The Government of India’s National Housing Bank (NHB) in partnership with the Repco Foundation for Micro Credit (RFMC), a subsidiary of the Indian Government’s Repco Bank that organizes the banks Micro Credit Scheme, recently launched a “Housing Micro Finance Initiative”. The initiative will provide loans to assist members of rural self-help groups in renovations and additional construction on their homes. NHB began providing housing micro-loans in 2004, yet they were mainly directed towards urban slum dwellers. Now, NHB and RFMC have the equivalent of USD 23.3 million to invest in a rural housing microfinance program and plan to use the equivalent of USD 2.3 million in credit to launch the program this year. The initiative will initially run as a pilot program in the state of Tamil Nadu.
The loans will range in size from the equivalent of USD 582 to USD 4,656, though the government expects most loans to equal USD 1,164. The interest rate on the loans will be 11.5 percent with a loan period of eight years. Borrowers will not be required to provide any type of initial individual guarantee. Considering that the loans are larger and extended for a longer term than traditional microfinance loans, some doubt in the feasibility of the program has been expressed. A more in- depth analysis of the feasibility of this type of project can be found in the 2007 “Institute for Financial Management and Research Centre for Micro Finance Working Paper Series No.19“, in which author Cheryl Young explores the opportunities and risks in expanding the microfinance industry through housing in India.
NHB and RFMC aim to give loans to self-help groups and non-governmental organizations to assist, mainly, in renovation and additional construction for rural homes. Borrowers must own land to qualify and be a member of a self-help group. Additionally, as Repco’s Micro Credit Scheme has involved previous outreach and credit facility to self-help groups, Repco will only consider self-help groups that have worked with them for at least two years and have a strong history of good repayment. They aim to reach 10,000 people.
NHB will use funds for refinance support for RFMC through Repco Bank. Repco Bank would be acting as the intermediary by dispersing funds to the rural self-help groups and NGOs. The self-help groups then take responsibility to distribute the loans to individuals.
Repco Bank is a public financial institution that works to extend credit facility to self-help groups through a Micro Credit Scheme. RFMC is a subsidiary of Repco Bank. It coordinates Repco Bank’s Micro Credit Scheme by providing support services to compliment Repco Banks micro-loans. RFMC is involved in the formation of the self-help groups, skill and business training and serves as a link to credit and banking services for the self-help groups. Repco Bank is considering consolidating RFMC to become a microfinance institution (MFI) in the future.
Since its inception in 2004, RFMC has supported Repco Bank’s total disbursement in microcredit of the equivalent of USD 6.5 million. The Micro Credit program has reached 6,000 self-help groups. Currently, RFCM and Repco are structuring a plan to disperse the equivalent of USD 23.3 million to 20,000 groups before 2010.
Repco Bank was established in 1969 by the Government of India and is currently under the jurisdiction of the Ministry of Home Affairs. Its initial aim was to assist in rehabilitating repatriates, or people of Indian origin that had returned to live in India, from Burma and Sri Lanka. Though it still provides support to such repatriates, the bank has expanded to provide a full range of retail products through 42 branches throughout southern India. It offers personal banking, home finance and credit transfer services As of March 2007, Repco Bank reports its total business to be USD 362 million.
By Sarah Knapp, Research Assistant
Business Line: NHB pilots rural housing micro finance scheme
Economic Times: Self-help groups can now avail loans to build a house
The Hindu: Chidambaram launches housing loan scheme for SHG
Institute for Financial Management and Research Centre for Micro Finance, Working Paper Series No.19, Cheryl Young, November 2007
Repco Foundation for Micro Credit
Similar Posts:
- MICROCAPITAL BRIEF: Incofin Places $4.3m in Equity in Varashakti Housing Finance via India Progress Fund
- MICROCAPITAL BRIEF: Annapurna of India Borrows $10m from MicroVest to Expand Microfinance for Rural Women
- MICROCAPITAL BRIEF: Abler Nordic Sells Equity Stake in Satin Creditcare, Provider of Microfinance to Low-income Women in India
- MICROCAPITAL BRIEF: Grameen Crédit Agricole Foundation Lends $525k to Smart Credit for Microfinance in Moldova
- MICROCAPITAL BRIEF: Mintoak of India Rolls Out App for HDFC Bank, Allowing Customers to Accept Electronic Payments
