Interest subsidy likely via micro-finance institutions

The UPA government is considering a proposal to implement housing-loan interest subsidy schemes through micro-housing finance institutions....

The UPA government is considering a proposal to implement housing-loan interest subsidy schemes through micro-housing finance institutions to reach out to the large informal sector,which is considered a credit risk by banks. At the same time,it has set in motion the process for the formation of the countrys first dedicated micro-financing institution for housing loans to the poor.

To examine the changes that may be required to enable the existing micro-finance institutions to provide housing loans to the poor in the informal sector,housing and poverty alleviation minister Kumari Selja has appointed a committee led by National Housing Bank CMD S Sridhar and asked it to submit the report within three months.

The panel will work out the initial funding requirements and the supportive regulatory amendment of the proposed dedicated micro-financing institution by studying the existing rules and regulations for such institutions.

It was brought to the notice of the ministry that many formal sector banks were not forwarding housing loans to the economically weaker and lower-income groups. Instead,these groups were forced to borrow from micro-financing institutions,and thus could not avail of the 5 per cent interest subsidy scheme launched by the government earlier, said a ministry official. Last December,with a focus on housing to provide a stimulus to the economy,the government had announced an interest subsidy of 5 per cent on loans of up to Rs 1 lakh availed during Eleventh Plan,for the urban poor. The scheme aimed at the creation of additional housing stock of 3.10 lakh houses for the poor over the next four years. The loans of up to Rs 1 lakh are collateral free and no prepayment or service charges are levied.

Realising the need for micro-finance institute exclusively for forwarding housing loans,the ministry has asked the panel to examine its feasibility and recommend the structure,size,target group and operations of a dedicated housing micro-finance institution. To safeguard such an institution from risks,the panel has been asked to examine the prevailing customer base,loaning practices and repayment behaviour of informal sector customers of successful micro-finance institutions.