In July 2012, Pradeep Kumar, a 36-year-old resident of Ladpur, a shanty town that sits on the north-western periphery of Delhi, applied for an employment loan at the magistrate’s office in Kanjawala district. Under the Pradhan Mantri Rozgar Yojana or PMRY — a funding policy aimed at creating small business opportunities for unemployed Indians — Mr. Kumar wanted to open a photo studio in his neighbourhood.
“People here love taking pictures,” Mr. Kumar, who now works as a day labourer at private constructions, told The Hindu . “So I thought setting up a photography shop would be a good business opportunity.”
A month after filing his application, he was short-listed for an interview. After being questioned for an hour, a bench of seven officials granted him a loan of Rs. 5 lakh, asking the local branch of State Bank of India to release the money in a single transaction.
But the bank sat on his application for several months. “And in the end,” Mr. Kumar said, “they [the bank] rejected it.”
If sanctioned, the loan could have helped Mr. Kumar get out of the tiny, subdivided room he shares with his wife and two children, and move into a slightly more spacious apartment. “I don’t want my children to grow up like this,” he said. “I want them to have separate rooms where they can have some privacy.”
Vicious cycle Over the last four decades, >as the number of slums has grown along with the ever-increasing urban sprawl , several million people like Mr. Kumar have found themselves stranded in rickety buildings and makeshift shelters. They are trapped in the cycle of cheap labour and the chances of breaking away from it are bleak. With their population rising on the fringes of metropolitan cities, the spaces to house them are shrinking fast, thus triggering a crucial question: How does the government house the poor? At present, the government is battling a housing deficit of 18.78 million units and 95 per cent of it is driven by low income populations who live in and around the urban centres.
In 2008, the Urban Development Ministry realised that with a combination of low-interest employment and housing subsidy loans, the administration could make a dent in this problem. Ajay Maken, who was then the Minister for Urban Development and Poverty Alleviation, launched a welfare scheme called Integrated Subsidy Housing for Urban Poor (ISHUP), which was aimed at providing a grant of Rs.1.6 lakh to each slum dweller. At a yearly interest rate of 5 per cent, the repayment period was set for 20 years. To avail the loan, all that was needed was a copy of the rent agreement or any identity that proved an applicant belonged to a slum.
The Finance Ministry carved out a budget of Rs.1,100 crore, which was set to be funnelled phase-wise to 57 state banks that have pledged to fund affordable housing. But four years later, the Housing Ministry learned that the banks had betrayed them by sanctioning loans worth only Rs. 7.5 crore. In 2012, the government was compelled to call off the scheme.
“Banks didn’t support us,” Mr. Maken told The Hindu . “The first thing they did was withdraw from the financing schemes that were meant for low income and economically weaker sections.”
Mr. Maken tried his best to save the policy. Between 2011 and 2012, he wrote several letters to the Finance Ministry, asking them to pressurise the banks to stick to the welfare financing. “Unfortunately, the [finance] ministry didn’t pay any attention, as it never prioritised affordable housing.”
Growing disillusionment As the banks continue to turn down loan applications from low-income people, even when they backed by state policies, the people have grown disillusioned that they can ever avail government-sponsored subsidy financing. The evidence of such disenchantment is visible outside the magistrate’s office in Kanjwala district, where, on a recent Thursday morning, a group of agents strolled aimlessly on the pavements.
“Business is slow,” said an agent, who takes a commission to get loans under the PMRY passed at the magistrate’s office. “The last time I got a PMRY loan sanctioned was in January. No one applies for it these days because it takes six months to a year to process the application. And when you get the loan approved, the banks come up with excuses like ‘you don’t have a permanent residency proof, you don’t have any government employee as a guarantor’— and they simply reject it.”
About 80 per cent of people in slums work in an unorganised market. They drive auto-rickshaws, run fast food and cigarette kiosks, sell fruit and vegetables on carts, and work on private construction sites. Or, they run grocery shops, saloons and garment stores from the ground floors of their rundown houses. According to the Ministry of Housing and Poverty Alleviation, the average income in slums is between Rs. 5,000 and Rs. 10,000 per month, and is often irregular.
“One illness, one wedding, or one funeral is enough to disrupt the income flow of poor people,” said Gautam Bhan, a senior consultant at Indian Institute for Human Settlements. “So you cannot think of banking with the poor as a techno-financial enterprise. The banks must understand that lending money to lower income people is a social engagement.”
Even if the low-income applicants have a proof of consistent income, the banks still perceive them as “bad applicants” because they lack collateral and proper title deeds. As a result, according to a report published by the Housing Bank of India, “80 per cent of low income groups and economically weaker sections in urban areas do not have access to institutional finance”.
An official at the Ministry of Housing and Poverty Alleviation told The Hindu, “I think we should at least start a dialogue with the banks and figure out how not to imagine financing as a framework designed for a legitimate salaried person,” he said. “The financing model which is based on the EMI imagination must be scrapped when it comes to dealing with the poor. The problem is this government finds it difficult to think from that angle.”
Complicated reasons There are many complicated reasons why banks are closing the doors on the poor. In November 2014, Raghuram Rajan, the Reserve Bank of India governor, simplified some of them while delivering a lecture at the Institution of Rural Management Anand (IRMA) in Gujarat.
“The sanctity of the debt contract has been continuously eroded in India in recent years,” said Mr. Rajan, “not by the small borrower but by the large borrower.”
Mr. Rajan was clearly taking a dig at corporate houses, suggesting that they take hefty loans and dump losses on banks. “What I am warning against is uneven sharing of risk and returns in enterprise,” Mr. Rajan continued. “Where promoters have a class of ‘super equity’, which retains all upside in good times and very little of the downside in bad times, while creditors, typically public sector banks, hold ‘junior’ debt, and get none of the fat returns in good times while absorbing much of the losses in bad times.”
In 2012, when ISHUP was closed, the Indian financial market was indeed going through a turbulent ride. The rupee sank, stock markets had a free fall, and the shares of banks that were full of bad debts fell sharply. Around the same time, Pradeep Kumar, who wanted to open a photography shop, learnt that the bank had rejected his loan application.
The Indian economy and financial sector have since recovered from that low, but nothing has changed for people like Mr. Kumar. The banks continue to see them as “bad applicants”.
email: jeelani.m@thehindu.co.in
