family economic stability

PORTFOLIO:

Microfinance

REGION:

India

ORGANIZATION:

Micro Finance Housing Corporation (MFHC)

SUMMARY:

India faces a housing crisis not seen anywhere else in the world. A shortage of at least 25 million homes disproportionately affects the residents of the country’s 52,000-plus urban slum communities. These families often spend up to 25 percent of their income on illegal apartments that lack basic sanitation and offer few legal protections. Five decades of government intervention to address the problem has been ineffectual.

Micro Finance Housing Corporations (MHFC) began operations in 2009 and, with foundation support, ramped up operations throughout 2010. By enabling access to housing finance for low-income urban residents, MFHC seeks to reinforce developer confidence in building homes for this population — and to ultimately create a sustainable, market-based solution to the housing gap among India’s working urban poor.

Rajnish Dahll, Managing Director, MFHC

When we started this business, we faced a Catch-22: Developers have known for a long time that there’s massive latent aspiration to buy a home. But no one would step forward and finance the carpenters, the mechanics, the plumbers, the drivers, the maids, the small shopkeepers and others who need better homes. In the developers’ minds, there was a question: ‘What’s the point in building for them?’ Aspiration is not real demand. So what Micro Finance Housing Corporation did was landmark; we gave the whole ecosystem of low-income housing a push. Workers in the informal sector could finally get mortgages, and developers could finally see real demand. And the foundation’s role early on was critical, especially in terms of adding credibility to a project that others viewed as risky.

So far we’ve made about 1,200 loans. Most of the houses cost about $10,000 and most of the buyers make $250 to $400 a month. We’ve had no defaults. Unfortunately, we’re one company. Even if we double our number of loans every year, what we can do on our own is just a drop in the ocean when you’re talking about a housing shortfall of 25 million homes. But, five years from now, even if we’ve only made 50,000 total loans, we’ll still be happy. Because we can still be a proof of concept for other housing finance companies to come in and say, ‘Yes, this is a segment that can take a loan and pay it back. We didn’t think about it or didn’t believe it was possible, but MHFC has gone out and shown that this segment is perhaps even better than high-income or middle-income segments.’

Tanaja Thombare: Loan Officer

Before I started this job, I thought it would be difficult work. I felt, working with this sector, will I be able to do business? What about defaulters? But then I gave it a try. Since then, I’ve worked with around 170 customers. They typically live in very small houses in congested areas, basically slum areas, with maybe six to seven family members in 150 to 175 square feet. They stay in chawls (tenements) or even in illegal houses. They want something better for their families.

It’s very difficult to handle each and every person in the same manner – they all have different situations. Sometimes we deal with businesses we are familiar with, like fruit or vegetable vendors. Or sometimes we deal with professions that we don’t know much about, like web or graphic designers. So we have a lot of discussions with customers to learn about their professional incomes. We also visit the neighbours and ask them about a customer’s behavior and work. What I’ve found is that people working in the unorganized sector are very good customers. Not even one customer has defaulted in these two years.