Housing Micro Finance: Case of IASC

HDFC-IASC
An introduction HDFC was incorporated in 1977 with the goal of promoting home ownership by providing long-term finance to households for their housing needs. HDFC was promoted with an initial share capital of Rs 100 million. The primary objective of HDFC is to enhance residential housing stock in the country through the provision of housing finance in a systematic and professional manner, and to promote home ownership. Another of HDFC’s objectives is to increase the flow of resources to the housing sector by integrating the housing finance sector with the overall domestic financial markets.

Palmyrah Workers Development Society (PWDS) is a leading Non Governmental Organization (NGO) in South India operating in the states of Tamil Nadu and Kerala from its base in Kanyakumari district. Since its inception in 1977, PWDS has been consistently working for the upliftment of the palmyrah workers and other weaker sections of the society. Currently its services reach out to 35,000 families and 1600 groups in 1100 villages of 25 Taluks in 8 districts. HDFC in collaboration with PWDS had financed over 1800 dwelling units of Economically Weaker Sections. The close rapport that developed between HDFC and PWDS led to the formation of the Indian Association for Savings and Credit (IASC).

The beneficiary group
The important motive of HDFC promoted IASC is to shape a sustainable delivery strategy that would disseminate housing credit to the poor in an efficient and effective way. One of its stated objectives is to promote home ownership, housing up gradation and community infrastructure among the weaker sections and lower income groups of society. Traditionally, the housing needs of the economically underprivileged have not been addressed sufficiently which has given rise to slum settlements especially in urban areas. However, IASC experience suggests that with suitable delivery channels, methodology and product medication, it is possible to provide housing finance solutions to the poor in a sustainable manner.

Products and Services
IASC has developed a range of loan products attuned to the needs of its clientele. These products and the terms at which they are lent were developed through a detailed market. These products are flexible and responsive to the changing needs of the stakeholders. The housing loan portfolio of IASC consists of the following products:
• New house construction loan of upto Rs45,000.00
• Existing house extension loan of upto Rs22,500.00
• Repair and maintenance loan of upto Rs15,000.00
• Plot purchase loan of upto Rs20,000.00 and
• Loan for construction of sanitary latrines of upto Rs5,000.00

Besides, IASC also provides small loans for small businesses as well as consumption needs of its clients.
Business Linkages – Strategy
IASC derives significant synergies from HDFC and PWDS. It benefits from the goodwill created by PWDS in its market as well as from the understanding of the nature of demand, which comes to it because of its association with PWDS. HDFC provides it with loan funds and professional skills necessary for the management of a credit program. IASC relies on building and managing linkages with local NGOs for its credit operations. IASC itself does not form groups (though it follows group based lending methodology), rather it relies on its partner NGOs to promote groups and impart the necessary training to them. IASC focuses solely on providing credit and savings services. Also, IASC takes the responsibility of loan monitoring and recovery.

IASC: Outreach and Potential
By 2002, IASC was operating in four districts of Tamil Nadu with 18 affiliated NGOs. Its services had reached 1180 SHGs with a total number of 23245 families. Over four thousand loans had been disbursed by August 2002.

Given the demand of housing services in its region of operations, IASC has a huge potential market. It is projected to reach over 20,000 loans by the end of year 2004, with an average loan size of over Rs. 22,000.00. It plans to reach over 50,000 groups in this period.

Investment and Costs
While IASC started with an equity base of Rs3 millions, it had also been able to off take credit of around Rs33 million from HDFC at rates of interest varying between 8% to 12 % per annum depending on the prevailing rates in the macro economy during the period 1999- 2002. This translates into an average drawal of over Rs 10 million/year.

Private – Public partnership opportunities
HDFC has a national presence, which coupled with its own evolved understanding on building Micro Finance Institutions, might lead it to explore increased coverage, either through IASC or a replication of this concept (i.e. join hands with other NGOs to promote IASC like organizations in other parts of the country). There is also an opportunity for IASC to broad base its borrowings from other sources as well, which could be one of the key aspects of replication. IASC may look beyond HDFC and get other financers interested. IASC has already mobilized loan funds from Small Industries Development Bank of India, Can Fin Homes and Unit Trust of India Bank apart from HDFC. HDFC’s own involvement in IASC is rooted in its concern for providing easy and efficient access of a range of financial services and products to the low-income communities belonging to the informal sector. HDFC would therefore want to prepare IASC to address the larger challenge of up-scaling its operations profitably and thereby impacting a larger segment of the EWS in India. However, as it is registered as a section 25 company, IASC cannot provide returns on equity and this limits its appeal to other financers.

Contact Addresses
HDFC Head Office: Ramon House, 169, Backbay Reclamation, H T Parekh Marg, Churchgate
Mumbai 400 020.
IASC Administrative Office: Indian Association for Savings and Credit (IASC), 3-100 G, ‘Rehoboth’, Crystal Street, P.B.No. 19, Marthandam – 629 165, Kanyakumari District, Tamil Nadu, India. Tel: 91 - 4651 – 672738, 672745 Fax:91 – 4651 – 672738