Self-help groups can take loans to build a house

National Housing Bank (NHB) has tied up with Chennai-based Repco Foundation for Micro Credit to distribute micro-housing loans. This will enable the Self-help groups (SHGs) to take loans for constructing a home. Before, SHGs used to take loans for starting enterprises. National Housing Bank (NHB) along with Repco Foundation for Micro Credit will give out loans on a pilot basis in five districts in Tamil Nadu.

Repco Foundation for Micro Credit, has been promoted by State-owned Repco Bank, is a Section 25 entity and has so far distributed loans worth Rs 50 crore among 5,000 SHGs.

In India, there is a provision for non-profit / public charitable organizations which can be registered as trusts, societies or a private limited non-profit company, under Section-25 companies.

"Our experience with SHGs shows that at least 90% of them want assistance for housing. We plan to disburse at least Rs 10 crore of credit for housing this year," said Mr M Balasubramanian, managing director, Repco Bank. In the initial stage the loans will be distributed in five districts in Tamil Nadu – Nilgiris, Coimbatore, Trichy, Madurai and Karur.

The ticket-size of the housing loan will range from Rs 25,000 to Rs 2 lakh, at an interest rate of 11.5%. "This loan is for people who already own the land and will be mostly used for renovation and additional construction, which usually takes around Rs 50,000," Mr Balasubramanian said. Also, as per the agreement, NHB will provide 100% refinancing for the loans disbursed.


A study was conducted on housing microfinance by IFMR's Center for Micro Finance according to the result of the study the main challenges faced by the housing microfinance in India are funding sources and security linkages, in terms of complicated land titles and security issues. Also, as housing is a consumption loan with no returns, unlike a business venture, micro finance institutions are reluctant to meet the housing demands

Industry analysts say that housing microfinance is still at a growing stage in India, with only a small group of micro finance institutions having disbursed this form of credit.

"This is mainly because the lending methodology is completely different and the repayment period is much longer than the normal loan period," said Ms Minakshi Ramji, research associate, Centre for Micro Finance- Institute for Financial and Management Research (IFMR)

In case of Repco's, the loans will be disbursed only to borrowers who have been associated with them at least for two years and each SHG will give the credit to the individual. "There is a credit guarantee provided by the group. The repayment period in such a loan is 84 months, compared to a normal loan which is 12 to 24 months," Mr Balasubramanian said. No collateral will be required for the loans up to Rs 50,000.


According to a report by NHB, in spite of refinance support to primary lending institutions, in rural areas the housing credit has remained dormant at 10% of the total bank credit during the last few years. Approximate calculations indicate that even by 2020, only 60% of India's population will be in the rural areas, in spite of increasing trends towards urbanization.