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About Housing Microfinance

Housing Microfinance can be defined as loan product taken by an individual/individual as part of a Self Help Group or Joint Liability group for housing purposes. The word ‘housing’ refers to fresh repairs, up-gradation and incremental housing.

One of the key observations of the NABARD Committee on Rural Habitat is that there is a need to cater to the requirements of the very poor as well as others, who may not have the confidence or be psychologically averse, as revealed in some field studies, to avail a one-time loan with long repayment period. Shortening the loan repayment period is not an option in these cases as the higher EMI is not possible to service within their earning capacity. Many of them would rather undertake house construction in incremental stages for which appropriate financing products need to be provided. Such assistance if at all provided is currently not treated as housing finance. The committee has recommended that requirements of such people who may need short duration incremental housing loan for different components such as laying foundation, plinth level construction, tiled roofing, pucca flooring, fixing wooden doors/windows, etc., should also be catered to in a modular funding model at different points of time with the same terms and conditions as for housing loans. Swarna Pragati proposes to achieve this by introducing incremental housing. This would ensure that progressive up-gradation/construction of a house is financed in modules of Rs.10,000 to Rs.20,000 without waiting till the poorest persons raise their capacity/earnings to a level where they can service the loan for construction of a full-fledged house.

Swarna Pragati uses this modular build concept in the design of housing microfinance products. The concept is both practical and effective. Loan amounts average Rs 40,000 – Rs 80,000 with average loan terms of 36–48 months, slightly larger and longer term than typical microenterprise business loans. Borrowers complete the construction of their homes through a series of loans.

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