The Hindu Business Line : NHB pilots rural housing micro finance scheme

SHG model: Mr S. Sridhar (left), CMD, National Housing Bank, and Mr P. Chidambaram, Finance Minister, at the recent launch of rural micro housing finance scheme.

M. Ramesh

Chennai, June 19 The initiative, launched by National Housing Bank at Karaikudi on Saturday, for providing rural housing micro finance is a test case , watched carefully by the financial world. The scheme was launched by the Finance Minister, Mr P. Chidambaram, in Tamil Nadu last week..

NHB is trying to take a leaf out of the ‘self help group’ model — which has been tested successfully in India over the last decade — and apply it to housing micro finance, says Mr S. Sridhar, Chairman and Managing Director, NHB.

But there are some critical difficulties. For example, under the SHG model, loans are given to a group, for group-based commercial activity, with cross-guarantee by the group’s members for repayment of the loans.

Typically, the ticket size is small — ranging from Rs 5,000 to Rs 25,000. Importantly, the loan is given for starting an income generating activity.

However, the rural micro housing finance scheme envisages a much larger-sized loan, between Rs 50,000 to Rs 2 lakhs. There is no individual guarantee or margin money. The loan goes towards building a house — not an income generating activity. The loan tenor is much longer — 84 months, after a moratorium of one year.As such, the risks are higher.

Mr Sridhar calls this ‘market-based intervention’, there is no subsidy involved. How will this work? Will the members honour their cross-guarantee obligations? There are many questions.

‘Sustainable model’

NHB has thought through these issues and believes it has a sustainable model. For starters, it has said that the loans would be given only to self help groups that have a proven track record of repayment. The loans would go to members who have land to build a house on.

But more importantly, NHB is trying to bring in a concept, which it calls ‘productive housing in rural areas’ or PHIRA, where the housing loan is bundled with another loan for undertaking a commercial activity from the house.

For recoveries NHB intends to tie up with NGOs and other agencies. For example, it has tied up with the Repco Foundation of Micro Credit, promoted by the public sector Repco Bank, in Tamil Nadu.

According to Mr Sridhar, it is an experiment that needs to be undertaken. In India, banks and other lending institutions give away home loans to the tune of Rs 3.2 lakh crore each year.

Of this, 90 per cent goes towards building houses in urban areas, and again, a majority in metros. It is about time that the system was tweaked a little to lend to those who desire houses in rural areas.

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