1. home and garden

2009
Low Income Housing in India
AMSTERDAM
BEIJING
CAMBRIDGE
CHICAGO
DELHI
DUBAI
FRANKFURT
HONG KONG
Financing Low Income Housing:
Magnitude and Economics
JOHANNESBURG
LONDON
LOS ANGELES
MADRID
MANILA
MOSCOW
MUMBAI
Based on a Project for NHB with support from World
Bank, IFC and MSDF
MUNICH
NEW YORK
PALO ALTO
PARIS
October 29, 2009
SAN FRANCISCO
SÃO PAULO
SEOUL
SHANGHAI
SINGAPORE
STOCKHOLM
TOKYO
TORONTO
ZURICH
Copyright © 2009 by Monitor Company Group, L.P.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means —
electronic, mechanical, photocopying, recording, or otherwise — without the permission of Monitor Company Group, L.P.
This document provides an outline of a presentation and is incomplete without the accompanying oral commentary and discussion.
Monitor Group: An Introduction
Founded by renowned academics, the Monitor Group has grown rapidly to become a
leading global management consulting firm
Michael Porter,
Harvard Business School
Director and Co-Founder of
the Monitor Group

Founded by Michael Porter and other HBS faculty in 1983

Renowned for focus on strategy and cutting-edge ideas that
help clients grow
We believe that “Ideas can create impact”
With over 25 offices across the globe, we go the last mile…
Corporates
• Growth Strategies
• Leadership &
Innovation
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Governments
• City Strategies
• Cluster Development
• Country
Competitiveness
2
Non Profits
• Social Venture Funds
• Impact Investing
• Education Ecosystem
Copyright © 2008 Monitor Company Group, L.P. — Confidential — IND
Financing Low Income Housing: Market Potential
1. Context: The Business Opportunity and Social Need
2. Economic Potential
3
Copyright © 2008 Monitor Company Group, L.P. — Confidential — IND
Context
Low Income Housing: The Landscape
Urban India has a vibrant housing market and housing finance has grown at a CAGR of over 35%
for the past 13 years1. However, the supply of housing stock is concentrated on the upper income
groups — the low income segments are largely un-served
Urban India — Expenditure Pyramid2
Typical Low-end housing available in urban markets
Income
MHE:
>Rs 9,625 pm
MHE:
Rs 4,575–
Rs 9,625 pm
MHE:
Rs 2,500–
Rs 4,575 pm

– Close to primary, secondary schools, healthcare
centre and market place
16%
(10MM)
37%
(~23MM)
– Well connected to city by bus/train linkages
Rs. 11,000
US $ 220

Typical complex would comprise 3 to 5 buildings with
4 to 8 flats/ floor and 4 floors
– Regular water and electricity
– No lifts and single set of staircases
– Complex would be fenced by a compound wall with
shared open spaces including garden and access to
play area for kids
Rs. 5,000
US $ 100
33%
(~21MM)

Each flat has a super built up area of 450-550 sq.ft.
– 1 BHK with an attached toilet and bathroom
– Well painted walls and good interiors
Rs. 2,500
MHE:
<Rs 2,500 pm
Area of city: Within an hour from the city centre
– Rs 400-500 per month as maintenance charges
14%
(~9MM)
Cost : Rs 450,000 to 600,000
Less than top 16% of Urban Indian households can afford to own houses
Property rates across various cities suggest that it should be commercially viable to build affordable housing in the suburbs
for low income customers in urban India
1
Excluding the recent economic downturn;
2
2005 data- based on the report done for NHB in 2006
Source: NHB Trends in Housing; CRIS Infac Report; Monitor Research
4
Copyright © 2008 Monitor Company Group, L.P. — Confidential — IND
Low Income Housing not Low Quality Housing
Pilot Project- Layout of Building
5
Copyright © 2008 Monitor Company Group, L.P. — Confidential — IND
Context
Low Income Housing: Social Need and Willingness to Pay
Detailed customer research and our interaction with over 2,000 customers on the ground showed
high need for a “house of their own” among people living in appalling living conditions
Profile - Nathubhai
Has steady job as a
factory worker in a
textile enterprise in
Ahmedabad
 Monthly HH income ~
Rs 8000, savings up to
Rs 900 - 1000 p.m.
 Lives in 1RmK in low
income neighborhood,
Rent Rs 1800
Family size 5 with mother, wife and
2 children
Assets – Bank Account (ICICI), Life
Insurance (Rs 3L), TV set





Education
– Both children attend private
Gujarati medium schools
Rent
– Increased by 50% in past 3 years
and moved every 2 to 3 years
Appalling conditions
of Slum-Dwellers



Live in poorly
constructed
small cramped
houses
Poor sanitary
conditions –
shared toilets,
bad drainage,
water logging
during
monsoons
Lack of facilities
– properly
planned access
points,
walkways,
gardens,
dedicated
schools etc.
Profile - Ganesh







Self-employed Mechanic in Mumbai
Monthly HH
income – ~Rs 11,000,
savings up to
Rs 1000 p.m.
Lives in 150 sq. ft.
room in slums, Rent Rs 2400
Married with wife and 2 children
Assets – Bank Account (ICICI), Life
Insurance (Rs 1.5L), Refrigerator
and Personal Computer
Education
– Both children attend Englishmedium school
Rent
– Has seen significant & frequent
increases in rent, has moved
house 5 times in 12 years
Both share a dream… “A house of their own”…….
Can afford a 250 to 350 sq ft house, willing to make 20% down payment &
pay 35% of monthly income as EMIs to realize their dream
Source: Primary Research (n=2000), Monitor Analysis
6
Copyright © 2008 Monitor Company Group, L.P. — Confidential — IND
Context
Low Income Housing: The Economic Potential
The low-income housing segment (MHI of Rs 5,000 – 20,000) is estimated at 22 Million households
with an estimated opportunity size of Rs. 1,100,000 Cr and is largely underserved
Urban Income Pyramid
MHI1
(Rs)
1%
(0.7MM)
>80000
40000–80000
5%
(3.4MM)
30000–40000
4%
(2.7MM)
5%
(3.4MM)
20000–30000
10000–20000
Offering & Supply of Housing
Supply of Housing Finance

Price of unit2 > Rs 25 Lacs


Potential demand from ~2 M HHs with
estimated Market Size of ~Rs 500,000
Cr
Various mortgage finance options
available for segment

Potential size of mortgage market ~ Rs
400,000 Cr

Various mortgage finance options
available for segment

Price of unit: Rs 10–25 Lacs

Mortgage finance available broadly

Potential demand from ~5 M HHs with
estimated Market Size of ~Rs 900,000 Cr

Potential size of mortgage market ~ Rs
675,000 Cr

Mortgage finance available broadly

Price of House: Rs 3–10 Lakhs

Severely constrained supply of
housing finance for informal sector

Finance available for MHI > Rs 12K in
the formal sector, limited availability
below MHI of Rs 12K for formal sector
and 20K for informal sector

Potential size of mortgage market
~ Rs 8,80,000 Cr
22%
(15.0MM)
5000–10000
31%
(21.1MM)
<5000
33%
(22.4MM)

Potential demand from ~ 22
with estimated Market Size
~Rs 1,100,000 Cr
Mn3
HHs
Note: 1 Monthly Household Income; 2 Affordability defined as households which have EMI / MHI Ratio of 40% of a Home loan which has a 20% down payment on an Home value, EMI level of Rs 1,200
per Lac (at 12% interest for a 15 year loan); 3 Conservative estimates that 60% of total households in MHI of Rs 5-20K (36Mn) are renting and looking to buy a house of their own.
Source: NHB Trends in Housing; CRIS Infac Report; Monitor Research
7
Copyright © 2008 Monitor Company Group, L.P. — Confidential — IND
Market demonstration of Demand
There is increasing construction of low income private sector housing projects across India
Large real estate players like the Tatas and entrepreneurs like Jerry Rao are starting to recognize the business
potential of low income housing and constructing large projects, thereby giving the field increased credibility
Mumbai :Ambivili
Neptune Group
100 acres
Phase 1: 1800 units;
Sector 1: 600 flats sold out in 3 days
1-BHK and 2-BHK
Rs 4.73 Lakh and Rs 8.40 Lakh
Ahmedabad: Vatva
Taral Bakeri
Phase 1: 800 units
Price: Rs 3.3 Lakh– 5.6 Lakh
Maharashtra: Boisar
Tata Housing
67 acres: Phase 1: 1200 units for LIH
1-RMK and 1BHK
Rs 3.9 Lakh and Rs 6.7 Lakh
Bangalore: Atibele
Janadhar
11 acres: 1500 units
1BHK and 2 BHK; Rs 4 Lakh and 6 Lakh
Source: Monitor Research
Ahmedabad: Vatva
Foliage Developers
Phase 1: 400 units
Price: Rs 2.81 lakh upwards
Maharashtra: Karjat
TMC – Matheran Realty
15,000 units by June 2011;
3,000 units in Phase 1 –
June ’09
6,000 flats @ Rs 3 Lakh
Bangalore: Value Budget Housing
Development Corporation
Rs 3-9 Lakh townships on minimum
10 acre plots; 1 Million intended flats
8
Copyright © 2008 Monitor Company Group, L.P. — Confidential — IND
Monitor’s activities for the past two years
Facilitating Low Income Housing: “Doing what it takes”
Encouraging Developers
Dissemination
Conveying the opportunity
 Arranging customer financing
 Obtaining customers
 Sharing “best practices” (architectural
designs, site layouts, etc.)
Press including Real Estate trade
journals (over 20)
 Conferences and group sessions (over
30)
 One on one meetings with broad range
of stakeholders (over 400)


Building the Ecosystem
Existing and new players for mortgage finance
(including incubating a housing finance company)
 PE and VC funds (incubated a USD 100 Million
housing ecosystem fund)
 Research on optimal architectural designs, low
cost construction technology, sustainability etc.

9
Copyright © 2008 Monitor Company Group, L.P. — Confidential — IND
Financing Low Income Housing: Market Potential
1. Context: The Business Opportunity and Social Need
2. Economic Potential
10
Copyright © 2008 Monitor Company Group, L.P. — Confidential — IND
Context
A Stand -Alone Low Income Housing Business: Outline
The business will primarily focus on the urban customer in the Income Group Rs 5-15K who
does not have to access to a home loan facility

Customer
Profile and
Focus

Urban The need for low income housing and home loan financing is especially acute in urban areas,
which are seeing rapid population expansion through migration from rural areas
Reach: The HFC will have an urban focus and will establish presence in Metros and surrounding Tier
I/II/III cities

Branch: Hub and Spoke model with 55 branches by Year 10

Target Monthly Household Income range: Rs. 5,000 – 15,000

Both salaried customers who are unable to access home loans and informal sector customers, i.e.
self-employed and salaried unorganized individuals
Primary Product: Loan for home purchase
Product
Offerings and
Pricing
Structure

Loan Amount: 2 – 8 Lakhs: Families earning between Rs. 5,000 and 20,000 can afford homes
costing up to 40 times their monthly income, i.e. Rs. 3 – 10 Lakhs

Loan to Value: 50 – 80%: A minimum of 20% equity from the customer will help mitigate the
financier’s risk, while ensuring that the loan is not sub-prime

Installment-Income Ratio (IIR): 30 - 40%: This income group typically pays between 20 - 25% of
their monthly incomes as rent, so a 30 - 40% EMI is feasible

Loan Tenure: 6 – 15 years: Will vary based on the customer’s income
Pricing Structure

Adjustable Rate Mortgages with typical interest rates between 11 - 15% based on down-payment
amount, IIRs, loan Tenure, and perceived risk profile of customer; and allowing approximately a 3-4%
spread

Processing fee of 1% of loan value to re-cover loan origination and credit check costs
11
Copyright © 2008 Monitor Company Group, L.P. — Confidential — IND
Economic Potential
Revenue Potential for a Low Income HFC
It is estimated that at the HFC will achieve significant growth over 10 years – disbursing close to
2,60,000 loans worth ~ Rs. 10,000 Crores
Assumptions1
Portfolio Growth Projections over 10 years
Cumulative Growth in Loans
300,000
250,000
Cumulative Number of Loans Disbursed

Since the HFC market is extremely
underpenetrated – it is feasible to assume
Year on Year growth rates between 50 – 200%
for a start-up, decreasing yearly
(MHFC assume 100% growth in the first 5
years; established companies like Dewan &
LIC grow at about 25% yoy typically)

Average Ticket Size is Rs. 4 Lakhs

Interest Rate: 14%; Gross Spread of 4%

Loan To Value: No more than 80%

Sanction and Disbursal: 12 month time lag
between initial disbursement and
commencement of principal repayment

Scheduled loan Tenure is 15 years

The average loan gets repaid in 8 years and
there is no prepayment penalty
258,398
200,000
172,266
150,000
114,844
100,000
65,625
37,500
50,000
500 1,500
3,750
9,375
Y3
Y4
18,750
0
Y2
Y5
Y6
Y7
Y8
Y9
11,000
Y10
10,336
10,000
Cumulative Amount of Loans Disbursed (in Rs Crores)
9,000
Observations
8,000
(Rs. Cores)
Cumulative Value of Loans Disbursed
Y1
6,891
7,000
6,000
4,594
5,000

The HFC will operate at a loss for the first few
years, but will turn profitable by year 3

It is possible to model more aggressive or
conservative growth scenarios based on the
capital reserves available, high level strategic
objectives (desired share of the market) of the
promoters, supply of low income housing stock
etc.

Cumulative Portfolio Size is dependent on
Average Ticket Size of loan, with bigger loans
resulting in a larger book size
4,000
2,625
3,000
1,500
2,000
1,000
20
60
150
375
Y2
Y3
Y4
750
0
Y1
Y5
Y6
Y7
Y8
Y9
Y10
Note: 1 Assumptions are based on interviews with Dewan Housing Finance Company, MAS Rural Housing and Finance, MHFC, and Fullerton Capital
12
Copyright © 2008 Monitor Company Group, L.P. — Confidential — IND
Economic Potential
Customer Level Economics- Revenue and Costs at Branch Level
The average cost to acquire a customer is Rs. 8,000 and the cost to service their loan over their
repayment period is Rs. 20,000, while the net income earned per customer is Rs. 88,000
Per Customer Cost Analysis
Cost to Serve Per Customer (Rs.)
35,000
Assumptions
20,000
32,000
30,000
25,000
20,000
15,000
4,000
10,000
2,000

Average Loan Size: Rs. 4 Lakhs

Interest Rate Charged: 14%

Loan Processing Fee: 1%

NPA: 1.0%1

A 0.5% of loan value bonus is provided to the branch
sales force as an incentive fee for each loan
generated

These assumptions are typical for most HFCs (our
data comes from Dewan, GRUH, HDFC and MHFC)
1,000
2,000
5,000
3,000
0
Legal &
Sales
Office Documentation,Average Operating Total Cost
Technical Incentive Overheads Storage &
NPA
Overheads to Serve
clearance
Retrieval
Income Earned Per Customer (Rs.)
Per Customer Revenue Analysis
90,000
84,000
4,000
88,000
80,000
70,000
Observations

60,000
50,000
It costs approximately Rs. 32,000 to serve each
customer, i.e. cost to serve is about 8% of loan size,

The HFC would earn approximately Rs. 88,000 in net
income from each customer
40,000
30,000

Net Profit Per Customer Over 8 years (not including
other costs) is approximately Rs. 56,000
20,000
10,000
0
Net Interest Income
Processing Fee
Total
13
Note: 1 DHFC and Gruh NPAs are less than 1%
Copyright © 2008 Monitor Company Group, L.P. — Confidential — IND
Economic Potential
Profitability over a 10 year time frame
The HFC will turn profitable after 3 years of operations, and it is anticipated that margins will grow
sequentially in progressive years
Assumptions1
Net Profit/(Loss) (Rs. crores)
Profitability over a 10 year time period
300
276.9
250

Average Loan Tenure: 8 years

Cost of debt: 10%

Debt Equity ratio:

180.3
200

150
101.9
100
52.6
50
-2.8
0
-1.2
0.8
5.6
16.0
Year 5-
4: 1
Year 10-
6: 1

Capex in Years 1 to 3- Rs 3 cr (towards
software and hardware)

Net Profit/Loss = Post Tax (Income –
Expenses)

ROE = Net Profit/Loss / Average Equity

ROA = Net Profit/Loss / Average Assets
27.3
-50
Y1
Y2
Y3
Y4
Y5
Y6
Y7
Y8
25
22.0
Return On Assets
20
Percentage Return
Y9
17.0
Return On Equity
Y10
23.0
19.0
Observations
13.0
15
10.0
10
5
0.8
0
-15
2.2
2.9
2.5
2.6
2.9
3.2
Y4
Y5
Y6
Y7
Y8
Y9
3.3
-3.0
-4.0
-5
-10

ROE of 23% in year 10 is very robust by the
Indian financial industry standards

ROA of 3% in year 10 is comparable to HFC
industry standards
6.0
1.0
-13.9
-13.0
Y1
Y2
Y3
Note: 1 Based on conversations with HFC Industry Experts and existing HFCs
14
Y10
Copyright © 2008 Monitor Company Group, L.P. — Confidential — IND
Low Income Housing as a Driver for Economic Growth:
Wide Range of Benefits
Low income housing can provide huge benefits to families, communities and aid overall
economic development of state
Provide alternative to Urban Slums




~40M people live in urban slums without basic
facilities such as sanitation, water, schools, etc
Renters disempowered. All power is w/ slum lords
Slum lords “own” houses and benefit from Slum
Rehabilitation Schemes
Slums create high pressure on infrastructure
within a city
Benefits for families of Urban Poor



Housing is essential for the well-being of a
family
Enhanced security and health through
organized housing with access to sanitation
Access to better services (schools, healthcare
etc.) which are typically available to higherincome groups
Aiding Overall Economic Development


Construction of low income housing provides
disproportionate job creation
Creates significant economic value for state
(taxes, ancillary economic activity, source of
labor potentially leading to industry, etc
Affordable Housing
Creation of Low-Risk Asset for Families



Benefits to Communities
Long term wealth creation due to value of
asset, “saving on rent” & collateral for loan
A “security net” in crisis
Low income houses typically built on land with
low cost per sq. ft. Low likelihood of price
depreciation, Hence downside risk is low

15
Neighborhoods with good quality housing
have lower crime rates, stronger local
economies and a better overall quality of
life
Copyright © 2008 Monitor Company Group, L.P. — Confidential — IND
THANK YOU !
16
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Backup
17
Copyright © 2008 Monitor Company Group, L.P. — Confidential — IND
Access to Housing Finance: A Market Overview
Although supply is beginning to flow majority of Banks and Housing Finance Companies are
reluctant to serve customers in the informal sector because of the uncertainty of their risk
profiles
Ticket Size
Large private
Banks, HFCs
Select HFCs (e.g., DEWAN
HOUSING)
Alternate means of income assessment for higher income
customers such as supplier and customer checks, or MFI
and chit fund savings history; guarantor typically required
(e.g., HDFC, ICICI)
10 Lakhs
Low-end focused HFCs
(e.g., GRUH, MAS)
Limited geographic coverage & capacity
Trying to move to higher ticket sizes to
5 Lakhs
Some low-income developer tie
ups, but strictly formal sector;
no ability/interest in informal
customer risk assessment
Willing to give loans only on
documented income amount
increase profitability
Largely Un-served
2 Lakhs
Some PSU schemes, but difficult to access loans due to bureaucracy; staff incentives
geared towards disbursement targets
Informal
Paid / earns in cash
No formal income documents
No formal residence/identity
documents
Source: Monitor Research
‘Semi-formal’
Salaried or Self Employed
Significant proportion of
undisclosed income
Some residence/identity
documents
Formal
Salaried with pay slip
Income Tax documents
Residence Documents
Identity documents
Bank account
Difficulty of Assessing Risk
18
Copyright © 2009 Monitor Company Group, L.P. — Confidential — IND
Context
Housing Finance Market: Map of Existing Players
There are 45 registered HFCs in India, and these are split almost evenly between organizations
that can accept deposits from the public and those that cannot
•
•
•
•
•
Vishwakriya Housing Finance
HUDCO
IDBI Home Finance
PNB Housing Finance
Deutsche Postbank Housing Finance
•
•
•
•
•
HBN Housing Finance
Indiabulls Housing Finance
GE Money Housing Finance
Maharishi Housing Development Finance Corporation
Swarna Pragati Housing Micro Finance Private Ltd.
MAS Rural Housing
and Mortgage Finance
• SRG Housing Finance
• Akme Buildhome Private Ltd.
Satyaprakash Housing Finance India
• Rose Valley Housing Development Finance Corporation
• Sahara Housingfina Corporation
GRUH Finance
Cent Bank Home Finance
Utkal Housing Finance
• GIC Housing Finance
• HDFC
• ICICI Home Finance
Orange City Housing Finance
• Inara Housing Finance
• Janhavi Home Development and Finance
• Dewan Housing Finance Corporation
• LIC Housing Finance
• AIG Home Finance India
Vastu Housing Finance Corporation
• Can Fin Homes
• DHFL Vyasa Housing Finance
•
•
•
•
•
•
• Manipal Housing Finance Syndicate
•
•
•
•
Sundaram BNP Paribas Home Finance
REPCO Home Finance
Ind Bank Housing
National Trust Housing Finance
Haware’s Housing Development Finance Corporation
India Home Loans Limited
Mahindra Rural Housing Finance
Micro Housing Finance Corporation
Swagat Housing Finance Company
Reliance Home Finance
• India Infoline Housing Finance
• Tata Capital Housing Finance
Kerala Housing Finance
HFCs that canaccept Deposits
HFCs that cannot accept Deposits
Source: NHB
19
Copyright © 2008 Monitor Company Group, L.P. — Confidential — IND
Context
Barriers to entry for Housing Finance Companies
Housing Finance Companies are reluctant to serve customers in the informal sector because of the
uncertainty of their risk profiles
Ticket Size
Large private
Banks, HFCs
Select HFCs (e.g., GRUH,
Fullerton)
Alternate means of income assessment for higher income
customers such as supplier and customer checks, or MFI
and chit fund savings history; guarantor typically required
(e.g., HDFC, ICICI)
10 Lakhs
5 Lakhs
Low-end focused HFCs
(e.g., DHFC, MAS)
Some low-income developer tie
ups, but strictly formal sector;
no ability/interest in informal
customer risk assessment
Limited geographic coverage & capacity
Willing to give loans only on
documented income amount
Trying to move to higher ticket sizes to increase profitability
Largely Unserved
Some PSU schemes, but difficult to access
loans due to bureaucracy; staff incentives
geared towards disbursement targets
‘Semi-formal’
Informal
Paid / earns in cash
No formal income documents
No formal residence/identity
documents
Salaried or Self Employed
Significant proportion of undisclosed
income
Some residence/identity documents
Formal
Salaried with pay slip
Income Tax documents
Residence Documents
Identity documents
Bank account
Difficulty of Assessing Risk
Source: Monitor Research
20
Copyright © 2008 Monitor Company Group, L.P. — Confidential — IND
Confidential
Low Income Segments as Target Market
Largely-Untested Risk Profile, different from Sub-prime in the USA
Sub-prime Experience in USA
Low-Income Housing in India
75-80% LTV – significant individual
contribution required; EMIs tend to be 35%
of Monthly Income
 Target customers have regular
employment, albeit with low income – with
an unproven credit record which needs to
be tested
 In the low income segment, relatively low
cost of land (esp. in peri-urban areas)
leads to high correlation between cost of
asset and replacement cost; and hence
lower risk of asset bubbles
Very high LTV; creative structures
developed to reduce EMIs
 Loans extended without due
consideration to ability to pay (basis
employment history) – financing
provided to those with questionable
employment record
 Cost of asset disproportionately high
compared to replacement cost; this is
attributed to the real estate asset bubble
in the US – hence high risk of payment
default



Outcome: Sub-prime Defaults
and Foreclosures
SFS-HMM-VBHL 2nd Review Blank Loop_v8-081022-SA

21
Outcome: Untested, relatively
low-risk segment with
significant business potential
Copyright © 2008 Monitor Company Group, L.P. — Confidential
Confidential
Key Challenges and Critical Success Factors
Understanding Key Challenges
Understanding real versus perceived credit risk and managing costs to serve are the key challenges
for HFCs serving the informal sector
Understanding the
risk profile of the
informal
sector
Cash
micropayments
Managing
Construction Risk
(Developer Tie-Ups)
Source:
Monitor Analysis
SFS-HMM-VBHL 2nd Review Blank Loop_v8-081022-SA

Unconventional methods are required to measure the credit risk associated with low income
informal groups, in the absence of formal documentation

Alternate methods of income verification income such as understanding the customer’s savings
history (chit funds, MFIs), business (access to credit from suppliers, line of credit to customers,
daily cash flows etc.) are required

Collecting a large number of small payments that originate from the customer as cash is difficult
and expensive

Most HFCs use a post-dated cheque or ECS system, but this requires that the customer have a
pre-existing bank account

If a cost-effective system to address cash micropayments is implemented, it is anticipated that
default rates will drop significantly – default rates among Dewan Housing Finance Limited’s cash
paying customers are extremely low (0.13%, as against an average industry NPA of 1.5%)

As low cost housing finance is mostly driven by access to supply of appropriate homes,
performing adequate due diligence on developer partners is paramount

Managing delays in construction by structuring loans to be delivered post construction in staged
phases of the project – this will incentivize the developer and avoid lengthened interest payments
from the customers because of project delays

Lack of adequate access to wholesale construction finance from commercial sources
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Confidential
Key Challenges and Critical Success Factors
Enabling Regulatory Environment and Government Policy
There are a variety of potential government and interventions that could help catalyze the low
income housing finance sector
Govt and NHB
interventions

Access to sources of long term, low cost funding (ideally below market rates) to enable HFCs to
keep consumer interest rates low

Expediting NHB timelines for granting HFCs approvals and improved transparency into the
process would enable rapid and efficient market entry for new players.

Creating a guarantee fund that could take the first X% of losses against lending to low income
groups would encourage new players to enter the market
– This would allow these players to build a better understanding of risk in the segment and in turn
appropriately price risk into their mortgage products.
Process and
Technology
Innovations
Leveraging the MFI
network
Source:
Monitor Analysis
SFS-HMM-VBHL 2nd Review Blank Loop_v8-081022-SA

Allow daily cash collections of EMIs through network of collection agents/MFIs or at the branch

Introduce a seasonal loan products that enables customers to tune their repayment cycle to their
seasonal income cycles

Linkages between customers’ savings accounts and repayment schedules to enable direct
deposits of EMIs etc

Mobile banking facilities to enable prompt repayments from customers lacking bank accounts

Use MFIs extensive knowledge of the target customer base to select customers with strong
repayment history and lower perceived risk

Employ MFIs extensive staff of Field Officers for loan collection and disbursals of loans

Encourage the government to make it easier for MFIs to set up HFC divisions
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Confidential
Establishing a Housing Finance Company in India
Monitor Inclusive Markets’ Role
Monitor is well positioned to help incubate new Housing Finance Companies focusing on the low
income sector, through its knowledge of the low income space in India as well as its deep networks
Disseminate
Concept & Help New
Players Adopt the
Business Model
Facilitate Access to
Capital
Link HFC to key
players in the Low
Income Housing
Ecosystem through
Monitor’s networks
SFS-HMM-VBHL 2nd Review Blank Loop_v8-081022-SA

Introduce the concept of housing finance and disseminate information on the commercially
viable business opportunity to provide housing finance to low income customers to broad
groups of stakeholders

Actively assist new players interested in entering the HFC space with their market entry
strategies and business plans

Assist in preparation of Information Memorandums for HFCs looking to raise funds

Connect HFCs to Private Equity investors looking to invest in the low income housing
finance ecosystem

Actively assist in the fundraising process through broader introductions and brokerage with
sources of capital such as multilateral institutions, foundations, impact investing networks
etc.

Assist entrepreneurs through our knowledge of the process of setting up an HFC and
introductions to experts and prior successful applicants

Connect the HFC to lawyers and technical experts with deep expertise in housing finance

Introduce the HFC to Monitor’s vast networks of developer partners, and facilitate tie-ups
between the HFC and specific low income housing projects
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