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Practical Challenges of the Informal Sector &
Financing Challenges of Informal Settlements
Mathew Joseph
AUHF - 2007 AGM & Conference Program, Ghana - September 2007
Mathew JosephSenior General Manager
Housing Development Finance Corporation Limited - Indiaconfidential
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�Urban Area’s
� Housing Shortage - 16 Million Units
� 80% of which are EWS/ LIG requirements
Indian ScenarioHousing Requirements are 45 Million Units
(including 7 million back log)
� 80% of which are EWS/ LIG requirements
�Rural Area’s
� Housing Shortage - 22 Million Units
confidential
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Practical Challenges of the Informal Sector
Practical Challenges of the Informal Sectorthe Informal Sectorthe Informal Sector
confidential
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� Issues on Local Government Support
� Lack of strong local Government to manage
Urban Planning.
� Lack of Fiscal strength and Enforcement
Practical Challenges
� Lack of Fiscal strength and Enforcement
Credibility of local Governments.
� Lack of Fiscal Incentives for the Private
Players.
confidential
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� Lack of appropriate Government policy.
�Stamp Duties - currently same for EWS/ LIG/ HIG.
�Non-availability of land at affordable/ reasonable
Practical Challenges
�Non-availability of land at affordable/ reasonable
cost to EWS/ LIG.
�Disaster Resistant Housing to withstand floods,
earth quake’s, etc…
confidential
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�Relocation and Rehabilitation Issues.
�Ownership in Urban Slums/ Low Income
settlementsis often illegal or quasilegal.
Practical Challenges
settlementsis often illegal or quasilegal.
�MFI’s targeting Women folks.confidential
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�Financially & administratively weak village
Administration and its capacity to mobilise
resources to manage Projects.
�Government Agenciesnot playing the role of the
Practical Challenges
�Government Agenciesnot playing the role of the
Facilitator/ Enabler to the desired extent.
�Deficient Infrastructure especially drinking water,
health care and primary education.
confidential
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�Factors to be addressed in the Informal Sector
include
� Social
� Cultural
� Production Resources- Quality of Housing
Practical Challenges
� Production Resources- Quality of Housing
� Institutional
�Changes in Social System with the decreasing
reliance on self help - Mutual Sharing.
confidential
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�Dominance of Caste & other social systems.
�Migration of the educated & economically well
off.
Practical Challenges
�Exodus of Skilled labour to cities & Foreign
Countries.confidential
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�Settlement plan not in place that optimises use
of land, supportive to incremental growth with
Infrastructure Services being provided.
Practical Challenges
�The lack of adequate support for the private
sector in areas of land development,
infrastructure, technology, improved design &
construction.
confidential
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� Limited Access to New Building Materials,
Construction Methods & Technology.
�Construction cost and quality requirements.
Practical Challenges
�Absence of Land Records/ Imperfect Title Documents.
� Issues of Repossession
� No Clear Land Titles� Legal Impediments
confidential
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Financing Challenges of
Financing Challenges of of
Informal Settlementsof
Informal Settlementsconfidential
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�High Credit Risk perceived for the EWS/LIG/
Informal Sector due to historical factors.
Financing Challenges
�High Transaction & Servicing costs due to LowDensity & Access Issues in Rural Areas.
confidential
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�Higher Operating Cost on account of
� Low Average size of Loans
� Larger Number of Borrowers
� Vast Area of Operations
Financing Challenges
� Vast Area of Operations
� Inability to assess Credit Risks
� No Pay Slips.
� No Tax Returns.
� Uncertain Cash Flows.
confidential
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� Lower Profit Margin to the lender due to
� Smaller Transaction sizes.
� Fixed Costs of each Transaction.
�Financing Challenges in arranging long tenor
Financing Challenges
�Financing Challenges in arranging long tenor
loans for the lending agency.
�Non Buoyant Rural Economy as measured by the
decline in the share of Agriculture.
confidential
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�The absence of lending skills required by the
intermediary agencies like an NGO.
�Different schemes being offered by the NGO
leading to loss of focus.
Financing Challenges
�The Intermediaries interest wanes as the years go
by due to the long term nature of the loans.
�Schemes are operated with no margin money &
others as a grant.
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�Regular contact with the intermediary agency not
being maintained by the lending agencies.
�Problems in getting the Due Diligence of the
intermediary agency conducted.
Financing Challenges
� Lack of Banking Access inspite of having the
worlds largest network in the Banking Sector.
�Under developed Housing Credit System &
Institutions.
confidential
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� Indian MFI’s being vary of building up a large
Housing Loan Portfolio.
�Targets not being set by larger Banks in Lending
to SHG’s.
Financing Challenges
to SHG’s.
� Informal Credit being Expensive & Exploitative.
�Availability of grant funds side by side, results
in the beneficiary tending to default on the
commercial loan.
confidential
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� Irregular and/or seasonal Income during the
Loan Tenure (say 7 - 15 years).
� Lack of tangible proof for Income Assessment,
Financing Challenges
� Lack of tangible proof for Income Assessment,
Savings & Cash Flows.
� Lack of Collateral or Intangible Security
Arrangements which may not be enforceable.
confidential
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�Process for Verification of the Beneficiaries.
�Absence of Professional Collection Agency.
� Issueson Title of the Property.
Financing Challenges
� Issueson Title of the Property.
�Non-availability of Title Insurance & Mortgage
Insurance.
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�Registration of Mortgage not in place to prevent
Sale before loan is closed.
�Registration in joint names of the spouse normally
ensuresrepayment.
Financing Challenges
ensuresrepayment.
� Little being done for providing reasonable sized
loans for the LIG segment for their productive
requirements of funds.
confidential
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� Low Income & High Incidence of Poverty affecting
Capital Formation Savings Rate, Purchasing Power
& Disposable Surplus.
Financial Challenges
� Interest Subsidy as a Substitute for Tax Benefits.
�Non-availability of Title Insurance & Mortgage
Insurance.
confidential
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Way ForwardWay Forwardconfidential
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�Ways to Expand Housing Finance to EWS/LIGs
� Relaxing Building Bye-laws
� Permitting Higher FSI
� Revampingof Land Title Systems
Way Forward
� Revampingof Land Title Systems
� Creation of Zoning and Land Use that specifically
encourages low income Housing.
� Introducing concept of TDR’s.
confidential
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�Fiscal Incentives to the Building Materialmanufacturers to encourage Appropriate/Alternative Materials and Technologies.
�Encourage Creating a stock of Innovatively
Way Forward
Managed Rental Housing.
�Encouraging Social Housing Like Night Shelters forEWS/ LIG Segments.
confidential
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�Encouraging Township type of Development in theoutskirts.
�Developing the Secondary Mortgage Market.
�Developing Suitable Refinance Schemesto Boost
Way Forward
�Developing Suitable Refinance Schemesto Boostthe Supply of EWS/ LIG Housing.
�Modificaiton of Laws like Land Ceiling, RentControls - Encouraging Public/ PrivatePartnership.
confidential
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�Capacity Building Program on Low Cost Housing
for Architects, Engineers, Builders, Etc…
�Promoting Mixed Use of Land for cross
Way Forward
�Promoting Mixed Use of Land for cross
subsidization of EWS.
�Designing houses which are adequate shelter and an
efficient work place at an economic cost.
confidential
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Challenge is to provide speedy affordable credit to
Low Income Individuals without much
Way Forward
paperwork, without collateral's, at the
borrowers door step in cash.confidential
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Thank You!Thank You!Thank You!Thank You!confidential