1. Practical Challenges of the Informal Sector
&
Financing Challenges of Informal Settlements
Mathew Joseph
AUHF - 2007 AGM & Conference Program, Ghana - September 2007
Mathew Joseph
Senior General Manager
Housing Development Finance Corporation Limited - Indiaconfidential

2. Urban Area’s
Housing Shortage - 16 Million Units
80% of which are EWS/ LIG requirements
Indian Scenario
Housing 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
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3. Practical Challenges of
the Informal Sector
Practical Challenges of
the Informal Sectorthe Informal Sectorthe Informal Sector
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4. 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.
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5. 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…
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6. Relocation and Rehabilitation Issues.
Ownership in Urban Slums/ Low Income
settlements is often illegal or quasilegal.
Practical Challenges
settlements is often illegal or quasilegal.
MFI’s targeting Women folks.
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7. Financially & administratively weak village
Administration and its capacity to mobilise
resources to manage Projects.
Government Agencies not playing the role of the
Practical Challenges
Government Agencies not playing the role of the
Facilitator/ Enabler to the desired extent.
Deficient Infrastructure especially drinking water,
health care and primary education.
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8. 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.
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9. Dominance of Caste & other social systems.
Migration of the educated & economically well
off.
Practical Challenges
Exodus of Skilled labour to cities & Foreign
Countries.
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10. 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.
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11. 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
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12. Financing Challenges
of
Financing Challenges
ofof
Informal Settlements
of
Informal Settlementsconfidential

13. High Credit Risk perceived for the EWS/LIG/
Informal Sector due to historical factors.
Financing Challenges
High Transaction & Servicing costs due to Low
Density & Access Issues in Rural Areas.
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14. 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.
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15. 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.
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16. 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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17. 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.
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18. 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.
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19. 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.
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20. Process for Verification of the Beneficiaries.
Absence of Professional Collection Agency.
Issues on Title of the Property.
Financing Challenges
Issues on Title of the Property.
Non-availability of Title Insurance & Mortgage
Insurance.
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21. Registration of Mortgage not in place to prevent
Sale before loan is closed.
Registration in joint names of the spouse normally
ensures repayment.
Financing Challenges
ensures repayment.
Little being done for providing reasonable sized
loans for the LIG segment for their productive
requirements of funds.
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22. 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.
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23. Way ForwardWay Forward
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24. Ways to Expand Housing Finance to EWS/LIGs
Relaxing Building Bye-laws
Permitting Higher FSI
Revamping of Land Title Systems
Way Forward
Revamping of Land Title Systems
Creation of Zoning and Land Use that specifically
encourages low income Housing.
Introducing concept of TDR’s.
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25. Fiscal Incentives to the Building Material
manufacturers to encourage Appropriate/
Alternative Materials and Technologies.
Encourage Creating a stock of Innovatively
Way Forward
Managed Rental Housing.
Encouraging Social Housing Like Night Shelters for
EWS/ LIG Segments.
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26. Encouraging Township type of Development in the
outskirts.
Developing the Secondary Mortgage Market.
Developing Suitable Refinance Schemes to Boost
Way Forward
Developing Suitable Refinance Schemes to Boost
the Supply of EWS/ LIG Housing.
Modificaiton of Laws like Land Ceiling, Rent
Controls - Encouraging Public/ Private
Partnership.
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27. 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.
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28. 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.
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29. Thank You!Thank You!Thank You!Thank You!confidential