Mathew Joseph - African Union for Housing Finance...Practical Challenges of the Informal Sector &...
Transcript of Mathew Joseph - African Union for Housing Finance...Practical Challenges of the Informal Sector &...
Practical Challenges of the Informal Sector &
Financing Challenges of Informal Settlements
Mathew Joseph
AUHF - 2007 AGM & Conference Program, Ghana - September 2007
Mathew JosephSenior General Manager
Housing Development Finance Corporation Limited - Indiaconfidential
�Urban Area’s
� Housing Shortage - 16 Million Units
� 80% of which are EWS/ LIG requirements
Indian ScenarioHousing Requirements are 45 Million Units
(including 7 million back log)
� 80% of which are EWS/ LIG requirements
�Rural Area’s
� Housing Shortage - 22 Million Units
confidential
Practical Challenges of the Informal Sector
Practical Challenges of the Informal Sectorthe Informal Sectorthe Informal Sector
confidential
� Issues on Local Government Support
� Lack of strong local Government to manage
Urban Planning.
� Lack of Fiscal strength and Enforcement
Practical Challenges
� Lack of Fiscal strength and Enforcement
Credibility of local Governments.
� Lack of Fiscal Incentives for the Private
Players.
confidential
� Lack of appropriate Government policy.
�Stamp Duties - currently same for EWS/ LIG/ HIG.
�Non-availability of land at affordable/ reasonable
Practical Challenges
�Non-availability of land at affordable/ reasonable
cost to EWS/ LIG.
�Disaster Resistant Housing to withstand floods,
earth quake’s, etc…
confidential
�Relocation and Rehabilitation Issues.
�Ownership in Urban Slums/ Low Income
settlementsis often illegal or quasilegal.
Practical Challenges
settlementsis often illegal or quasilegal.
�MFI’s targeting Women folks.confidential
�Financially & administratively weak village
Administration and its capacity to mobilise
resources to manage Projects.
�Government Agenciesnot playing the role of the
Practical Challenges
�Government Agenciesnot playing the role of the
Facilitator/ Enabler to the desired extent.
�Deficient Infrastructure especially drinking water,
health care and primary education.
confidential
�Factors to be addressed in the Informal Sector
include
� Social
� Cultural
� Production Resources- Quality of Housing
Practical Challenges
� Production Resources- Quality of Housing
� Institutional
�Changes in Social System with the decreasing
reliance on self help - Mutual Sharing.
confidential
�Dominance of Caste & other social systems.
�Migration of the educated & economically well
off.
Practical Challenges
�Exodus of Skilled labour to cities & Foreign
Countries.confidential
�Settlement plan not in place that optimises use
of land, supportive to incremental growth with
Infrastructure Services being provided.
Practical Challenges
�The lack of adequate support for the private
sector in areas of land development,
infrastructure, technology, improved design &
construction.
confidential
� Limited Access to New Building Materials,
Construction Methods & Technology.
�Construction cost and quality requirements.
Practical Challenges
�Absence of Land Records/ Imperfect Title Documents.
� Issues of Repossession
� No Clear Land Titles� Legal Impediments
confidential
Financing Challenges of
Financing Challenges of of
Informal Settlementsof
Informal Settlementsconfidential
�High Credit Risk perceived for the EWS/LIG/
Informal Sector due to historical factors.
Financing Challenges
�High Transaction & Servicing costs due to LowDensity & Access Issues in Rural Areas.
confidential
�Higher Operating Cost on account of
� Low Average size of Loans
� Larger Number of Borrowers
� Vast Area of Operations
Financing Challenges
� Vast Area of Operations
� Inability to assess Credit Risks
� No Pay Slips.
� No Tax Returns.
� Uncertain Cash Flows.
confidential
� Lower Profit Margin to the lender due to
� Smaller Transaction sizes.
� Fixed Costs of each Transaction.
�Financing Challenges in arranging long tenor
Financing Challenges
�Financing Challenges in arranging long tenor
loans for the lending agency.
�Non Buoyant Rural Economy as measured by the
decline in the share of Agriculture.
confidential
�The absence of lending skills required by the
intermediary agencies like an NGO.
�Different schemes being offered by the NGO
leading to loss of focus.
Financing Challenges
�The Intermediaries interest wanes as the years go
by due to the long term nature of the loans.
�Schemes are operated with no margin money &
others as a grant.
confidential
�Regular contact with the intermediary agency not
being maintained by the lending agencies.
�Problems in getting the Due Diligence of the
intermediary agency conducted.
Financing Challenges
� Lack of Banking Access inspite of having the
worlds largest network in the Banking Sector.
�Under developed Housing Credit System &
Institutions.
confidential
� Indian MFI’s being vary of building up a large
Housing Loan Portfolio.
�Targets not being set by larger Banks in Lending
to SHG’s.
Financing Challenges
to SHG’s.
� Informal Credit being Expensive & Exploitative.
�Availability of grant funds side by side, results
in the beneficiary tending to default on the
commercial loan.
confidential
� Irregular and/or seasonal Income during the
Loan Tenure (say 7 - 15 years).
� Lack of tangible proof for Income Assessment,
Financing Challenges
� Lack of tangible proof for Income Assessment,
Savings & Cash Flows.
� Lack of Collateral or Intangible Security
Arrangements which may not be enforceable.
confidential
�Process for Verification of the Beneficiaries.
�Absence of Professional Collection Agency.
� Issueson Title of the Property.
Financing Challenges
� Issueson Title of the Property.
�Non-availability of Title Insurance & Mortgage
Insurance.
confidential
�Registration of Mortgage not in place to prevent
Sale before loan is closed.
�Registration in joint names of the spouse normally
ensuresrepayment.
Financing Challenges
ensuresrepayment.
� Little being done for providing reasonable sized
loans for the LIG segment for their productive
requirements of funds.
confidential
� Low Income & High Incidence of Poverty affecting
Capital Formation Savings Rate, Purchasing Power
& Disposable Surplus.
Financial Challenges
� Interest Subsidy as a Substitute for Tax Benefits.
�Non-availability of Title Insurance & Mortgage
Insurance.
confidential
Way ForwardWay Forwardconfidential
�Ways to Expand Housing Finance to EWS/LIGs
� Relaxing Building Bye-laws
� Permitting Higher FSI
� Revampingof Land Title Systems
Way Forward
� Revampingof Land Title Systems
� Creation of Zoning and Land Use that specifically
encourages low income Housing.
� Introducing concept of TDR’s.
confidential
�Fiscal Incentives to the Building Materialmanufacturers to encourage Appropriate/Alternative Materials and Technologies.
�Encourage Creating a stock of Innovatively
Way Forward
Managed Rental Housing.
�Encouraging Social Housing Like Night Shelters forEWS/ LIG Segments.
confidential
�Encouraging Township type of Development in theoutskirts.
�Developing the Secondary Mortgage Market.
�Developing Suitable Refinance Schemesto Boost
Way Forward
�Developing Suitable Refinance Schemesto Boostthe Supply of EWS/ LIG Housing.
�Modificaiton of Laws like Land Ceiling, RentControls - Encouraging Public/ PrivatePartnership.
confidential
�Capacity Building Program on Low Cost Housing
for Architects, Engineers, Builders, Etc…
�Promoting Mixed Use of Land for cross
Way Forward
�Promoting Mixed Use of Land for cross
subsidization of EWS.
�Designing houses which are adequate shelter and an
efficient work place at an economic cost.
confidential
Challenge is to provide speedy affordable credit to
Low Income Individuals without much
Way Forward
paperwork, without collateral's, at the
borrowers door step in cash.confidential
Thank You!Thank You!Thank You!Thank You!confidential