India has a chronic shortage of housing, particularly for women and rural areas, and there is an undersupply of funding for this segment
CFO Rawat said: “Not many are interested to fund the informal segment and remote areas. There a huge gap in available funding for those who may not have strong banking habits.”
Lower-income households are hardly able to obtain mortgages because of the lack of documents that prove their income sources, high credit evaluation costs, and perceived higher credit risk.
Aavas, currently operating in 11 states, is one of the largest housing finance companies in the affordable housing segment in India, with a market share of around 5%.
“India’s major population is in the rural areas. We used the ‘connect-approach’ - including through non-traditional partners such as contractors and suppliers - and make our rural borrowers feel that we will assess you; that you too can get a loan.”
In March 2020, ADB signed an agreement to lend up to $60 million in Indian rupee equivalent to Aavas to improve access to housing finance for lower income borrowers in the country, particularly women.
Susan Olsen, Senior Investment Specialist at ADB, said “the affordable housing segment is a key sector for ADB in India in the near and medium term. India is experiencing a severe housing shortage estimated to be 18.7 million units in urban areas and 43.7 million units in rural areas. More than 90% of this deficit is estimated to be in the affordable housing, which makes it the most important segment for us to support.”
With broad experience in engaging with women borrowers, Aavas will use the proceeds to provide housing finance to women either as primary borrowers or co-borrowers in economically weaker sections of society, low- and middle-income groups.
Cultural barriers limit the uptake of loans by women
In India, men dominate land and home ownership. Hence, women in the low-income group and in rural regions cannot obtain mortgage loans. A survey of land ownership carried out by ADB in India indicated that women owned only 3.6% of plots, while men represented the vast majority, owning 85.9% (the remaining 10.5% were untitled).
CFO Rawat observed that when men apply for loans in banks or financial institutions, women usually wait outside while the husband is talking.
“They sit outside the room. That is when we thought, we should bring them in. We should communicate with them also. Women know these things too,” said Rawat.
Without safeguards for women, such cultural barriers can have ill effects. Lack of women property ownership directly contributes to the low social status of women, vulnerability to poverty, lesser bargaining power within households, and domestic violence. In the long run, this could mean missed economic opportunities.
Christine Engstrom, Director of Private Sector Financial Institutions at ADB, said: “If we are to reduce poverty rates, helping women and girls must be a priority. ADB is committed to accelerating gender equality in Asia and the Pacific because advancing women’s equality could add $12 trillion to the global economy by 2025.”
Delinquencies are much lesser among women borrowers
Women’s delinquencies in repayments are much lower than men, said Rawat. Women borrowers’ delinquency for home loans is 15 basis points better than male counterparts across India, according to recent reports.
Asked who their typical women borrowers are, the Aavas CFO stated that they are generally young women and women homemakers who start their entrepreneurial dreams operating food shops and beauty parlors.
“Having a lower income, female family members are the ones who start out in a ‘savings mode’. They share responsibility for EMI (equated monthly installment) and plan in advance to pay their EMI on time,” he said.
With ADB’s long term financing to Aavas, at least 75% of the debt proceeds will be lent to borrowers in select states in India where per capita incomes are lower than average and, “funding can go to betterment of families and women,” said Rawat.
Together with the private sector, ADB will continue to ensure that development finance reaches women even in the more remote corners of the country, through its initiatives such as the Women’s Finance Exchange, so that more women can improve their living conditions and girls invite their friends over.