Seven years after it first mooted the idea, the UPA government has set up a Credit Risk Guarantee Fund with an initial corpus of Rs.1000 crore that will encourage banks to offer home loans to the poor. In a recent written reply to a question raised in Parliament, the government stated that it has notified the scheme and registered a trust to administer the fund. This is the second scheme promoted to help low-income groups’ access funds to buy houses. The Interest Subsidy Scheme for Housing the Urban Poor, launched in 2008, hardly had an impact and achieved only one-third of the target. Sadly, the new scheme is unlikely to do any better. Recent estimates show that the housing shortage is a staggering 18.78 million units, 95 per cent of which pertains to low-income groups. The government believes credit barriers for the poor fuel this persisting shortage. Banks do not consider low-income groups — households which earn less than Rs. 2 lakh per annum — as credit worthy and are reluctant to offer loans. The government has thus assured lending agencies that the new fund would cover any risk of default in loans given to the poor and hence they should not hesitate to support their efforts to acquire homes. This is sound in theory, but ineffective in practice.
The guarantee fund, as the accompanying conditions state, would be available only for housing units which are about 430 square feet in size and for loan amounts that do not exceed Rs 5 lakh. There are two problems with this. There is hardly any supply of small-sized dwelling units in most of our cities; and even if they were available, prices would far exceed the affordability threshold, which is four times an applicant’s annual gross income. Hence, loan applications would cross the cut-off figure, and the poor would not benefit from the fund. The scheme may work in small towns, but the housing deficit is not acute there. At the root of the housing crisis is inadequate supply created by non-availability of cheap land. This is where lessons from cities such as São Paulo could help improve the situation. Indian city managers could demarcate low-income housing areas as Special Zones of Social Interest and apply revised planning standards to produce lower plot sizes, create higher densities and optimise land use. When cities apply this concept to new areas, they can reserve more land for social housing. Simultaneously, they should improve schemes to help the poor buy small land parcels and build self-help housing. In addition, the government should implement the National Urban Housing and Habitat Policy (2007) recommendation to reserve 15 per cent of developed land in all housing colonies for low-income housing.
