Muthoot Housing Finance, the housing finance arm of the Muthoot Pappachan Group, aims to grow its business four-fold in two years by extending home loans primarily to the lower income segment. Currently at ₹250 crore, the company aims to increase its loan portfolio to ₹1,000 crore by FY 2016.

In an interview with Business Line, the company’s CEO Maneesh Srivastava takes us through the opportunities and challenges of lending to low income households.

Edited excerpts:

The definition of affordable housing changes constantly. How do you respond to this change?

You are right, affordability is a moving scale. If we stay at the same point, then we will actually shift down the scale as far as customer profiling is concerned.

So, we take a calculated decision to look at different ticket sizes in certain markets where affordability has shifted.

What is your average ticket size and your average cost of lending?

The average ticket size is ₹6 lakh. We lend between ₹3 lakh and ₹15 lakh depending on the customer profile.

Our lending cost varies from 13.5 per cent to 16 per cent.

What kind of customers do you lend to?

We lend to low income borrowers who work in the informal sector. They do not have proper documents or produce any proof of income and, therefore, cannot get a loan from any bank.

Hence, they look at entities that can assess their informal income and be able to provide loans.

These people — vegetable vendors, auto-rickshaw and taxi drivers, and so on — typically buy 300-600 sq. ft. houses. Property prices for this segment range from ₹7 lakh to ₹20 lakh and we finance about 80 per cent of it.

Since there are no salary slips or formal proof of income, how do you assess the suitability of the customer?

First, for due diligence, we hire a local who has thorough understanding of the culture, is a good observer and knows the local dialect.

For instance, if we lend to a tailor, we go and see the type of infrastructure he has, the stock of cloth, his machines, his informal receipt books, the sources from where he buys the cloth and we get a sense of the amount spent on purchases and his receipts. We then arrive at his gross margin and income.

How do you manage non-repayment problems from customers?

Our gross non-performing loans form just 0.1 per cent of total loans.

We lend about ₹19-20 crore a month and will end this financial year at ₹300 crore.

Next year, we will double our loan book and reach ₹1,000 crore by FY 2016. In the category we lend, very few people actually default. Besides, we insist on insuring every home and individual we finance.

This helps in recovering the dues if something happens to the borrower and it helps his family too. The loan gets squared off for the buyers.

We push the house insurance quite hard when we lend.

The cost of buying insurance at the individual borrower level is quite low as we have taken a master policy at the company level.

Managing recoveries is a two-fold thing.

You lend and then you can go out and recover or you try and do things so that you don’t get into situations that you have to get into recovery.

What do you think can be really done to further this cause of affordable housing?

If you look at affordable housing as large projects, availability of large parcels of land that are well connected to the city and speedy approvals to construct are very important.

From a financiers’ perspective, we can lend more and longer if we get access to long-term funding.

A lot of my customers are very young who can actually go for a long-term loan.

However, there is not a lot of long-term money that is available to lenders like us to structure any kind of a long-term loan for them.

Second, I think, there should be some amount of preferential duties for customers buying homes in this particular segment for the purpose of their own stay.

And, lastly, for customers who do the construction of homes on their own (without relying on builders), the plan and approval process should be simplified.