India: Expanding Access to Affordable Housing Finance
FIRST provided important seed support for a series of reforms by the National Housing Bank (NHB) of India to expand affordable housing finance.During the period 2007-2013, FIRST funded two projects, for a total of $583,000, that helped to broaden the affordable housing market for the poor population.
India's housing market has experienced very rapid growth since 1999 due to several factors, including an increase in purchasing power, a decline in interest rate, and the deepening capital market. The rise in demand together with the huge shortage of supply (about 25 million housing units) further inflated high prices, making housing unaffordable for a large number of the urban poor. Problems existed on both the demand and the supply sides. The urban poor often have irregular income and are not served by traditional financial institutions. Banks do not have adequate information and tools to make a business case for lending for the low-income groups. Microfinance institutions and financial cooperatives could serve the poor but they lack adequate funding bases, organization, and expertise to offer long-term, collateralized lending products. Housing developers did not have incentives to build houses for the poor because of the limited land and the lack of access to low-cost funding for construction.
The NHB, which regulates, finances, and promotes the housing markets, approached FIRST initially in 2007 to help identify opportunities and solutions to address both demand and supply problems in the housing markets, and subsequently in 2009 to act upon the recommendations from the first TA. Summarized below are key milestones of the engagements and the ongoing reforms catalyzed by FIRST's seed support.
The housing study, the stakeholder awareness raising and dissemination of innovative products, and the Strategic Plan had helped the NHB tap into the low-income group housing markets with a defined road map and deeper information. These outputs underpinned the NHB's strategy, resulting in a $100 million International Development Association credit from the World Bank in 2013. At present, the NHB is partnering with donors (e.g., the Department for International Development of the United Kingdom, or DFID) and other international finance institutions to further deepen the housing markets for the low-income groups. The NHB has achieved great success in developing the housing market in the past five years, with outstanding loans growing by 30 percent annually, reaching $132 billion in 2013. Housing products are distributed through a network of 96 lending institutions, including many microfinance institutions, rural banks, and cooperative banks. This has contributed to a decline in the housing shortage from 25 million housing units in 2007 to 18 million housing units in 2012. Mortgage depth has increased to 8 percent of GDP, up from 3 percent in 2005. According to Findex, the housing penetration was 2.3 percent in 2011, or approximately 20 million people had a housing loan compared with nearly 6 million in 2007. The growth of NHB and the development of the housing markets in India is not entirely attributable to FIRST. However, FIRST's contribution was highly catalytic, which was acknowledged by R.V. Verma, the chairman and managing director of the NHB, who said during the Housing Finance Seminar at IFC headquarters in Washington, D.C., on October 10, 2013:
It was FIRST's Study on Housing Demand and Supply in 2007 that helped us to implement market-based solutions for the housing finance challenges. We did not stop at the study, we carried on and initiated projects to marry the financial institutions with construction agencies. We faced challenges in terms of demand identification, scaling up the projects across financial institutions and construction agencies, and with your help, we saw the light of the day. The last two years' results were encouraging-$132 billion disbursed. FIRST and the World Bank Group have inspired us to move forward with the long-term market-based solutions.