MICROCAPITAL STORY: SKS Microfinance, Madura Micro Finance and Grama Vidiyal to Offer Home Loans in India

According to a report in The Times of India, three Indian MFIs will begin offering home loan products to the rural poor. SKS Microfinance, Madura Micro Finance and Grama Vidiyal all plan to start rolling out home loans and home improvement loans to borrowers with good repayment records. According to Tara Thiagarajan, Chairman of Madura Micro Finance, the low cost construction model used by the rural poor has prompted the MFIs to offer the loans. Most people in Indian villages own plots and construct their own homes using indigenous materials.

The rural home loans will be structured similar to regular home loans offered to wealthier urban borrowers, but in much smaller sizes ranging from Rs 50,000 (approximately USD 985) to 2 lakh (approximately USD 3900), repaid in equal monthly installments. Some of the loans, such as those offered by Madura, will offer a four month repayment holiday during construction. SKS Microfinance plans to begin offering its home loan products next fiscal year starting in Andhra Pradesh, “We are still finalizing the interest rates,” said Suresh Gurumani, CEO and Managing Director of SKS Microfinance.

India’s largest mortgage lender, Housing and Development Finance Corp. (HDFC), recently lowered its retail prime lending rate by half a percentage point to 14 percent, according to an article on livemint.com. For floating rate loans less than Rs 30 lakh (approximately USD 59,000) HDFC’s rate now stands at 9.5 percent, and for loans over Rs 30 lakh the rate is 10.5 percent. Interest rates on fixed rate loans stand at 14.25 percent.

Loans for home improvement and home extensions, such as converting the thatched roof into a tiled one, adding bathrooms or other additional rooms, are expected to be in high demand in rural India. Both SKS and Grama Vidiyal intend to concentrate on home improvement and extension loans.

The home loan initiative in India comes as MFIs and multilaterals around the world begin to tackle affordable housing solutions for the poor. In a recent news wire summarized on MicroCapital, the Inter-American Development Bank (IDB) announced a USD 10 million financing facility to increase the flow of home improvement and mortgage financing to the low-income housing market in Peru. In another story reported last year by MicroCapital, the International Finance Corporation (IFC) and MicroFinanceBank Afghanistan (FMFB) signed an agreement to strengthen the bank’s capacity to introduce housing microfinance to low and middle income Afghans. Also reported by MicroCapital last year, the Overseas Private Investment Corporation (OPIC) provided USD 250 million of funding to new loan facilities enabling three middle-eastern banks to extend long-term mortgage lending to low-income households in Jordan.

Last year the Global Housing Foundation (GHF), supported by International Real Estate Federation (FIABCI), expanded its Micro Mortgage Program to provide access to affordable housing for residents living in some of the world’s poorest communities. GHF, which is accredited by the United Nations, received a USD 250 million commitment from Merrill Lynch. The program plans to develop 26,000 housing units over the next three years for resident living in urban slums.

As reported on the MIX Market, the microfinance information clearinghouse, as of March 2008, SKS Microfinance serviced 1.6 million borrowers, had a gross loan portfolio of USD 261.7 million, total assets of USD 336.9 million, a debt-to-equity ratio of 5.36, an ROE of 11.95 percent, and an ROA of 2.0 percent. As of March 2008, Grama Vidiyal serviced 224,000 borrowers, has a gross loan portfolio of USD 28.7 million, total assets of USD 30.8 million, a debt-to-equity ratio of 5.45, an ROE of 15.3 percent and an ROA of 1.63 percent. The MIX Market does not profile Madura Micro Finance. According to the company website Madura has 182 branches and disbursed total loans of USD 35 million in 2006-2007.