Focus on India’s informal housing sector

Affordable housing finance may soon be a dream come true for potential home buyers but for that to happen, we need to move away from traditional forms of lending and adapt to the technological way of life

Shortage in affordable housing continues to be a major concern for India. Currently, this shortage is over 20 million. India’s urban population is growing at an average of 2.1 per cent every year since 2015 and is likely to reach 60 crore by 2031 (up from 37.7 crore today). But the growth in the housing sector has been unable to keep pace. The economically weaker sections and the lower-income groups comprise the informal sector and account for 96 per cent of the urban shortage.

Lack of access to finance is one of the key deterrents of growth for the affordable housing sector. Under the Government’s Pradhan Mantri Awas Yojana, the National Housing Bank has been pro-actively working with housing finance companies to deploy an interest subvention subsidy for low-income groups.

Affordable housing finance targets first-time home buyers — many of whom have informal income and poor documentation — which is why, when a traditional bank or financial institution is lending to this segment, the approach has to be different than that of, for example, a middle-income group salaried individual working at a mid-sized/large corporation.

If a person is self-employed and is without comprehensive documented income or adequate credit history, getting home loan can be a huge challenge in our country. This because traditional lenders in the current eco-system find it difficult to ‘fit’ the case into their income assessment methods. Consequently, potential home buyers end up borrowing from informal lenders or sometimes abandon their dream of owning a home, despite their ability to service the loan.

In the times that we live, social media and applications such as WhatsApp have permeated every aspect of an individual’s life. There is abundance of information available that can be used to deduce far more about a borrower than what traditional documentation alone can provide. It opens up a whole new array of information that is relevant to credit underwritings such as the borrower’s behavioural data and psychometric data to give more specific insights to the borrower’s willingness, intent and ability to repay a loan.

Alternative data-based underwriting, if modeled and implemented correctly, could lead us to a future of lending without any traditional paperwork which is disbursed instantly — a trend that is starting to gain steam in developed countries.

Since our approach at vastu is customer-focused and technology-enabled, we do not collect any physical documentation from the customer till the time of loan disbursement. All required information for underwriting is captured in real-time, through state-of-the-art mobile solution that promotes efficiency and transparency in the loan underwriting process.

We get to know the customer beyond what his/her papers have to say. We understand their work, cash flows, get to know their family and move beyond being just a financier to a partner helping them secure their dream of owning their first home. This is largely possible because of our focus on using technology and our want to become a trendsetter in new-age finance space.

Oftentimes, companies deploy technology as a means to digitise their paper trail — the same process flow is implemented via technology as there would be in the absence of it. While this is also important, it is only one step in being a truly digital organisation. It is only when you go back to the drawing board and disrupt the traditional processes using technology that efficiencies kick-in and the Return On Investment on the investments in technology start to show. It involves elimination of redundant processes, faster turnaround and better services and products. It allows a customer to receive a loan within three days of applying for it. It allows the company to not just monitor but also project the loan performance of every account at the click of a button.

There is no reason why financial intermediaries would not get excited about this space as delinquency in mortgages is only 1.5 per cent. If some of the schemes work well and half of what is on the drawing board gets translated into action, we will have an inclusive mortgage market in India by 2020.

(The writer is Managing Director, Vastu Housing Finance)