Up Scaling Of Micro Up Scaling Of Micro Finance Finance

Up scaling of Micro Up scaling of Micro Finance Finance for Housing Sector for Housing Sector Rashmi Magariya HSG 1106 Bharti

Guide: Prof. Madhu

Dissertation 2007-08 Faculty of Planning and Public Policy, CEPT University

Contents •Need for the study •Aim and Objectives •Overview of Micro Finance sector •Housing Microfinance •Microfinance and Indian Financial sectors •Case study-SEWA bank •HH analysis •Issues and Recommendations

2

Need for the study 1.India Population

-1.0 billion (2001 census)

Need for the study2.Economy increase at

-1.3 % per year (9.4%)

3.NSSO survey 61st round

-27.5 % of the population is poor

Aim and Objectives4.77% of the population is living on >20/- per day.

5.MF has been present in India in one form or another since the

view of Micro Finance1970’s and is now widely accepted as an effective poverty

alleviation strategy.

6.Over the last five years, the MF industry has achieved significant ousing Microfinance growth in part due to the participation of commercial banks.

nd Indian Financial sect. Despite the growth, the poverty situation in India continues to be

challenging. Case Study

•

About 87 % of the poorest HHs do not have access to credit.

7. Credit requirement of the poor –estimated Rs. 50,000 cr per

HH analysis

annum

sues & Recommend.

Credit outstanding of the poor with formal banking sector-

(Source-en.wikipedia.org/wiki/India) 10% of total demand. (SourceA 2007 report by the state-run National Commission for Enterprises in the Unorganized Sector (NCEUS) Source-Yojana Jan 2008.Article “Isues and Strategies” by N D George

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Housing Policies in India

Need for the study

Aim and Objectives

view of Micro Finance

ousing Microfinance

nd Indian Financial sect.

Case Study

HH analysis

sues & Recommend.

4

Need for the study

Aim and Objectives

view of Micro Finance

ousing Microfinance

nd Indian Financial sect.

Case Study

HH analysis

sues & Recommend.

5

Housing Scenario in

India

Government has failed to provide housing solutions to the

Need for the study

poorest socio-economic communities. •24.7 mn units for 67.4 million HHs (Tenth Five Year Plan) in which 99 % of the shortage in EWS and LIG. •26.7% of the total poor in the country live in urban areas.

Aim and Objectives

view of Micro Finance

ousing Microfinance Source-National Urban Housing and Habitat Policy,2007

nd Indian Financial sect.

Case Study

HH analysis

Total estimated financial requirement during 2007-12

sues & Recommend.

is more

than 10 lakh crore rupees

6 (Source-Housing Policy Workshop, at CEPT . 3 Jan 2008 Presentation by Mr. Sridhar. Chairman and

Aim and Objectives Aim -To Up-scale Micro Finance for Housing

Need for the studySector

Aim and Objectives

view of Micro Finance

ousing Microfinance

nd Indian Financial sect.

Case Study

HH analysis

sues & Recommend.

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Overview of Micro Finance sector

What is Micro Finance?

Need for the study

"Small, Short and Unsecured" –Provision of very small loans that are repaid within short periods of time, and is essentially used by low

Aim and Objectives

income HHs who have few assets that can be used as collateral. .

Micro Finance Scenario-Worldwide

1.2005 was the UN International Year of Microcredit. Microcredit and view of Micro Finance MF more broadly, is seen as an important tool for eradicating

ousing Microfinance 2.

poverty. The World Bank estimated in 2004 that there were over 7000 MFIs

worldwide, serving over 16 million poor people. nd Indian Financial sect. 3. The experience of MFIs shows that women are a good credit risk, & that they invest their income for the wellbeing of their families. Case Study

4.Despite the high interest rates borrowers still prefer the MFIs rather than money lenders especially in rural areas where MFIs have been able to

HH analysis

penetrate successfully. 5.3 billion potential clients in the microfinance market but less than 500 million

sues & Recommend. is currently being served by the socially oriented institution. 6.Microfinance is a fast emerging opportunity for global players with an estimated $20 bn to be invested globally & around $3 bn in India, by 2010. 8

Assessing the demand for Hsg. Finance- Outside India

Need for the study

Aim and Objectives

view of Micro Finance

ousing Microfinance

nd Indian Financial sect.

Case Study

HH analysis

sues & Recommend. Source- Financing Urban Shelter "Global Report on Human Settlements (UN-Habitat 2005) Published By Earthscan London

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Case Study-Grameen Bank, Bangladesh

Need for the study

Aim and Objectives

view of Micro Finance

ousing Microfinance

nd Indian Financial sect.

Case Study

HH analysis

sues & Recommend.

Eligible for larger loan :-once they repaid the first loan. All members must be present at the time of loan disbursement

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Microfinance Penetration

MFI Penetration rates- Top Countries (clients as % of Population) Need for the study

Aim and Objectives

view of Micro Finance

ousing Microfinance

nd Indian Financial sect.

Just 8 countries have broken MF through as apparent ceiling of 2% Case Study

of total population. In countries such as Bangladesh, Indonesia and Sri Lanka, which

HH analysis

have made that breakthrough, just a handful of institutions are

sues & Recommend.

carrying the bulk of the business, both in dollar terms & no. of clients.

Source-Patrick Honohan.2004.”Financial Sector Policy and the Poor”. Washington DC: WB, Working Paper No.43

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Housing Microfinance •Provision of small loans to low income households typically for

Need for the study

selfhelp home improvements and expansion, but also for new

Aim and Objectives

construction of basic core units. •According to the NSS’s 44th round survey, more than 80% of

view of Micro Finance housing

finance comes from private savings, sale of assets and non-

Who offers Housing Microfinance?

ousing Microfinance formal 1.Urban developers

sources financial of credit. institutions, 2.regulated

nd Indian Financial sect.

3.Government agencies,

Case Study

4.Credit cooperatives, 5.NGOs with an urban poverty focus 6.MFIs

HH analysis

sues & Recommend.

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Key features of housing loans

Need for the study

Aim and Objectives

view of Micro Finance

ousing Microfinance

nd Indian Financial sect.

Case Study

HH analysis

sues & Recommend. Source-“Financing Urban Shelter” -Global Report on Human Settlements 2005

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The Low Income Housing Sector

Need for the study

Aim and Objectives

view of Micro Finance

ousing Microfinance

nd Indian Financial sect.

Case Study

HH analysis

sues & Recommend.

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Need for the study

Aim and Objectives

view of Micro Finance

ousing Microfinance

nd Indian Financial sect.

Case Study

HH analysis

sues & Recommend.

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Microfinance and Indian Financial Sector

Need for the study

Aim and Objectives

view of Micro Finance

ousing Microfinance

nd Indian Financial sect.

Case Study

HH analysis

sues & Recommend.

16

Need for the study

Aim and Objectives

view of Micro Finance

ousing Microfinance

nd Indian Financial sect.

Case Study

HH analysis

sues & Recommend.

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Ways of delivering Microfinance

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Different Mechanism for delivery of MicroNeed for the study credit loans

Aim and Objectives 1.

2.

3.

view of Micro Finance

ousing Microfinance

nd Indian Financial sect.

Different Lending models Case Study

HH analysis

sues & Recommend.

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National Policy for Micro Finance and MF Bill

Need for the study

National Policy for MF •Emphasize

on

encouraging

initiatives

and

participation

of

different types of institutions in mF, bringing the MF activities,

Aim and Objectives

irrespective of the type of institutions involved, within the

view of Micro Finance

regulation and supervision by competent authorities.

•Creating a policy environment for closer linkages of the MF sector

ousing Microfinance

with the formal banking channels, and making available equity, start-up capital and capacity building funds for the existing and

prospective institutions engaged in mF. nd Indian Financial sect.

Micro Finance Bill Case Study

The Bill has two broad objectives: (a) To promote and regulate the micro finance sector.

HH analysis

(b) To permit MFOs to collect deposits from eligible clients.

sues & Recommend.

20

Need for the study

Aim and Objectives

view of Micro Finance

ousing Microfinance

nd Indian Financial sect.

Case Study

HH analysis

sues & Recommend. Source-“Yojana ,Jan 2008.Artcle”The Microfinance Bill” By Savita Shankar and Mukul G Asher

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Case study-SEWA bank

Need for the study

Aim and Objectives

view of Micro Finance

ousing Microfinance

nd Indian Financial sect.

Case Study

HH analysis

sues & Recommend.

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Need for the study

Aim and Objectives

view of Micro Finance

ousing MicrofinanceSEWA

bank’s Housing Loans for housing purpose include Finance

: repair or replace a roof, wall, floor or door, for monsoon proofing, adding a room, kitchen, nd Indian Financial sect. upgrading as well as loans that could be used as deposits for rent and to buy or build a new house. Case Study

HH analysis

Ghar Fund Yojana (House Fund Scheme) Started in 1999 with a contribution of Rs.250, 500,700.

Deposits are made on monthly basis for a period of 5 years or more. Return after 5 years with interest, women can build their own houses.

Infrastructure Loans Loanwere also taken sues & Recommend.

for infrastructural facilities such as water & electricity connections, building toilets etc. paved approach roads to the houses. 23

Comparative Analysis of GRUH and SEWA Bank

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HH survey analysis Sample Size (last 3 year housing loan data)

Need for the study

Aim and Objectives

view of Micro Finance

ousing Microfinance

nd Indian Financial sect.

Case Study

HH analysis

sues & Recommend.

HH survey in 2 localities which have taken maximum loans for housing in last 3 years Amraivadi and Bapu Nagar Sampling technique – Systematic sampling Every 10th HH will be surveyed No of samples 100 26

Shows comparably higher income group are more accessible to avail the loans from MF institutions.

Shows majority of the HHs can lead the life only if they have multiple workers

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Shows service sector people can easily get the loans

Loans are good enough to do some repairs Only 20% are taking loans for building new house that to most of them from higher income groups.

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38% of the people have taken twice a loan in which max. have taken loan of 20,000-30,000.

Higher the HH income faster the availability of loan

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Case studyCase studies are selected on the basis of HH analysis who has taken multiple loans from a MFI. Households are studied in detail to find out

Need for the study

Aim and Objectives

their socio-economic profile, reasons for taking multiple loans and various other issues. They have taken loans for 7 times.

view of Micro Finance

ousing Microfinance

nd Indian Financial sect.

Case Study

Learning's:Higher RoI. Small –term loan and smaller loan amounts

HH analysis

sues & Recommend.

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Issues Microfinance Sector:-

Need for the study1.Lack of conducive legal and regulatory framework for full-fledged

growth of MFIs and difficulties in mobilizing funds for promotion of

Aim and Objectives

MFIs.

2.Target group

view of Micro Finance 3.Higher Rate of Interest

4.Lower Penetration rate and Outreach

ousing Microfinance

Housing Microfinance :-

nd Indian Financial1.Land sect. Issue, Collateral and Security

2.Smaller loan amounts and Short term period Case Study

3.Lack of awareness 4.Higher rate of Interest

HH analysis

sues & Recommend.

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Recommendations 1.Series of MF policy workshops has been organised at state level

Need for the study

focussing the legal challenges faced by the sector with participation of various stakeholders, to create awareness on key legal issues in

Aim and Objectives MF and obtain feedback from a diverse group of stake-holders so

that concrete action, towards building a supportive and enabling

policy environment can be under taken by policy makers in India. view of Micro Finance üAllocation of some % of the state annual budget to MFIs.

üFor funding requirements of MF banks, a MF Sector Development ousing Microfinance Fund shall be set up for the promotion of the sector.

nd Indian Financial 2.sect. Selection

criteria

such

as

geographic

area,

gender,

or

participation in other programs run by the same institutions. Case Study

üLoan size as a targeting tool. üHow regular they repay the loan

HH analysis

üPoverty level of household in terms of income and asset. üOccupation

sues & Recommend.

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3.

Need for the study

A combination of micro-lending by larger and more efficient MFIs and direct lending to the poor by banks could help to cover the vast majority of the financial needs of low income groups in

Aim and Objectives

India. üCross subsidisation by banks both through low cost

view of Micro Finance

wholesale lending to MFIs and through direct lending to low income clients. üOrganizations should lend to individuals at lower interest

ousing Microfinance

rates compared to group lending. This would help people to

nd Indian Financial sect.

gradually shift to individual lending and later to regular finance offerings by banks, according to him.

Case Study

4.

Increase in portfolio size of individual institution, rather than having a large number of MFIs, new approaches based on the

HH analysis

participatory planning at community level centered on issue related to livelihood, redesigning of the financial products offered

sues & Recommend. by them. So that the sector has reached a large proportion of the

population. ü

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1.To improve the land tenureship ,Patta has been granted to the

Need for the study

landless poor in urban areas, under the Patta Act of 1984. regulations and master plans. Under the Act, all persons

Aim and Objectives

occupying up to 50 square meters of land for residential use are eligible for leasehold rights.

2.Increase in loan amount. view of Micro Finance 3.Workshop, campaigning programs have to be taken place by SHGs

ousing Microfinance and NGOs at community level to make them aware about the

terms and condition of loans, which other institutions are

providing micro loan for housing, other services about other MFIs, nd Indian Financial sect. banks. Case Study

4.

HH analysis

sues & Recommend.

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Thank You…

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