Housing to Urban Poor
The interest subsidy schemes need to be publicised and made easily available to the urban poor
In an attempt to address the housing problem of urban poor, an innovative scheme of Interest Subsidy for Housing the Urban Poor (ISHUP) was launched by the government of India (GOI) three years ago under flagship programme ‘affordable housing for all’. The scheme envisaging the provision of interest subsidy to even poorest of the poor segments will enable them to buy or construct houses. An urban poor who does not own a house in his/ her name or in the name of his/ her spouse or any dependent children, can avail the loan facility. Such beneficiaries who own land in any urban area but do not have any pucca house in their name or in the name of their spouse or any dependent child is also be covered under the scheme.
Basically, the interest subsidy scheme is to address the issue of availability of institutional finance to people who are usually not considered credit worthy by banks and housing finance companies. Financial institutions often fear that this category of borrowers might default on their payments and as a result they normally avoid lending to them. Not only the financial institutions shy away from this category of borrowers, it sometimes works the other way round also. People who comprise the Economically Weaker Sections and Low Income Group category are reluctant to approach banks and housing finance companies for housing loans.
The features of the scheme envisage that individuals as well as group housing borrowers are equally eligible under the scheme. As per the scheme those planning to form cooperative group housing societies or organisations like employees welfare housing, labour housing etc. would be given preference and wherever possible construction of houses by such cooperatives by way of 1+3 storeyed buildings should be promoted so that cost of land is shared among beneficiaries.
Beneficiaries would be identified by the State Urban Development Authority (SUDA), a state nodal agency nominated for the purpose with the aim of assisting the borrowers in paperwork and procedure of the bank loan.
For persons belonging to weaker section, the scheme provides for a maximum subsidized loan amount of Rs. 1 lakh for a house of at least 25 sq.mts. For LIG individuals, the scheme provides for a maximum subsidized loan amount of Rs.1.60 lakhs for a house at least 40 sq.mts. However subsidy will be available for loan up to Rs. 1 lakh only. Additional loans in both the categories, if needed, would be at unsubsidized rates.
Loan repayment period is of long duration ranging from 15 years to 20 years. As far as security is concerned, the mortgage of the dwelling unit may be accepted as primary security. However there would be no collateral security/ third party guarantee for loans up to and inclusive of Rs.1 lakh.
What would be the amount of subsidy? Interest subsidy of 5 per cent will be enjoyed by the borrower. The Net Present Value (NPV) of the subsidy will be arrived at on the basis of notional discount rate of 9 per cent p.a. for the period of the loan.
But it’s unfortunate that the scheme has failed to deliver. Firstly, urban poor have not been apprised about the scheme. Secondly, the scale of finance is not matching the current needs.
Besides, we have seen that most housing financing initiatives carried out by governments and banks often end up benefiting the high/middle income segment. Administrative procedures, terms and conditions set up by the government and banking institutions exclude the poor due to their low affordability levels. As the poor cannot meet the set stringent conditions; there is need to relax norms of availing the housing loan so that the scheme becomes viable, compatible and affordable for the urban poor.
Lastupdate on : Mon, 12 Nov 2012 21:30:00 Makkah time
Lastupdate on : Mon, 12 Nov 2012 18:30:00 GMT
Lastupdate on : Tue, 13 Nov 2012 00:00:00 IST
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