According to a Monitor Group report there is a ‘vibrant housing market in urban India’ seen from the spectacular growth in housing finance at 36% CAGR for more than a decade. However, formal housing finance has not reached lower income groups in India, even in urban areas. This is because of the high perception of risks in lending to this income group, the difficulties of verifying incomes in the informal sector, and the high transaction costs of collecting repayment relative to the size of the loans. Despite the very limited availability of formal housing finance, families living in informal housing settlements have clearly been able to build homes, and to make regular incremental improvements to their homes.

A survey done in 2009 in Hyderabad showed that incremental housing happens over multiple stages as and when the need arises (e.g. adding a tiled/concrete roof, adding a room, laying some pipes etc.). In fact, incremental building accounts for 50-90% of residential construction in all developing countries. However, there is very little research available on how communities actually access the finance needed for these incremental improvements. The dearth of such information prevents the government and the private sector from crafting financial instruments that effectively address the needs of low-income residents.

Transparent Chennai, a project housed at Centre for Development Finance, IFMR Research, will be conducting a pilot research study with the support of Department of International Development, UK (DFID) that can help to fill this gap in existing research. We will be conducting a survey in two low-income areas in Chennai to identify sources, methods of access, and amounts of housing finance, types of incremental housing improvements carried out, rates of interest borrowers are paying, and whether sources of finance have any relationship to the security of tenure, in order to better understand residents’ needs and behaviors. Such research can help create financial products and policies that complement and strengthen the use of personal savings and extended family contributions towards housing investments, but which provide an alternative to high-cost borrowing, such as those from moneylenders. Such research will be important in ensuring that new programs such as the Rajiv Awas Yojana, which has a housing finance component, do not close off existing avenues of access to finance among residents. Over the next few weeks, as the project progresses, we will keep you updated on interesting data and insights from the field.

Forming the basis to this project is the PPD process, which is a crucial initial ingredient, involving identification of various stakeholders cutting across diverse functions and their analysis. Somasundaram of CDF explained “We met an array of stakeholders ranging from elected representatives of panchayats, farmers, entrepreneurs who manufacture and sell bronze idol and lamps, vendors in vegetable and fish market, industry practitioners, bankers, NGOs, Government officials etc. Also we got hold of the District Collector and got the list of line department officials who would be of use to this initiative.”

Further to this on 1st July 2010, a one-day workshop was held in Thanjavur, one of the operational areas of the project, where a PPD was conducted. The participants were the horticulture and agriculture officials from Thanjavur district administration, academicians, union chairman of Thanjavur, secretary of chamber of commerce and representatives of – farmers’ association, bronze idol association, flute making and mud-idol association, and Bus owners association.

The participants were divided into groups and were asked to frame a vision statement for Thanjavur in the year 2015 – they identified “Self-sustained Thanjavur” as their vision. Having dealt with the ideal vision, the participants ventured towards identifying obstacles in reaching towards the said vision, some of which were: Non-availability of water inflow for paddy cultivation and non-availability of storage godowns for paddy; Poompuhar not procuring the bronze idols from the manufacturers; Government’s non promotion of agro-based industries; Lack of encouragement in developing temple-based tourism and non-availability of policy for rotation of crops. The existing procedural delay in setting up of business was also pointed out.

The participants realized the need for innovations in agriculture related activities. Also the information shared by the Tamilnadu Agriculture University on the manufacturing of small weeder and selling the same at reasonable cost for the farmers (which is been imported now at higher rate) was quite useful to them.

At the end of the day the participants formed a working group, comprising a healthy mix of private and government representatives, with consent to meet once a month (first meeting on 26th July 2010) for setting up priorities to be carried out to achieve the identified vision.

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Somasundaram, Progam Head – Development Metrics and Lalitha N, Project Manager, of CDF contributed this post.