Swarna Pragati Housing Microfinance Pvt. Ltd. (Swarna Pragati), a New Delhi based company became the country’s first housing finance company to launch a dedicated Housing Microfinance product. The company has targeted its first batch of loans in the suicide prone district of Yavatmal in Maharashtra where it plans to disburse Rs 3 crores to more than 100 Self Help Groups (SHGs) consisting of more than 500 beneficiaries by the end of this month.
Micro Housing Loan Scheme by Swarna Pragati
Launched on International Women’s Day the scheme is focused on women beneficiaries particularly those belonging to Low Income Groups (LIG) and Below Poverty Line (BPL) families in underserved rural areas including landless laborers and small and marginalized farmers. The company proposes to use the huge network of Self Help Groups in the villages to identify clients and monitor the loans. The entire loan delivery process including identification, sanction, disbursement, monitoring and follow up will be handled by them with the support of grassroots NGOs.
The company is already providing training in handholding skills and capacity building to empower SHG members to play a wider role in the socio-economic environment in their village. It plans to make them vibrant and active vehicles for delivery of financial services and livelihood intervention. The bulk of the loans will be disbursed in the remote villages of Pandarkawda tahsil which is a highly backward, tribal and Naxal infested area.
Swarna Pragati is the first company to implement the concept of productive housing being propagated by National Housing Bank.
Three unique features of the company’s product offering which make it a pioneer in Rural Housing Finance are:
Firstly, apart from a component for housing loan there is a component for income generating activities so that the borrowers can generate income for repaying the loans;
Secondly, it has introduced the concept of modular or incremental housing where a house is divided into numerous components viz., roof, flooring, kitchen, toilet, well, work shed etc., and financing is done for one or more modules at a time keeping in view the psychology of seeking short term loans with affordable repayment installments (EMIs) which has not been captured by any other housing lender. The housing loans are provided both for fresh construction and for renovation/repairs/up-gradation of existing houses.
Thirdly, the focuses is on habitat and hence work-sheds, wells for water supply, toilets and renewable energy sources form an integral part of the product offering and are also financed.
Low income households, particularly in rural areas, seldom have clear legal land titles, though they often have para-legal rights of some sort, which are not accepted as collateral by the banks and financial institutions. Many of them may not have a full land title but possess a documentary right to ownership, such as tax receipts and a legal protection from eviction. Swarna Pragati has tried to overcome this challenge by placing greater reliance on social collateral. Unlike other lenders it does not require a title to guarantee the loan and accepts less formal types of collateral and collateral substitutes making financing more accessible.
It has tried to use the traditional community based strength of grassroots people’s institutions like Gram Sabha and Gram Vikas Samiti to overcome arcane legal complications and necessity of elaborate documents. The company has also done away with legal scrutiny which entails high costs and cumbersome procedures for borrowers. It is considered in housing industry circles as a path breaking initiative as it was a major hassle for microfinance borrowers.
The nature of conventional housing finance is not microfinance in character. The loan sizes are large, given the individuals, having ling tenor and against collateral of the house. MFIs in contrast provide loans of one to three year long. Swarna Pragati combines the strength of both these models to make housing affordable and accessible for the low income groups.
A key feature of the company’s loan delivery system is that loans are delivered at the doorstep through mobile staff of NGOs who also collect the monthly installments. This will help rural borrowers save time and overcome physical accesses barriers and considerably reduce transaction costs for them. The whole scheme has been suitably incentivized with incentive for prepayment. Prepayment will allow borrowers to actively manage their own risks of fluctuations in income by paying ahead in good times. Since informal sector borrowers have lumpy cash flows, it will help them in overcoming prepayment penalties which is a critical issue in housing microfinance.
Apart from conventional credit parameters the company uses its own SHG rating model that captures both the financial and social strengths of the group. Wherever required Participatory Rural Appraisal (PRA) techniques are also being used. One of the objectives of the model is to conserve the social and development character of microfinance without diluting financial norms.
The company is headed by A Ramesh Kumar who was the Chairman of NABARD’s Committee on Rural Habitat, whose report is the most comprehensive document on rural habitat and the source of government’s national policy on rural housing. He was the moving spirit behind the emergence of a microfinance wave in Central India, particularly Maharashtra which had a very weak network of NGOs and MFIs. The region had historically lagged behind but suddenly emerged as a top national player in microfinance.
The model publicly known as SBI Mumbai model has now been embraced by the entire banking industry. The other company executives include former senior executives of SBI, Raj Kumar Singh who has handled microfinance business extensively in Siliguri belt of West Bengal and Moin Qazi, a microfinance expert who was the key architect of success of IFADs microfinance program in Chandrapur and Gadchiroli districts of Maharashtra.
The company staff has a strong exposure to the Self Help Groups in Maharashtra on account of their long engagement with them in their promotion, nurturing, training and their orientation in both development and enterprise acumen. The company has undertaken several research studies in Yavatmal viz., women empowerment through microfinance, need for housing and gap analysis on present products and product delivery channels available to the borrowers for a better understanding of the ground realities and needs, and improvements essential for serving the rural borrowers in a better and cost effective way. The company has also undertaken financial literacy programs in the area. The company is focused on ensuring that Self Help Group members do not remain just units of revenue in the hands of their husbands but become vibrant, dynamic constituents of a localized financial architecture that was originally thought of when microfinance was conceived and designed.
Swarna Pragati uses a group loan model where the group has a single loan account, and the group is the primary unit that the MFI interacts with; a single repayment schedule is maintained for the entire group. The group provides credit worthiness to all its members; if one member is delinquent in the group, then all the contracting group members are also considered delinquent. This is based on the principle of joint liability which provides peer pressure and serves as social collateral.
In Swarna Pragati model, inspite of the group being primary unit that participates in transactions, the performance history of each contracting member is calculated in a slightly different way when compared to how it is calculated for a regular group loan. Here, all transactions (disbursals, payments, adjustments, bulk entry, and so forth) take place at the group level but initial loan account creation specifies the amounts given to each individual, the purposes for these amounts, and the way these loans affect the calculation of individual performance metrics. Good individual credit histories are thus built and recognized through incentives and documented for research.