Shubham Housing Development Finance Company has announced its commitment to the Business Call to Action with the goal of providing 50,000 families with home financing – and establishing a loan portfolio of $500m – by 2018.
The company has transcended document-based underwriting and replaced it with a customized credit programme for customers who could not otherwise access home financing.
It provides housing finance solutions to families who have informal incomes through an innovative credit program that looks beyond income proof on paper. Shubham does this by taking a holistic view of customers’ needs and providing credit to people who are outside the purview of formal credit structures, enabling families to secure home ownership and make improvements, which gives them access to other services and a standing in the community.
Since formal financial institutions will not invest their time in assessing this population’s creditworthiness, families with informal incomes are charged high interest rates by informal lenders or completely excluded from home financing. Exclusion from financing creates a poverty trap, in which home ownership is virtually impossible, and families with informal incomes are forced to rent their property. Instead of building equity in a home, tenants in urban India are often restricted to short-term leases that are subject to huge increases upon renewal – or eviction.
Shubham has responded to this need by engaging informal customers in a discussion about their life story: where they come from, what they do, and how they earn, spend and save. Relationship officers meet with potential customers and establish their personal and familial integrity through a comprehensive process, while credit officers follow up with financial due diligence. The company hires its officers from target communities since local people understand clients’ needs and the challenges they face.
BCtA Programme Manager Suba Sivakumaran welcomed Shubham’s commitment to the informal housing market: “By providing credit to people outside the purview of formal credit structures, this innovative social enterprise allows families to secure a better future for themselves and drive financial inclusion on a large scale. We are proud to call Shubham a partner in the Business Call to Action.”
Since its inception four years ago, Shubham has expanded to 80 branches in 78 cities in India, with an expected 20 new branches to open this year.
Customers have reported improvements in access to clean water, electricity and sanitation. Many have relocated to safer communities, and noted decreased stress, greater pride and confidence, better relationships with their families, and an improvement in well-being.
The establishment of home ownership also contributes to community development by offering the possibility of leveraging for establishing businesses. Home owners are also more likely to invest in their communities, conserve natural resources and participate in local decision-making.
“Shubham continually strives to reach an increasing amount of informal customers with an essential service. We believe that the success we experience in the growth of this business will have a direct correlation to the benefits provided to society,” Chief Operating Officer Ajay Oak said. “Our success in providing financing to the informal sector should serve as an example to other financial institutions that the informal sector is a viable and overlooked market.”
By 2018, the company aims to provide 50,000 families in India with home financing. The company is now exploring options for lowering the rate of interest at which it borrows money so that it can pass on those savings to its clients.
The Business Call to Action (BCtA) is a global initiative that aims to support private sector efforts to fight poverty through its core business, supported by several international organizations and hosted by the United Nations Development Programme.
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