Should MFIs be allowed to provide ‘affordable housing loans’ for MFI clients



Affordable housing loan disbursement may have turned into a contentious issue. On the one hand, there has been the issue of cutting down on source lending to NBFCs empowered to issue housing loans post IL&FS debacle and on the other, the issue of reaching out to the target audience.

As far as the first issue is concerned it must be understood that IL&FS has upped the issue of fund sourcing by all NBFCs irrespective of their engagement areas as well as the non-NBFC MFIs. The parent fund providers like banks and other FIs have chopped down on exposure due to an elevated risk perception and also because RBI has come down heavily on the entire credit market as a deterrent step against recurrence of issue thrown up by IL&FS.

However, as far as the issue of reaching out and creating access to the loan for the target segment is concerned it’s time MFIs were brought into the game. The rationale for allowing the MFIs to enter this segment would be to exploit their reach and network to ensure a greater degree of efficient disbursement to fulfill the underlying goal of the affordable housing loan.

There is a catch though. The ceiling on individual loan ticket applicable to an MFI is less than a lakh of rupees. The affordable housing loan interest subvention limit is capped at Rs 600,000/- per loan and the target beneficiaries are economically weaker section.

For a loan seeker to avail of the benefits, he or she has to first substantiate eligibility. If the claim is found to be true the access will open. The point here is that MFIs are the only channel who are in the know of their customers’ actual position and hence checking the veracity of the claim will not be just on the basis of papers. Disbursement through MFIs therefore will impart a second layer of authenticity to the disbursement and the cause.

The issue, in the next count, spills over into the eligibility of the MFIs themselves. To exploit them as another channel to disburse affordable housing loans will mean easing of disbursement curbs on their individual ticket size. This one actually is the actual point of contention. Due to various reasons RBI sticks to restricting the individual borrower’s loan access to a lakh of rupees from the second cycle.

With such a loan disbursement ceiling on MFIs the question that crops up is simple. The rationale for the creation of MFI channel lies in creating a route for the economically weaker section to come out of the vicious circle of deprivation and rise beyond their station through a process of funding and hand holding.

Now as we all know for most of the members of the target section, their residence is also the nerve center for their economic activities. And if this model must seek completion then all the above threads in the proposition lead to just one conceivable conclusion – the policy begs to be revisited for using MFIs as an effective channel for the affordable housing loan for optimum achievement of benefits for the target section.

One solution perhaps lies in allowing the MFIs to create another vertical for affordable housing loans with the attendant long term repayment cycles as are available in the cases of housing finance companies while retaining the JLG model in their existing business engagements.

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3 comments

  1. The mfis can be bcs of hfcs. This is what sadhan istrying to do. This way the lending restrictions from the own book willnot be applicable. Secondly pmay(g) has subsumed the IAY. And has accomodated more beneficiaries within its grant component. The gap funding stands at less than a lakh. This is easiler for the mfi to fundfin normal case also.. the interest subvention is applicable to pmay(u). The subsidy is also applicable here. But pmay(g) has another component called Rhiss. Which has not taken off. That is the dilemma. Mfis r not natural channels for housing finance, but they can channel the subsidy. They cannot give bigger loans but can do gap funding. For their own profitability and employee productivity they prefer being BC, provided the margin is around 6%. That makes the mfi loans costly for the clients. But it ensures quality portfolios for the hfcs. Nhb can show an untainted growth. ..wonder who is bothered about the economical backwardness of the client s!!!!
    ;

    ReplyDelete
  2. Good evening sir
    Firstly, we have to understand the difference between microfinance and NBFCs or Banks and if we want to do this then we will have to change the definition of micro finance. It's my view sir

    ReplyDelete
  3. When it come to MFI providing affordable housing finance. The credit methodology should not be traditional.

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