Mumbai: Acumen Fund, a New York-based not-for-profit venture fund for businesses that address poverty, is about to make its first investment in the low-income housing space in India.
“We will be investing up to $8 million (nearly Rs.50 crore) in India in 2014, of which around $2 million will be invested in the low-income housing space,” said Karuna Jain, a senior portfolio associate of Acumen Fund. “We are actively looking at housing finance companies to invest in and will close our first investments in a couple of months.”
Acumen has made 27 investments in India till date across sectors such as agriculture, education, energy and health. In 2013, the fund invested around $5 million in India.
Jain said most of the capital Acumen invests in India comes from its global corpus, but that it is now looking to raise additional funds locally.
“The challenge with low-income housing is that, if you see, most of the funds for low-income housing available right now are between the Rs.12-25 lakh bracket. We are looking to serve the customer segment which is earning a Rs.20,000 per month salary in a city and will invest in housing finance companies which will, in turn, give loans in rural areas and also to registered slums. We will invest in developers and are looking to invest in Rs.3-10 lakh projects,” said Jain.
According to a report by property consultant Jones Lang LaSalle India, the loan market for the Rs.3-10 lakh low-income housing segment is worth nearly Rs.11 trillion.
Despite this, the majority of loans disbursed by home finance companies go to middle- and high-income groups in a loan bracket above Rs.10 lakh. The key issue that stops people from availing housing loans in the Rs.3-10 lakh bracket, the report said, is the perceived high risk of the borrowers—that is fears of uneven repayments and loans turning into non-performing assets.
There is currently a shortfall of 26 million low-cost housing units in India, a figure that goes up every year, said Subhankar Mitra, head, strategic consulting (west), Jones Lang LaSalle India.
“The challenge area is that there are not many players who provide loans to the sub-Rs.10 lakh category. A few public sector banks who have been instructed by RBI (Reserve Bank of India) to do so, and others like Housing Development and Infrastructure Ltd, Tata Capital and microfinance companies like Micro Housing Finance Corp. Ltd are the ones giving such loans,” said Mitra.
“And it is not the loan size but the eligibility criteria—most of them do not have a credit history and institutions find it difficult to comply with know your customer norms.” added Mitra.
In India, Acumen will not only invest in new home developments, but also in home improvements, temporary housing and “enablers to housing”—such as housing finance and microfinance.
“Our market is open to rural and urban poor as well as migrant poor and these need specific housing solutions; we are looking to invest in solutions we can provide through these investments. So this investment could be in either rebuilding your existing homes or even slum rehabilitation,” said Jain.
The government estimates a shortage of more than 18 million homes, of which 95% are in the low-income group and the economically weaker segment, an income class with families earning up to Rs.16,000 per month.
Mitra said that in the higher-income segment there is an oversupply of houses, the middle-level income has a shortage of about 20-30%, while the low-income category has a shortage of 90%.