Housing finance for 'informal titles': Shubham's insight into displacement issues
Displacement and resettling is one of the major issues that urban development in India and other emerging markets are facing. Ajay Oak, Co-Founder and COO at Shubham, a housing development finance company, feels that people flocking from across India to its cities in search of a better livelihood is causing an enormous stretch on the resources of these cities. “With less than required funds at hand, urban bodies have been focused on providing bare minimal services in their area and in most cities provision of low cost/affordable housing has been neglected. Added to the fact that most of these migrants work in informal professions, access to credit is a big challenge for them and further dampen their chances of getting a good and safe home,” he says.
Fresh from series-C founding, Shubham has recently joined the Business Call to Action(BCtA)– a global initiative that challenges companies to develop inclusive business models for development impact along with commercial success. Besides expanding Shubham’s global network for new learning and linkages with stakeholders,-its association with BCtA brings attention to the importance of housing finance among the informal income segment.
Q: Can you tell us a little about the general problem of housing for the population that lives on an informal income in India?
A: The problem of displacement arises not so much from ‘informal income’ but from ‘informal title’. Families do not want to invest due to lack of tenure security. They rarely get access to formal credit in India, especially in the context of housing. Less than 5 per cent of the country’s population files income tax returns and it is estimated that almost 55 per cent of the population does not have any formal documents to prove their earning capacity, which in turn leads to these households getting excluded from formal credit. These households then resort to borrowing at very high costs and for short tenors thereby reducing their affordability and driving them to embrace informal/illegal settlements and/or unsafe housing.
Q: Shubham stated that a key element for allocating loans is by engaging informal customers in a discussion about their life story. What exactly are the elements you are looking at?
A: Our interactions with families are intended to identify two key points – ‘is the property they want to purchase the right choice for them?’ and ‘can the family afford it at this point of time?’ Discussions revolving around distance from workplace, impact on earning potential, proximity to schools and medical facilities, allow the family to think through the practical aspects. Further discussions around their source of equity, monthly savings, potential one-time expenses, and the long-term nature of EMI commitments bring out the true approach to affordability and allows them to make a decision on whether this is indeed the right time to make this commitment.
Q: What procedure do you follow in case a customer is not able to pay back the credit?
A: As in any lending business there are some customers who find it difficult to service their instalments due to impairment in their cash flows post availing the loan. Since our relationship is of a long-term nature, we try to work with the borrower to look for avenues as to how she can improve her cash flows and/or work with her to find a suitable buyer to dispose of the property. In most of the loans, the client would have paid almost half the price of the property with the remaining coming from Shubham. In such tight cash flow situations it is easy for them to take that cash out of the property and rebuild their businesses.
Q: What are the projects you are working on and what are the main challenges?
A: Currently, the aim is to expand our reach within India and allow 50,000 families to own better and safer homes by 2018. Shubham is now present in Bihar, Chhattisgarh, Delhi, Gujarat, Haryana, Jharkhand, Madhya Pradesh, Maharashtra, Punjab, Rajasthan, Uttar Pradesh, and Uttarakhand. We are optimistic because our products have been well-received by the market and the delivery model has been tested over the last four years. The key now is to ‘institutionalise’ the organisation and improve the efficiencies to bring this benefit to a large number of households in a systematic manner.
To learn more about housing issues and how Shubham is tackling them, check their website.
Image credits: Shubham.co