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Can a commercial enterprise be floated for social good, with the promoters pledging to plough the entire dividend arising thereof for philanthropy?
One of the promoter's of Mumbai-based financial services company, ASK Group, is planning along these lines in the housing finance segment.
Mr Asit Koticha, Chairman, ASK Group, has decided to set up a non-banking finance company which will give loans to microfinance institutions for on-lending only to home loan borrowers in rural areas.
Currently, MFIs give loans only for consumption and productive purposes.
The proposed NBFC ? MicroBuild India Ltd ? will be a 49:51 joint venture between Mr Koticha's personal investment company, AKK Equity Research Ltd, and the US-based not-for-profit organisation, Habitat For Humanity International (HFHI).
One of the key conditions for the NBFC to give loans to MFIs will be that they cannot charge more than 18 per cent interest on micro home loans.
This condition will be imposed in view of the recent controversy over some MFIs charging usurious rates of interest (exceeding 30 per cent). MFIs, on an average, will get loans at 12 per cent interest from MicroBuild.
Delivery model
?MFIs have a well-established delivery model in rural areas. Hence, they will be our preferred vehicle to reach out to those who want to build homes. The average ticket size of micro home loans to be given by MFIs in rural areas will be about Rs 50,000,? said Mr Koticha.
MicroBuild will be started with an initial paid-up capital of about Rs 8 crore. To support a loan book of Rs 330 crore in five years, Mr Koticha said ?the NBFC's paid-up capital will be gradually increased to Rs 33 crore. It can then leverage the equity capital to take loans from banks to grow the loan book.?
If the NBFC-MFI-home loan borrower model clicks then the two promoters will support MicroBuild with more funds, he added.
To begin with, the NBFC will tie-up with MFIs having operations in Tamil Nadu, Karnataka and Kerala.
Both the promoters will channel the dividends they will receive from the NBFC to build homes, under the aegis of Habitat for Humanity (India), for the poor through low-cost, interest-free mortgages.
According to the HFH's model of reaching out to those in need of a home or repair of the house, the prospective homeowner families have to save one-third of the cost of the house, with the Habitat arranging the balance funds from companies and NGOs in India and from HFHI. Homeowners also need to contribute about 200 hours of sweat equity ? ? shram daan ?.
A report of the Ministry of Rural Development has estimated that in rural areas more than 90 per cent of the total housing requirement, that is, 42.68 million units (in 2007-2012), is for below poverty line households. Similarly, according to the report of the Ministry of Housing and Urban Poverty Alleviation, in urban areas, more than 97 per cent of the total housing requirement, that is, 25.73 million units, is for poor and low-income households.
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