation (HUCO) and National Housing Bank (NHB) are two big public institutions which are helping in laying down the financial infrastructure for financing of low and middle income housing finance.
Market for housing finance for such section posses certain unique characteristics. Amount which is needed to be financed is not huge. Maximum loan amount is normally 5-8 lakh. It is even smaller for loan for home improvement. Duration of the loan is also smaller in comparison to the other housing finance clients. Loans are mostly unsecured as clear land title is the problem. Target population earns low salary or self-employed with a monthly income of Rs. 10,000 or below.The Sector
Housing is a basic need for a human being along with food and clothing. For poor section of the society it is of great importance as it represents their status in the society and the neighborhood. Institutions like SEWA have found that house for a poor can lead to home based micro-enterprise thus improving their income and productivity. 
Technical group appointed by Government of India in the context of formulation of 11th five year plan estimated the shortfall of 24.7 million units for 67.4 million households at the end of 10th five year plan. 99 percent of the shortfall pertains to EWS and LIG sections. During the 11th Plan, the Group estimated that the total housing requirement (including backlog) will be around of 26.53 million units for 75.01 million households. 
Housing requirement during 11th Plan period (2007-2012)
(Million No . of Units)
Housing Shortage at the beginning of 11th Five Year Plan
Addition to household
Addition to housing stock
Up-gradation of Kutcha houses
Total housing requirement during the 11th plan period
Source: Ministry of Housing & Urban Poverty Alleviation (www.mhupa.gov.in
Monitor group has estimated the size of low income housing market (house costing Rs. 3-10 lakh) to approximately 11 lakh crores. It represents vast untapped market which is still not touched by developers and financial institutions for various reasons. The figure was arrived by an estimation of 21 million households with an average cost of Rs. 5.25 lakh. 
Consider the urban situation which is going to face the major problem as it is estimated that by 2041 50% of Indian population will be in cities. According the census of 2001, 23.1% of urban population lives in slums where the living standards are very poor. Potable water, sanitation, sewerage, water drainage and solid waste disposal are the major issues to cope with. It highlights the need of new integrated townships which take care of all section s of the society.
This un-served and untapped market estimates show that there are major constraints in the supply of housing stock and funds. Inability of the banking system to fulfill the need, despite of the greatest reach, is really a point to be considered. Lack of land titles is one of the major hurdles in providing the credit facility.
Developers normally enjoy 50% margin in residential projects which are not sustainable in this segment because of price sensitivity of the buyer. This is the reason major developers stay away from this segment.
Housing and Urban Development Corporation (HUDCO) and the National Housing Board (NHB) are big public players in this field. NHB is the regulator of the sector and plays an imperative role in providing the financing infrastructure at the national and regional levels. NHB provides refinancing to institutions engaged in providing credit facility to low income housing. HUDCO was setup with the motive of serving low and middle income housing sector.
Public sector banks have made little inroads to this sector. Their requirements for granting the credit remain almost same across the board mainly arranging the guarantor, providing land documents and arrangement of margin money which is a long shot for most applicants from low income group. HDFC, the largest private housing finance institutions have a very little share of its loan portfolio dedicated to this sector. HDFC has also taken a different approach for this sector. It has tied p with multiple institutions which are engaged in this sector like SEWA and Aga Khan Fund for Economic Development. Players and Programmes
In providing infrastructure for low income housing, both in terms of financing and projects, Central and State Governments play a major role. Other players include micro finance institutions, NGOs, banks and community based help groups.
Government in its capacity of providing subsidies, incentives, policies and legislations play a major role in housing sector. World over it is seen that in case of housing for poor section of the society, government role is above all. As very few profit oriented private entities are interested in this area. Improvement in living status of poor is a necessity for social harmony.
In recent years micro finance institutions have started playing a major role in this sector. For most of the past their activities were concentrated in providing loan for self-employment of the poor but as stared earlier, a house for poor is mainly used for his enterprise.
From time to time Government of India has initiated various programmes The National Slum Development Programme (NSDP) focused on adequate and satisfactory water supply, sanitation, housing, solid waste management and primary and non-formal education The Two Million Housing Programme (TMHP) was created with an objective of 'housing for all' with particular emphasis on the needs of economically weaker sections and low income group categories. Another government programme Valmiki Ambedkar Awas Yojana (VAMBAY) aimed at providing subsidies for construction of housing and sanitation for urban slum dwellers living below poverty. 
In the first four years of the 10th Plan period, financial assistance was provided for construction of 4,42,369 dwelling units under VAMBAY scheme. Similarly, total number of beneficiaries under NSDP and SJSRY were 45.87 million and 31.77 million respectively during the same period. 
In 2005, Government of India launched Jawaharlal Nehru National Urban Renewal Mission (JNNURM) in 63 cities with a plan called City Development Plans (CDP). It focuses on water, sanitation, sewerage, drainage, roads, housing and basic services. For other cities, government launched Urban Infrastructure Development Scheme for Small and Medium Towns (UIDSSMT) and Integrated Housing and Slum Development Programme (IHSDP). Under JNNURM, government has sanctioned projects for construction of 1.2 million houses. 
The Government of India has been implementing Indira Awaas Yojana since the year 1985-86, with the objective of providing assistance, to the Below Poverty Line (BPL) rural households belonging primarily to the Scheduled Castes, Scheduled Tribes and freed bonded labour categories. From the year 1993-94, its scope was extended to cover non-Scheduled Castes and Scheduled Tribes rural BPL house hold families. 51.77 lakh houses have been constructed up to by the end of March, 2008 under the scheme. 
Bharat Nirman is government's initiative to improve the rural infrastructure. It has made impressive progress during 2007-08. With its current pace, on each day of the year, 290 habitations were provided with drinking water and 17 habitations were connected through an all weather road. On each day of the year, 52 villages are provided with telephones and 42 villages are electrified. On each day of the year, 4,113 rural houses are completed. For Bharat Nirman, Rs. 31,280 crore has been allocated [including the North Eastern Region (NER) component] as against Rs. 24,603 crore in 2007-08. 
The Government of India announced National Urban Housing and Habitat Policy (NUHHP) in 2007. This policy seeks to promote sustainable development of habitat in the country with a view to ensuring equitable supply of land, shelter and services at affordable prices to all sections of the society. The core focus of the policy is provision of "Affordable Housing for All" with special emphasis on vulnerable sections of society such as SC / ST, backward classes, minorities and urban poor
Interest Subsidy Scheme for Housing the Urban Poor (ISHUP) aims at providing housing loans with interest subsidy to the urban poor who have a plot but insufficient funds for constructing a "pucca" house for themselves. The Scheme gives them an interest subsidy of 5 percent per annum for loans up to Rs. 1 lakh for EWS and LIG. Under this Scheme, interest subsidy of Rs. 1100 crore is expected to leverage institutional finance. National Housing Bank and HUDCO are the two central nodal agencies for implementation of the Scheme.Challenges
There is no single model which can help in improving this sector. Funding is the first major problem. Funds are needed to set up new projects for EWS and LIG sector, improvement in existing houses, slum rehabilitation, sanitation, sewerage and laying down the whole infrastructure.
Funds are required for micro finance institutions (MFI) preferably for 5-10 years period so that these entities can grant credit facilities. Different countries have tried different models. Silver lining is there as more and more micro finance institutions are coming in this field. There are more public-private partnerships happening.
One way to release more funds in this sector is to utilise more of securitisation. There are ample opportunities available to create mortgage backed securities out of EWS and LIG sector.
From the applicant's point of view a formal employment and clean land title are the issues. Most of these people are not in formal employment and have no income proof and they do not file any income tax return. Most of poor do not possess clear title deed to the land. In rural areas, land rights are embodied by pattas which are either granted by government or inherited. There is an obvious need to regularize the land titles. In order to enable financial institutions to better serve low income clients, governments may direct some of the funds available for subsidies towards the regularisation of land title 
Affordability is another issue. Bringing down the cost with a reasonable and solid construction is necessary to cater this group. Lending institutions including MFI do not have technical competence of construction skills. There is a strong need to have close relationships with material suppliers or the entities which are specialized in such kind of projects so that a project does not have cost overrun and construction is cheap.
Another way to make house affordable is to take the route of grants and subsidies. There are various schemes available for this sector already discussed in previous section. Question is which is better way to finance direct or indirect subsidy. Direct subsidy in the form of grants, easy loan and repayment facility may be misused. There are numerous incidents of rural loans for whatever reasons going bad. Borrower may have tendency not to give back a government loan. Indirect subsidy on the other hand does not compromise on repayment and requires borrower to pay 100% amount back. Lending institutions involved here may get the refinancing facility so that the interest rate can be reduced making loan affordable to the borrower.
MFI are often accused of charging very high interest rates. There is need of bring down the interest rates to this sector. Government institutions like NABARD, NHB and HUDCO can play a major role in this direction. There is a strong need of associations of government institutions MFIs and NGOs so that cheaper funds can reach to the lowest section of the society.
There is also a need to synchronized the components of loan i.e. amount, term, interest rate and collateral. Most of the time loan amount offered by MFIs cannot cover the cost of the house. MFIs on the other hand cannot give the higher amount as it may unbalance their portfolio and may affect the risk involved. There is very less range of housing finance products available among banks and other housing finance companies which can cater this section. There is strong need of developing this market so that financing may reach to wider section of the society.The Way Forward
Specialized micro housing finance companies can be one of the probable solutions. Recently Micro Housing finance Limited is setup to provide funding for EWS and LIG housing with a maximum loan amount of Rs. 5 lakh. Housing finance companies with an exclusive focus on the lower income groups, who understand the challenges of customer identification, aggregation, credit verification, and mortgage delivery and servicing at a low cost. These housing finance companies in turn need to build partnerships with micro finance institutions which have good access to customers from this segment, with technology and mobile operators to reduce delivery and communication costs and with capital providers to reduce overall mortgage costs to the end customer. 
Normal procedures which are applicable to the other borrowers may not be suitable to a low income borrower. Innovative approaches to analysing and understanding credit risks will facilitate scaling up and in reducing transaction costs. Houses for this sector are already in short supply and ownership of house is a matter of pride for most of the population that should ensure that the borrower has a commitment to service the mortgage.
Given the massive investment requirements, the current curbs on free flow of foreign capital needs to loosen, so that developers and housing finance companies focused on the low-cost segment have access to this source. They also need to build a deep and liquid long-term debt market, so that investors and users have the ability to match tenor and return expectations. There is potentially huge mortgage market which can be created out of this sector.
To conclude, the low-income housing sector has many challenges, but is a huge business opportunity for those who understand it and are willing to wait out the development of the sector. Proper facilitation from the government and new approaches from town planners, developers, housing finance companies and micro finance institutions can create a unique business opportunity while at the same time create a huge social change.
Article name: Housing For Poor Issues And Prospects Politics essay, research paper, dissertation