Lessons from Customer's perspective

Rekhaben Mansingbhai Maurya, Flat no. G-120, Umang Lambha

The issues that customers face are related to 'qualifying' for a housing loan and to the actual terms of borrowing. Entry barriers for home loans for this market segment, such as documentation, banking habits and income proof hinder mainstream housing finance companies and banks from lending to low income customers even though they are considered a “priority sector”. Based on the DBS experience, it is essential to invest in providing facilitating and handholding support for the customers. DBS established Griha Pravesh to provide such support and is actively promoting its use by other developers.

People with incomes of up to Rs.20,000 per month end up paying almost twice the interest that higher income customer's pay and that too in half the time. Also they get much lower loan to value ratio. The risk perception is unduly high despite extremely positive experiences of Housing Finance Institutions (HFIs) and Micro Finance Institutions (MFIs) dealing with this sector. Given this situation, the margin money component becomes a big barrier for many low income customers who would otherwise make it through.

People in this segment generally have very strong ties with their kith and kin, and helping each other is fundamental to their existence. Therefore joint families are not uncommon. However when a housing loan is given, HFIs still evaluate their credit worthiness in a very myopic manner owing to 'Guidelines of the Reserve Bank of India'. Thus, a family of 8 members having lived together for more than 10 years with a combined monthly income of Rs.22,000 is not eligible for a Rs.4,40,000 loan (given by 30% of monthly income as EMI), but will probably get a loan based on the incomes of the 'applicant and the co‐applicant'. Therefore their actual eligibility may come to about Rs.240,000, and a family that requires a minimum living space of about 500 sq.ft. can only afford a house of about 350 sq.ft. 

A majority of low income customers live in rented accommodation (even in informal settlements and slums) and find it difficult to pay both rent and pre‐EMI during the construction period. Therefore housing loans with a moratorium on interest during construction is desirable.