National Housing Bank Department for International Development Scaling up Housing Microfinance Study by IFMR Capital
IFMR Capital - Innovation in Informal Markets • IFMR Capital is an A / • IFMR Capital works closely with originators that cater to low income households A1 rated, non-deposit across the country. These originators could meet varying needs of its clients, taking Non Bank including working capital, enterprise funding, short term needs, housing Finance Company, focused on providing requirements etc. debt capital markets access to originators that affect low income • Over the past 6 years, IFMR Capital has developed considerable competitive households advantages in this space including: • Strong underwriting guidelines and entity selection criteria • IFMR Capital has raised INR 75 billion • Risk models to understand asset performance (c.USD 1.4 bn) for its • High quality monitoring and surveillance team that monitors each and every clients with a zero delinquency track credit multiple times a year record till date • Deep relationships borne out of taking own exposure in each transaction • Balance sheet size and profitability grown • Each investment decision is backed by strong underwriting capability. Each client significantly of IFMR Capital is amongst the best in its class, capable of delivering strong, sustained performance • Completed over 150 • For this reason, transactions structured by IFMR Capital have witnessed nil rated capital market transactions with over overdues and significant rating upgrades since inception 50 originators in the last 5 years • Currently, we cover the following asset classes - microfinance, affordable housing • Ratings upgrades on finance, small business loans and commercial vehicle finance over 75 tranches of • Launched practice in affordable housing finance in 2011 and developed a securitizations till date strong originator base of 12 HFCs in affordable housing finance across the country
The Study The study was commissioned by the National Housing Bank (“NHB”) and the Department for International Development (“DFID”) with the following objectives: • To evaluate the performance of the housing microfinance program (HMF) initiated by the NHB. • To conduct a representative study across rural and urban poor and ascertain credit and savings patterns. • To prepare recommendations on scaling up the HMF Program for lower income and informal sector households, product design and an underwriting guidelines framework for housing microfinance
Summary of Results & Recommendations • We covered 3 states where IFMR is present in remote rural markets (via KGFS – Kshetriya Grameen Financial Services), as well as 8 other states via a survey conducted by the Center for Microfinance. We also conducted a field diligence of 6 NGO-MFIs that NHB lends to • In IFMR’s own retail presence, we see significant demand for housing finance. While we are able to only provide short tenor money, the end use may be housing (range of 1-35% of loans based on geography / nature of loan) • Survey of 8 states indicated: • 70% of the population have an income that exceeds expenditure, however, only 30% of the population, across all groups, claim to save on a voluntary basis • Study indicates monthly surplus of c.INR 1,000 on an average • 90% of households surveyed owned a home, however had significant requirement for housing finance for home improvement • Availability of existing housing is the best source of collateral available • Recommendations: • Market developmental role to be played by NHB – financial guarantees / credit enhancement for fund raising by lenders. • Recommend high quality for-profit MFIs and NGO-MFIs for such a program. NHB will face significant capacity constraints in scaling this up, and should work with specialised players for due diligence, risk analysis and on-going field monitoring • The underlying product is largely in the nature of home improvement, to meet the need of the market • Detailed suggestions provided on an underwriting and monitoring framework for housing microfinance
Coverage Primary Survey Data Analysis : Two studies • KGFS Data across three • Non-KGFS areas states across eight states • Tamil Nadu, - Rajasthan - Tamil Nadu • Odisha, - Bihar - Odisha • Uttarakhand - Uttar Pradesh - Uttarakhand - Maharashtra - Madhya Pradesh • 1721 households surveyed from rural and semi-urban areas across 8 states in India • A survey of lower income and informal sector households across the states. Survey includes states with operations of KGFS (Kshetriya Gramin Financial Services) - the rural financial services arm of the IFMR Group • Due diligence of NGO-MFI partners of NHB doing housing microfinance. Secondary Research • Two Key Studies: NABARD Data on SHG-Bank Linkage Programme How Households Save and Invest: NCAER Household Survey
KGFS STUDY
Annual Household Income Across KGFS States 35.00% 30.00% % Households 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 80K- 105K- 130K- 155K- 180K- <5K 5K-30K 30K-55K 55K-80K >205K 105K 130K 155K 180K 205K Tamil Nadu 0.36% 2.88% 8.91% 15.83% 14.83% 13.92% 10.10% 8.63% 4.37% 20.16% Orissa 1.68% 3.71% 10.67% 16.48% 14.61% 11.44% 9.28% 7.75% 4.42% 19.95% Uttarakhand 0.41% 5.03% 8.84% 13.40% 11.05% 10.88% 7.98% 7.20% 5.15% 30.05% • More than 45% of households in Tamil Nadu and Orissa have annual household Income less than INR 100,000. • Uttarakhand has a slightly wealthier population and only 38% of households have annual income less than INR 100,000 • Average Monthly Household Income across states is around INR 12,000 • Average Month Household Expenditure across states is around INR 4,000
Source and frequency of Income Dhanei BPL APL Overall BPL APL Business 16.2% 23.9% Business 5.6% 9.1% Agriculture 20.5% 6.7% Agriculture 29.0% 11.3% Dairy 0.6% 0.9% Dairy 1.5% 0.9% Labourer 59.0% 58.7% Labourer 56.4% 54.2% Govt Employee 0.6% 3.6% Govt Employee 1.4% 4.5% Private Sector 2.2% 3.4% Private Sector 3.1% 7.8% Shop 1.0% 1.7% Shop 2.5% 6.7% Working Abroad 0.1% 1.2% Working Abroad 0.5% 5.6% • Primary source of income in case of most households is wage labour. • In case of Uttarakhand, salaried income account for primary income of most APL customers. • Agriculture is the second largest category for BPL Uttarakhand BPL APL Tamil Nadu BPL APL Business 3.06% 13.09% Business 2.8% 4.5% Agriculture 47.71% 7.70% Agriculture 23.0% 13.3% Dairy 1.37% 0.58% Dairy 2.0% 1.0% Labourer 35.55% 22.98% Labourer 65.8% 62.4% Govt Employee 1.61% 11.21% Govt Employee 1.7% 2.7% Private Sector 1.8% 4.7% Private Sector 6.28% 21.79% Shop 4.27% 22.21% Shop 2.1% 3.2% Working Abroad 0.16% 0.44% Working Abroad 0.8% 8.1%
Utilization of Loans for Housing State and Loan Purpose Jewel Loan JLG Loan Salary Loan Orissa 6% 11% 22% Refurbishment and Repair 5% 10% 21% New Construction and Purchase of homes 2% 1% 1% Tamil Nadu 4% 8% 10% Refurbishment and Repair 4% 7% 10% New Construction and Purchase of homes 0% 1% 0% Uttarakhand 16% 19% 47% Refurbishment and Repair 13% 18% 35% New Construction and Purchase of homes 3% 2% 12% • Loan amounts, across all states are larger for new construction and purchase of homes by almost 50% when compared to loans taken for renovations. • Average Ticket size of Loans is governed by product features: • JLG Loan : Min. INR 15,000, MAX INR 25,000, Average INR 16,000 • Salary Loan : Min. INR 5,000, Max 50,000, Average INR 45,000 • Jewel Loan : Min. 500, Max 50,000 Average varies by state- For Tamil Nadu and Orissa ≈ INR 12,000 and For Uttarakhand ≈ INR • 24,000
SURVEY REPORT
Household Income Data was split into three consumption categories relative to the poverty line (PL)as defined by the planning commission • Rural = 26 INR/capita/day • The mean monthly income from our sample was INR 6,200 • Urban=32 INR/capita/day Poor – INR 3,900 Marginal – INR 6,045 Mid-high - INR 9,700 • The lowest mean monthly income was observed in Orissa(INR 2900). • The highest mean monthly income was observed in Uttarakhand (INR 8000) . Survey Report
Household Expenditure • The mean monthly expenditure is INR 4,900 • Poor – INR 2,700 • Marginal – INR 5,100 • Mid-high – INR 8,900 • The mid-high income group consume more than 3 times that of the poor • The poor spend a high proportion of their income on food relative to higher wealth brackets • It appears that the higher wealth brackets are not transferring the additional income to other observed expenses Survey Report
Capacity To Save SAVINGS • 70% of the population have an income Cash Bank Gold Bonds Property that exceeds expenditure 5% 0% • However, only 30% of the population, 6% across all groups, claim to save on a voluntary basis 54% 35% 50000 • The red line is were income is equal to expenditure 40000 • The blue points below the line represent households monthly expenditure with the potential to save 30000 • Income significantly exceeds expenditure even at low 20000 income levels – Mean income-expenditure balance is similar for 10000 all wealth brackets • Poor = INR 1,220 • Marginal = INR 950 0 0 10000 20000 30000 40000 50000 • Mid-high = INR 1,080 monthly income Survey Report
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