Paper
Microfinance and Rural Housing
Challenges and potential benefits for MFIs diversifying into the housing microfinance field
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18 pages
This paper illustrates the challenges and potential benefits for microfinance institutions (MFIs) interested in diversifying into the housing microfinance field, by focusing on the Indian case. The paper explains:
- The objectives of microfinance housing, which are:
- To meet a basic human need;
- To help in the establishment of a personal asset;
- To generate a productive asset.
- The market potential of rural housing and its financial sources, which include private and commercial institutions, the public sector and MFIs.
- Housing loans as an alternative for MFIs in a saturated market.
- Market segmentation and penetration.
- Various housing loan products, such as:
- Housing repair/improvement loans;
- New housing construction loans;
- Land acquisition loans;
- Infrastructure provision loans.
- Different lending methodologies in housing loans.
- The processes of determining loan eligibility, fixing building standards, risk management and technical assistance.
- The profitability challenge that includes:
- Cost versus affordability;
- Term mismatch and interest rate risk;
- Credit analysis.
- Bottlenecks in the housing program, such as:
- Locating sources of capital;
- Lack of understanding of the appropriate relationship between subsidies and financial services;
- Insecure land tenure.
The paper concludes that low income housing finance is not a myth and states that with the application of innovative credit modalities, housing finance for the rural and semi-urban classes can be a viable business for MFIs.
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