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Opinion Editorial
Published: December 15, 2012 01:32 IST | Updated: December 15, 2012 01:32 IST

Sheltering the urban poor

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 applicants 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 So 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.
Keywords: Credit Risk Guarantee Fund, low-income group, Interest Subsidy Scheme, UPA, government schemes
Printable version | Jun 3, 2013 7:51:08 AM | http://www.thehindu.com/opinion/editorial/sheltering-the-urban-poor/article4200597.ece
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6/3/2013 7:51 AM