Conference Proceedings : “JANASEVANA” National ... - UN HABITAT

14000
12000
n 10000
ilio
8000
M 6000
s 4000
R 2000
0
HDFC's Service to Low & Middle Income Groups
1 2 3 4 5
Year 2010 2009 2008 2007 2006
Rs M 7540 4208 4208 7950 12521
Year
On the basis of the estimated National Home Need and available Housing Stock, the approximate need of new houses
in Sri Lanka is estimated at 650,000 units. With the additional requirement for resettlement in the North and East, the
current National Housing need is estimated at over 1,000,000 units. However, the effective demand is much smaller
than the current housing need, as demand is determined by the ability and willingness of households to pay for a
home. The factors that determine the ability and willingness (market attributes) to pay for homes include the
following ‐‐affordability to pay for a house; accessibility to housing finance; cost of construction; self manageabilitywith
own construction and willingness to pay for the construction of a house.
Low Income Housing Credit consists of 30% of the households in Sri Lanka. This percentage signifies those who have
the capacity and willingness to pay for affordable home credit, but lack accessibility to formal finance. However, this is
the key emerging market for housing credit. It reflects the entire Housing Finance Gap in the country – consisting of
30% of the households as well as 30% of the housing needs. It consists of 1.6 Mn households thus providing shelter to
7Mn people. It would amount to over 1,600 Mn construction sq ft. and, with over Rs 1,200 Bn construction value. For
banks and other financial institutions, this is a market of over Rs 900 Bn of mortgage lending with 1.6 Mn customers. It
is five times higher than the existing mortgage advances of the banking sector and consists of 17% of the GDP.
Low Income Housing Credit consisting
of 30% of the households in Sri Lanka
is the key emerging market for
housing finance in Sri Lanka.
The main factors preventing this market from accessing credit were
identified as the lack of adequate collaterals; high interest rates
charged by banks, high cost of construction; high cost of land –
especially in the urban sector; low penetration of banks; lack of
market knowledge and lack of supporting documents with proof of
income in order to obtain housing loans from banks.
The potential demand for housing finance by this segment is much higher than their effective demand. Hence, new
lending approaches are required to expand access to finance. However, Mr. Pathirana recommended that banks
should actively promote financial inclusion by accessing this market.
The methods used by HDFC Bank to service this target market were discussed in detail by Mr. Pathirana. The Bank
uses several innovative methods which include exercising a more personal banking approach in credit evaluation, as
opposed to normal commercial lending. Certain key challenges are addressed through the following innovative
methods. To rectify the lack of adequate collaterals – HDFC accepts alternative properties, personal guarantees,
institutional guarantees and group personal guarantees. To address the current high interest rates charged by the
banks, HDFC strives to charge the most competitive interest rate available in the market. As a solution to the high
construction cost, HDFC promotes sustainable and affordable housing, accept joint applicants and have increased
repayment periods. To counteract the high land costs, which makes building houses difficult for most people, HDFC
accepts joint applicants and increases the period of repayment. To remedy the lack of market knowledge and banking
experience of the customers, HDFC captures them as valued savings customers through a mobile banking service. The
Conference Proceedings – National Housing Symposium 22