Report Title - A Partnership Approach: Increasing Access to Formal Micro Housing Finance for Low Income Households in Tamil Nadu
Study Partners - Tamil Nadu Slum Clearance Board (TNSCB)
Authors - Manikandan KP, Institution Builder, Indian Housing Federation
(Edited by Ishani Mehta)
Field Research - Mahesh Hariharan and Sayali Marawar
Publication Date - April 2020
Link - Click Here for the Report
This paper was a finalist in The World Bank call for papers on the theme of ‘Partnerships in Affordable Housing’ for the 9th Global Affordable Housing Conference.
ABSTRACT
The Indian Housing Federation (IHF) is a non-profit entity working to reduce the inequalities faced by socially and economically weaker sections of society in India in accessing housing and basic services. IHF works at the intersections of the housing value chain to build long-term partnerships that foster low-income housing. This paper outlines IHF’s collaboration with the Tamil Nadu Slum Clearance Board (TNSCB), the state level nodal agency (SLNA) for the Pradhan Mantri Awas Yojana - Urban (PMAY-U) in Tamil Nadu, to enhance the availability of housing microfinance for low-income communities through formal channels. Since 2015, IHF has aligned its work to support state governments in effectively implementing PMAY-U, the flagship mission of the Government of India (GoI) aimed at achieving “Housing for All” by 2022.
Since urbanisation patterns in India vary based on the size, economy and availability of serviced land, different housing solutions are required. To effectively meet diverse needs, PMAY-U incorporates the Affordable Housing in Partnership (AHP) component for greenfield (usually vertical) housing that would work for dense metropolitan cities, and the Beneficiary Led Construction/Enhancement (BLC) component for self-built incremental housing more suitable for smaller low-density cities and towns. The combined GoI and state government subsidy per Economically Weaker Section (EWS) beneficiary household amounts to INR 2,10,000 under BLC in Tamil Nadu, which, while significant, is insufficient to meet the required cost of building a house. This is particularly challenging for EWS households that struggle to secure financing from formal channels to meet the funding gap, which jeopardises their chances of completing the house. There is a key role to be played by the primary lending institutions (PLIs) in bridging this gap. While the challenges faced by different types of PLIs in lending to this segment vary, the common element in the solutions required is effective coordination between the PLIs and TNSCB.
Hence, IHF is collaborating with TNSCB with the overall goal of fostering a housing finance market where government-identified beneficiaries have access to market instruments offered by the PLIs and the freedom to choose the most suitable lender, and lending institutions can identify customers suitable to their product offering.
As part of the partnership approach, IHF uses its grassroots expertise to work with the PLIs to understand their underwriting norms and enable creation of suitable product variants and distribution strategies. The result is a win-win situation for all the stakeholders, who were earlier working in silos due to the lack of a concerted effort to bring them together. While the government achieves the mission goal and beneficiaries successfully complete/purchase their own house and get linked to the banking system, the PLIs gain from improved business with enhanced width and/or depth in their product offerings. Meanwhile, IHF achieves the desired impact towards its organisational mission of improved access to housing. The model succeeds in its design, whereby each stakeholder sticks to its core competency and establishes synergies with others stakeholders. The simplicity of this partnership approach makes it easily replicable.