New project approved in Virar (East)

MHFC has just approved a project in Virar (East) – Sanskruti Apartments. This is by the same builder of an earlier approved project – Vaishnavi Sai Complex – also in Virar (East) – where all 328 flats were sold out. This new project is small - 67 flats of which about 30 are in the smaller 1 RK (approx 350 to 400 sq ft size) category and thus less expensive (starting at about Rs 6.2 lakhs all inclusive). Booking opened Jan 1 - and MHFC has negotiated for its clients a special rate (Rs 50/sq ft less than the public rate - or approx Rs 20,000 savings) for a month. We are in discussions with vendor associations, NGOs and MFIs, who deal with the informal sector, and expect to help place the flats by the end of Jan.

For detailed information, see http://www.mhfcindia.com/approved-project.html OR please call our rep at the site, Savio d'Souza on 9821730702.

Note: MHFC is NOT a builder, and is not responsible for the quality and title of properties even if approved by MHFC for customer financing – buyers need to make independent verifications. We also do not receive any commissions from the builder. Our interest in spreading the word is solely to bridge the information gap – to make those in the informal sector aware of projects aimed at the LIG segment, and further, to make them aware of financing available.

Neetu moves into her new home

One of our first clients, Neetu, recently moved into her new home in Virar. She is certainly our typical customer - a housemaid, who lived in a central Mumbai slum in very poor conditions (small room, poor sanitation, common toilet, no open space, etc) with her husband (a driver), her mother, 3 brothers and a younger sister. She has been wanting to buy her own home (one with clear title and reasonable quality) for some time now and with her husband, could put down the 20% margin on a home purchase from a private developer. The issue was to find a bank to finance the remaining 80%. When we met her, she said she harboured little hope in getting a loan as she had been turned down several times for much smaller loans in the past - because of a lack of documentary support to prove her income. At MHFC, we were convinced not just about her ability to repay the loan (by verifying her income with her employer) but also her willingness (the loan tenor is set at just 5 years evidencing her strong desire to be debt free as early as possible).

Attached are a couple of pictures - one of her old home and one of the new building. Its still a squeeze for 7 adults to be living in a 360 sq ft flat - but Neetu puts this in perspective when she says they used to live in a 150 sq ft room, and hence find the new home very comfortable.

Panel Discussion - Informal Cities

I went to a discussion on Nov 7 organised under the Informal Cities Exhibition which was titled "Focus on Redevelopment in Dharavi" which had (a) presentations by Anirudh Paul (an Architect looking at an alternative way of redeveloping Dharavi) and David Satterthwaite (International Institute for Environment and Development) and then (b) a panel discussion with Gautam Chatterjee (CEO, MHADA) and Kalpana Sharma (the journalist who has written a book on Dharavi). The discussion was moderated by Sheela Patel, founder of SPARC.

The discussion was very interesting on a couple of counts - firstly to get an indepth understanding of the various forces at work in Dharavi (typography of the population, the inner street layouts, of course the new plan and the alternatives) but secondly, to also hear David's view that "slums are the solution and not the problem" ! If I understood him correctly, he was making at least two points - first being that migrations are always going to continue and the slums were the only practical low cost residential option for this influx which was responsible for keeping costs low for the whole city (in terms of supplying services) - second point was that around the world, it was getting to be an accepted fact that slum demolitions did not work and instead the focus was on slum upgradation - in terms of helping with sanitation / water / electricity / home improvement etc. He said that with state support. the slums he saw 20 years ago in various countries (Colombia, Brazil, Peru, Thailand, etc) had actually improved to a point where he would happily live there.

It was highly interactive in that the audience questions took up another hour and Sheela had to finally force close the discussion at 6.30 (after 2 and a half hours).

Interview with David Satterthwaite

Technology Trends in the Financial Inclusion Market

MHFC recently visited a technology conference in Hyderabad that showcased existing and emerging technology in the financial inclusion sector. The conference was attended by leading technology players such as IBM and Infrasoft technologies that have designed robust IT systems to support the Micro Finance Industry. They all seem to have leveraged their in house core banking technologies (which they have developed for regular banks) and have adapted them for the micro finance market.

The adaption process is truly fascinating. Most technology companies have started providing their CBD solutions to their clients in a Saas( Software as a service) model. This greatly reduces the sunk costs incurred by a budding MFI while allowing it to leverage all the essential core banking functionality it needs to operate.The Saas approach is single handedly the most beneficial service the tech companies are providing to MFI.

While the Saas model mainly deals with the back end processes, the implementation of technology at the frond end of the MFI operation is remarkable. In this case we were really impressed by the work FINO has done in this arena. They have designed and implemented mobile banking systems using the ubiquitous bluetooth enabled mobile phone (costing less than 80$) and integrated front end processes such as collections, disbursements, and loan management that were earlier completely detached and required manual data entry in order for them to be synced up with the core banking systems.

All in all it was a great conference, where I got to learn a lot about the processes and system being used by leading MFI today. Now we have the hard task to decide how best to leverage these wide array of technologies in order to meet challanges that MHFC will face in the coming years.

Mumbai Marathon (Jan 2010)

The construction industry is the single largest employer of migrant labour in India. Est at over 30 Million in number, they move to cities with their children and typically live on the construction sites itself. While they are at work, the children have to fend for themselves, and suffer from malnutrition, injury, and illness. They rarely go to school.

Mumbai Mobile Creches ("MMC") is an NGO based out of Mumbai which works with children of construction workers on building sites, specifically on health, education and safety. Its vision is for all children to have a nurturing and happy childhood and its mission is to promote ‘child-friendly sites’; where every child living on a construction site is able to enjoy their childhood. It tries to ensure that the first few years of a child‘s life are well nourished and stimulating, an essential foundation for a happy childhood, and it has a special focus on children below six.

MHFC is proud to be running the Mumbai Marathon (slated for Jan 2010) for Mumbai Mobile Creches.

For more info on MMC, see www.mumbaimobilecreches.org

NAREDCO conference - MHFC article

As discussed, MHFC is presenting at the NAREDCO conference on "Public Private Partnerships" in affordable housing - copy of our paper (being presented by Madhu, our Chairman) below:

Naredco Conference Paper

NAREDCO conference on PPPs in Housing

MHFC will be presenting at the 1 day NAREDCO (National Real Estate Dev Council) conference on Public Private Partnerships in Housing - in Delhi on Oct 9, 2009. This is a topic very close to us - as we believe that only by partnering with the state (housing boards, municipal corporations etc) can real impact be achieved as (a) the state is the biggest developer by far and (b) has real focus on EWS / LIG housing.

link to the event below
www.naredco.org/event_new2009.htm

Housing Boards

While its been very encouraging to see private developers enter the urban low income housing space (defined by us as being flats of approx Rs 5-6 lakhs), and we certainly want to partner with these developers, there is no question that in terms of numbers, the state continues to be the largest developer. While housing boards and local development authorities have always built for the EWS / LIG segments, in recent years, due to the govt's inclusion focus and the availabiity of JNNURM finance (for 62 cities), there have been several urban housing programs, which completely eclipse the numbers from the private sector. For eg - the state of Andhra has plans to build over 170,000 homes, Rajasthan over 100,000, cities like Ahmedabad, Surat, Mumbai, Lucknow have plans in the tens of thousands. More importantly, the state is driven by social objectives and thus irrespective of economic swings, will remain focussed on this segment. Further, while there will be some leakages, the buyer will be from LIG segments (as against buyers from higher income segments, including investors, being attracted to the private projects meant for LIG segments). Thus, if MHFC has to make impact, it will probably have to come from tie ups with state agencies like MHADA / DDA, state housing boards, municipal corporations, etc who are building for the weaker sections and need to fill the last gap of buyer financing.

CNBC Young Turks

Nachiket is on "Young Turks" this week - the 30 min program (by CNBC India) which features 3 young Indian entrepreneurs, especially those with a transformation agenda - please try and catch the show on Sat 11 am and Sun 12 pm - and of course let us know your feedback - link to the program site below (but note that the show is not yet uploaded)
www.youngturks.in.com

MHADA flats - tribal category "scam"

this story is quite ironical - builder allegedly makes 200 applications for MHADA homes under the scheduled tribes reserved category - and then has filed a police complaint against the 185 tribals who did not get allotted MHADA flats and encashed the refund pay order, which was sent to them - full story below.

HT article

Opening an account / Documentation

This morning I went to a leading private sector bank to open a DEMAT account in my wife's name - as background, we have had a joint account with the bank for over 12 years and I have a DEMAT account in my name. The branch is located close to my home and managers have visited my house several times to get papers signed in the past. As part of the documentation process, they asked for proof of ID (which is fine - she has several acceptable proofs of ID) and also wanted a proof of address. I explained that no utility bills were in her name - all in mine - but I could give a letter confirming that we lived together (along with a marriage certificate). Her Voter ID is registered at her parents home as is her Driving License. The bank said what about a bank statement confirming the address ? I said yes, we had this - in fact a statement issued by their bank. But then they asked was she the first or second holder ? I said joint - she could individually sign so first or second should not make a difference. They said no - if second, then it would not count. I tried to explain that if they were OK with the statement (her bank details as much as mine) being sent to a particular address, then they should be OK with the DEMAT statement going to the same addresss. They said no. I also tried to explain that they could confirm by physically coming over to the home which is 3 mins away. They said no - confirming through a personal visit did not count, but that I could open a bank account in her sole name which would sort out the problem.
But then how would she confirm the address for that ?

BBC world debate - Housing the future...

...A show that was aired recently on BBC - as a part of the World Debate series.

Staggering statistic / estimate -

The UN estimates that 4,000 new houses must be built every hour to meet global demand. A billion people currently live in slums – with 25 million a year set to join them.

The show is available at -

http://www.bbcworldnews.com/Pages/ProgrammeMultiFeature.aspx?id=196

update on low cost housing

it has been some time since we have updated the status of MHFC...

the happy stuff first..we are now fully operational and have disbursed our first few loans..many more are in various stages of processing....MHFC's tie up with Tata Housing for the Shubhgriha project is also generating customers from all walks of life who could not have accessed mortgage finance from formal sources..

every loan tells its own story, and we are now trying (unsuccessfully so far) to document the impact of the mortgages on our customers lives..

we are refining our processes and improving response times to customers, and trying to do all the right things..but there are some things beyond our control...like taxes, like interest rates...

a significant part of the cost of a home is taxes..collected at every point...excise duties, sales tax, octroi, service tax, stamp duty etc etc..this is estimated at over 40% of the cost of the house. If the government is serious about addressing the problems of housing the poor, one easy way would be to waive these taxes for home values below Rs 500 thousand. This would be easier and more transparent than the current methods of hidden subsidies and high costs of collection of multiple taxes..

coming to interest rates...we have to find a way to reduce the cost of capital to this segment..MHFC interest rates are a function of its cost of borrowing and cost of operations. HDFC SBI etc obviously have a lower cost of capital and better access to capital markets than a start up like MHFC. we intend to work hard at this because we know that our target segment is highly sensitive to interest rates..

more next time...

Budget

thoughts / quick summary on the budget impact on MHFC / affordable housing:

1. nothing in it for the private developers / financiers - no specific schemes / amendments to previous schemes

2. however, significant impact on govt schemes which directly and indirectly impact LIG / EWS housing:
(a) rural housing fund (run by the NHB) allocation to go up by Rs 2,000 cr - this is the refinance scheme which provides funds to HFCs at 8% - while all our loans would eventually qualify (since our suburban focus falls under rural), not sure how we will benefit as not sure what the availability of this resource will be after our qualification period (generally 2 years)
(b) JNNURM allocation to almost double to about Rs 12,800 cr - assuming this is 25% used for urban housing, this is about Rs 3200 cr - given that grant / subsidy for housing is normally capped at Rs 1.5 lakhs, I guess this can support about 200,000 homes - which is significant.
(c) Indira Aawas Yojana - this is aimed at rural housing - and allocation also increased (38%) to Rs 8800 cr - which is significant but not sure whether MHFC can access since mostly rural and very small ticket (Rs 25,000 loan size normally and house budget less than Rs 50,000 normally)

but the main announcement is the new scheme
(d) Rajiv Awas Yojana - for which details still awaited (and expected to come out on Aug 20) - which has recd funding of approx Rs 4000 cr and is aimed at urban low income housing - its expected to be on the lines of the JNNURM program - so a mix of grant (from Central Govt), land (from state govt) and loan (envisaged from the HFCs / banks which is where MHFC can play a role).

all in all, private developers might be disappointed by the budget, but for HFCs willing to partner with the states, there are possibiities

TATA Housing Tie Up

Tie up with TATA Housing

Updates on the sector...

There has been a lot of activity in the low-cost housing space recently - and this has also been reflected in the press coverage this sector has been getting. Here are a couple of interesting recent articles

A house for 3 lakh now

Jerry Rao's Fourth Act

More Supply

When we started MHFC a year ago, it was very difficult to find any projects catering to our segment (approx price point Rs 5 lakhs and size of flat about 350 sq ft). But it seems that the slowdown in the economy (and the lack of demand in luxury / higher price homes) has been positive for us. The response for the TMC project (initial allotment of 2000 flats received about 66,000 applications) and of course the overwhelming demand for MHADA allotments (about 750,000 applications for less than 4,000 flats) has also probably been inspiring for other builders to enter the fray. In the last month we have seen a little bit of a spurt in announcements. Other than the Virar project in which we are participating, (a) we have visited a site of 100 acres in Ambivali where Neptune Builders plans to build 10,000 affordable homes - in the first phase, 815 flats were offered (of which about 200 will be Rs 4.73 lakhs) and sold out. Based on this response, Neptune plans to announce bookings for the second phase in May (b) we visited another site in Nalasopara where Vini Builders plans to build a "township" of 475 flats - of which a proportion will be sold for 6.55 lakhs - slightly above our range but at least some builders are moving the price line down to our segment's requirements.
In addition to the above, we have received calls (one as far away as Erode, Tamil Nadu) from builders interested in developing specific projects - hopefully this will continue (even when the market improves for other segments) as increase of supply is absolutely crucial.

Application form...

... is ready.

Application form

Currently only accepting applications for two approved projects:
- Vaishnavi Constructions (Virar East)
- TM City (Karjat) - http://www.tmcity.in/

More projects are in the pipeline and will be posted soon on the website

Also ready - Survey form

New article on MHFC

A new magazine - Pluralist - focusing on social initiatives did a story on MHFC recently
http://www.mhfcindia.com/MHFC_article.pdf

Virar pics

Before I talk about the Virar project - just yesterday I was at a microfinance conference in Delhi and the chief guest was none other than the father of microfinance - Prof Muhammad Yunus. It was great to see him and hear him speak live. Simplicity and Humility personified.



Back to our project...

Key features of the project
- Four buildings almost 70-80% complete, other four at foundation stage
- Good location - close to the railway station and on a main road
- Really good quality of construction (including fancy PoP at corners on the ceiling)
- Impressive kitchen and bathroom fittings

Few pics -






Random pic (below) from the train - the Virar temple - it can be seen from all over in Virar

New Property at Virar / Drivers reaction

Last week (Friday), Ramesh (our property expert) and Nachiket went to check a property at Virar East - about 5 to 10 mins auto ride from the station - which is almost ready (about 3 of the 8 buildings are pretty much done with the rest to follow during the year). It seems that there could be about 100 flats available (of about 340 sq ft) which could cost about Rs 5.5 lakhs. This is slightly above our target price range - but having said that, when I asked some drivers to see the property - they actually wanted to buy the next higher value flat (which is priced at about 7.5 lakhs)! They were willing to put in 2.5 lakhs as margin and were quite comfortable with servicing the EMI on the 5 lakh loan required for 15 years. I asked them why they would take on this kind of additional pressure and why not just buy the smaller 340 sq ft 1 RK flat ? They all said that they had to plan for the future - for their children (extra room needed) and even for guests from the village. This showed both their aspiration levels and more importantly, affordability levels - the drivers were all earning in the region of 12,000 to 15,000 and so the EMI of approx 5,000 was not a problem.

Anyway, re loans against the property itself, MHFC is doing a soft launch - just circulating the possibility to people who have been asking us for some time about properties and loans - and it looks like we will have 100 buyers from just this personal reference list. We will be able to test our systems through this initial process - so treating this as a pilot.

Nachiket took some photos of the project itself which I am sure he will put up shortly.

Pictures

Above: Near completion projects in Virar East
(we did not approve these, there is hardly any space between two buildings and there are new buildings coming up right in front)

Below are a few pictures from TMCity -
(A complete (mock) building and an overview of the current construction status)

Update on Builders

I think now be a good time to give everyone an update on where things stand today as MHFC gets ready to launch.

For starters, since we are project led, the most important update is on the builder/project front.

TM City:
Our team visited TMCity two weeks back and was really impressed by their progress. The last time I went there they barely had one mock building up (This was only 4-5 months back). Now almost 54 buildings are completed at foundation level and about 5-6 till the first floor. They are confident of completing about 3000 flats by the end of August and a 1000 more by December

Nirman Realty:
We recently met the promoters of the Nirman group. They are building about 228 flats in Neral (near Karjat, where TMCity is located). They also have land banks in western and central areas of Mumbai and showed great enthusiasm in partnering with us. The meeting reinforced our belief that the main cause of lack of housing is not really a lack of developers, but it is the lack of financiers for the end-buyers. Once the builder is assured of the take out funding, in today's market, he is more than willing to put up mass low-cost housing projects.

Virar / Nalasopara:
When we had gone last time to take a look at some of the near-ready properties, frankly we were quite disappointed with the lack of planning (inefficient use of FSI) and poor quality of construction. We realized that MHFC will have to be involved from an earlier stage in a project to ensure decent floor plans and good quality of construction. Our mission is to improve the quality of life of the urban poor - not lift them from a slum to put them back in a concrete slum. We have identified a couple of builders in the area and are in talks with them to be the almost the exclusive financier to the whole project. That will give us enough leverage to ensure a decent finished product.

Ahmedabad:
There is positive news from Ahmedabad too - the two builders we were talking to have got their environmental clearances and are set to start their projects in April/May. We are planning to go visit the sites again next week - more update on that will follow.

Overall, all the builders seem to be realizing this is a recession proof business and are willing to work on lower margins and higher volumes.

Loan Officer thoughts

The Loan Officer, a borrowed concept from microfinance to help us keep close contact with the customer, is going to be probably the most important cog in MHFC's wheel. He or she is going to be not just the initial screening point / advisor in filling out the loan application form but also is envisaged to be the ongoing Relationship Manager for all borrowers in a development. The LO will be the face of MHFC to the client, and research has generally indicated in the case of microfinance that repayment rates are higher when the client / LO relationship is good (one of high trust). How do we know who will make a good LO is the million dollar question. But if we had to hazard a guess, he / she needs to be a certain standard in financial acumen though probably more importantly, the LO should be passionate (about the social nature of MHFC's business in terms of helping people find appropriate shelter) and compassionate (sensitive to the client's needs and helping them understand their finances).
In line with this, I just re-read the chapter on training Grameen staff in Mohammad Yunus's book "Banker to the Poor" - and thought the following passage was quite relevant and inspirational.
"Unlike any other commercial bank workers, our staff members are above all else teachers. They are teachers in the sense that they help their borrowers to unfold their full potential, to discover their strengths, to push their horizons and capabilities further than ever before. We give our staff an opportunity to use all their knowledge, imagination and experience to become true teachers. The job of manager (loan officer) is a personal adventure, the type of challenge a student has never had an opportunity to take up before."

Time Out story - Devendra

Link to a story in the latest TimeOut Mumbai (cover story on Dharavi and its enterprising residents)- this is the one on Devendra Tank, who is a J P Morgan employee living in Dharavi.

http://www.timeoutmumbai.net/client_coverstory/client_coverstory_details.asp?code=628

Forget about housing loans, he wasn't granted an educational loan by a major bank because of his residential address ! His story is inspiring in any case, but also adds validity (as are some of the other stories in the issue) that people with reasonable incomes are being denied finance by the current banking system, and change is necessary.

Yes we can

another post not directly related to MHFC - but the inauguration was inspirational
the BBC has done interesting interviews with a variety of people on the inauguration - below is the link to the one with Maya Angelou - she thinks Obama is a person with intelligence and compassion - and how difficult it is to find those 2 qualities in the same person.
the other issue she raised was "I think that each of us can find a place to give some time... I think these seem to be small things but they accumulate. And I do believe that good done anywhere is good done everywhere." I know she meant this for Americans (to do what they can to help the new President) but I guess it applies to everyone.

http://news.bbc.co.uk/2/hi/programmes/world_news_america/7838941.stm