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S. SRIDHAR Chairman & Managing DirectorChairman & Managing Director National Housing Bank, New DelhiNational Housing Bank, New Delhi

India Rural Business SummitNew Delhi : October 9, 2007

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RURAL ENTERPRISES (REs)

• Rural development no longer linked exclusively to agricultural growth.

• REs enable rural population to participate in the dynamics of the market economy.

• Powerful tool for poverty alleviation particularly with lack of/limited access to land for BPL families.

• Virtuous cycle between agriculture and REs.

• REs important for rural population– Direct agricultural income insufficient

– Wage employment highly seasonal and needs to be supplemented by other activities.

• REs generate income, promote employment, leverage existing local resources.

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IMPACT OF RURAL ENTERPRISES

• Increase trade linkages between consuming urban markets and the producer rural areas eg. Fisheries, food processing.

• High employment

• Upgrades rural areas into small towns

• Creates a rural urban fringe

• Vendor (producer) development eg. Poultry

• Help achieve ‘financial democracy’ – improves cohesion, induces broad based growth

• Expansion of opportunities for ‘Base of Pyramid’.

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RURAL ENTERPRISES: SOME FACTS

• Fair industrial activity in rural India.– There are 42.12 million enterprises in the country engaged in

different economic activities other than crop production and plantation of which 25.81 million (61.30%) are in the rural areas.

– Of these, share of agricultural and non-agricultural enterprises in the total enterprises in rural areas was 23% and 77% respectively as compared to All India figures of 15% and 85% respectively.

– Of the total persons employed in these enterprises, 50.70% (excluding crop production and plantation) were in the rural areas.

– The annual rate of growth of enterprises and employment in rural areas was 5.53% and 3.33% respectively as compared to 3.71% and 1.68% respectively in urban centers.

– Average annual growth in employment is higher in rural areas (3.33%) than in urban India (1.68%).

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FINANCIAL SERVICES FOR REs

• Working Capital – Short Term Loan

• Pre and post Shipment Credit

• Factoring – Receivables Financing

• Term Loans

• Lease Finance

• Risk Mitigation – Credit Insurance

• Remittances and Investments

• Individuals – Savings, Insurance, housing

• Advisory Services – business and financial

• Credit Delivery Mechanism

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NATIONAL HOUSING BANK

• Set up in 1988 under an Act of Parliament.

• Wholly owned subsidiary of Reserve Bank of India

• Apex Financial Institution for Housing

• Three Main Activitieso Regulation of Housing Finance Companies

o MLT finance as refinance to Banks / HFCs / Cooperative sector institutions; direct finance for housing projects

o Promotion and Development of Housing Finance Market

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NHB : FOCUS AREAS

OBJECTIVE : Financial Inclusion in Housing

To address Housing Shortage (Total 31.7 mn units – 24.7 urban; 7.0 rural)

• Catalyze market based institutional finance for the unserved and underserved

• Key Focus Areaso Market Development - New Products, Risk Mitigation,

Securitization etc.

o Urban Renewal - Slum Redevelopment, low cost housing

o Rural Housing - PHIRA, PURA, Integrated Habitat Development

o Housing Microfinance – Urban and Rural

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PRODUCTIVE HOUSING

• Rural habitat often used for economic activities (often without demarcation: Houses or activity centers in a village.

• Home based workers, mainly women• Large work force of women in activities such as

papad making, aachar making, weaving and spinning, handicrafts, tailoring etc.

• Housing a catalyst for improved productive capacities.

• Creates assets, improves working conditions leading to higher productivity.

• Sustainable employment, increased self-esteem, social recognition, education, health and a better living environment.

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PRODUCTIVE HOUSING : THE CONCEPT

Underlying Concept• Housing, particularly for low income people,

» is more than shelter or an asset that is consumed

• Housing can be a

» production platform,

» income generating asset

• Such activities can easily be carried out at rural homes or separate work area by women and thus supplement household income

• Similar to Small Office Home Office (SOHO) concept adopted by professionals in cities

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PHIRA LOAN FROM NHB

A composite loan product designed by NHB• For undertaking construction of new houses,

expansion, upgradation of existing houses as well as for starting or augmenting income generating activities to» poor rural families» either directly to individuals or through

SHGs• As per Charter, NHB can provide only

housing finance• Partner Banks, Housing Finance Companies

(HFCs), Regional Rural Banks (RRBs), MFIs, NGOs can provide income generating loans

• NHB may provide 100% refinance to eligible intermediaries for housing

• Direct finance to eligible SHGs, Cooperative Society / Federations

• Single Window delivery

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PHIRA : RURAL HOMESTAY

• Rural areas of many States in India have great natural beauty

• Many tourists, Indian and Foreign, like to experience rural ambience - for a change and at low cost

• If rural households can build / upgrade their homes to provide safe and basic amenities, there could be a good market for RURAL HOMESTAY

• Government of India’s Bed and Breakfast Scheme has been launched

• NHB’s PHIRA can cover such Rural Homestays

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PHIRA : STRUCTURE

Improved Productivity

Improved Income &SavingsIndividual Borrowers

Individual Borrowers

Improved Habitat and Working Environment

Refinance

Direct Finance

Loan

Repayment

InsuranceCompany

HFCsHFCs

NGOs/SHGs

NGOs/SHGs

BanksBanks

RRBsRRBs

Co-opsCo-ops

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HOUSING MICROFINANCE

• NHB introduced Housing Micro-Finance essentially using microfinance technique for housing for the poor – urban and rural.

• NHB provides housing micro finance through refinance to banks, HFCs and MFIs as also directly to Federations of SHGs, societies etc.

• Maximum amount to Rs. 1.5 lakhs. Tenor upto 10 years.

• Housing microfinance would focus on income generating capabilities of the borrowers. Hence linkage with REs.

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RISK MITIGANTS

• Mortgage guarantee announced by the Hon’ble Finance Minister in Budget Speech 2007-08 being shortly introduced by NHB

• NHB – equity participation in rural HFC

• Title Insurance

• Rural Risk Fund

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SUCCESS STORIES OF RFIs

Successful RFIs –• Three Rural FIs (RFIs) considered successful in terms of rural financial

intermediation, outreach and self-sustainability are– The Village Banks or Unit Desas of Bank Rakyat Indonesia (BRI-UD)– Bank for Agriculture and Agricultural Cooperatives (BAAC) in

Thailand– Grameen Bank (GB) in Bangladesh

All the three institutions have succeeded in providing financial services at record levels to millions of rural people.

Lessons to be emulated –• It is possible to successfully design products and technologies to make

short-term working capital loans without using the formal collaterals• Use of market research, test marketing and pilot projects to test and

adopt their products to meet the demands of the clients• Increasing borrowers ability and repay through setting of repayment

schedules consistent with the borrowers cash flow and repayment capacities

• Regular contact with the clients• Positive incentive of interest rebates as a stimulus for on-time payments

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TO WRAP UP

Success of Rural Financing Approach shall depend upon

• Appropriate Policy Framework• Use of market research techniques in designing and developing

products and due selection of clients • Evolving financial products and services appropriate to the

needs and repaying capacities of the target population as against conventional approach based on targeted programs.

• Evolving suitable product for extending both short and long-term needs.

• Use of local people and local institutions.• Empowering women through credit delivery mechanism and

their participation.• Development of suitable IT systems for facilitating credit

delivery and for capturing data which can be mined and processed for policy formulation and intervention.

• Sharing of success stories and wide dissemination.

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Thank YouVisit us at : www.nhb.org.in