Creating an Inclusive Economy: Why Housing Finance Must Innovate

Rahul Nahar, MD, XRBIA Developers

The informal sector is the backbone of the Indian economy. Estimated to generate up to fifty percent of national income, this so-called shadow economy is the hidden secret behind India’s economic boom. Yet, for the 400 million people employed informally in this sector, the benefits of this economic success are not being felt. With no access to workplace benefits, such as social security and unemployment insurance, these individuals exist outside of government regulation, and beyond formal protection.

Those employed in the informal sector are some of the most vulnerable in our economy. To make matters worse, these vulnerabilities are not confined to the workplace, but extend to every aspect of these individuals’ lives. The housing sector is no exception. Conventional lenders in the real estate industry typically require work contracts from those seeking access to finance. This has effectively prevented those in the informal sector from owning their own home – and the stability and security this brings – despite applicants having the financial means to take on a loan. Denying a family the opportunity to homeownership is both unfair, and unsustainable, in an economy driven by the informal sector.

This problem is set to worsen as the pace of urbanisation in India shows no signs of abating. Across South Asia, the urban population growth rate is predicted to average 2.7% annually until 2050, a percentage rivalled by only that of Sub-Saharan Africa globally. This will put pressure on an already fledging affordable housing industry and place homeownership beyond the reaches of a growing number of families.

Developing housing finance to extend loans to those in the informal sector is vital to ensure every family has access to an affordable home.  Breaking down the barriers to homeownership is not just about shelter, however, but also has a much broader societal impact. A stable and secure home is also has significant multiplier effects in terms of health, education and well-being.

As a developer who has been dedicated to affordable housing throughout my career, launching a housing finance scheme available to those in the informal sector is hugely important to me. My aim is to make home ownership a real possibility for every Indian, regardless of their background. XRBIA’s No-Income-Proof-Home-Loan Scheme will enable applicants to apply for finance without income proof documents, which has previously presented a major stumbling-block to those employed in the informal sector. Rather, in order to quality for finance, applicants will have to provide proof of residence, a no banking default declaration and bank account statements from the previous 12 months, before attending a personal interview. I have set aside capital to offer this loan product to up to 10,000 potential homeowners.

In expanding access to housing finance to those in the informal sector, the No-Income-Proof-Home-Loan Scheme has the potential to be life-changing to those who have been denied access to homeownership. The benefits will be felt in terms of increased household stability, safer living conditions and reduced costs. Children will have a stable environment more conducive to learning and will be less likely to develop health problems caused by poor ventilation and other preventable illnesses. Society as a whole will benefit from safer buildings and a healthier and more productive workforce.

We must adapt to the reality that India’s economy is fueled by the informal sector, and make sure that individuals who work in this part of our economy are not marginalised. Innovation in housing finance is one way in which we can alleviate the burden on those employed in the informal sector, and ensure that those who contribute so much to India’s economic growth have the opportunity  to benefit from some of its rewards.