Last Wednesday, we told you how to get your household staff on a basic financial track with the help of schemes launched by the government and financial industry.
From having a no-frills bank savings account to getting into the habit of saving through a recurring deposit, your basic guidance can get them to invest in equities through micro systematic investment plans. And by doing so, you can demonstrate to them that they can not just save and watch money accumulate, but can also see their money grow and multiply.
But if you really want to help them out for the long term, it’s worth taking a further step. Once the basic saving habit has been cultivated and investments are on track, you can begin counselling them to fix goals and targets and invest accordingly.
One of the primary goals that your household staff would have is having a house of their own. Says Anand Sahasranaman from the Institute for Financial Management and Research (IFMR) Trust, who has been working in the area of lower-income group housing and infrastructure financing, “Owning a home is a dream for everyone alike. Besides, a home with clear titles gives a higher sense of security.”IFMR Trust works with the mission of ensuring access to financial services to every individual and enterprise.
Making a decision
The decision to buy a house, even if there are enough funds, may not come easy to your household staff. There are several factors they need to consider before taking any step.
Relocation: Typically, to buy a house that is within their budget, they may have to relocate from their place of existing residence. And that may not be practical.
For one, it may be too long to commute everyday for work and the commuting cost may be impractical too, not to mention the time spent on it. Two, the income on the basis of which they are thinking of buying a house may not be guaranteed in the area where they need to relocate for the new house.
In short, the decision to relocate should be based on two factors—financial and infrastructure-related issues. The financial considerations include the level of income and its stability. Says Sahasranaman, “If the driver is earning reasonably well, say about Rs10,000 per month in a city like Mumbai or the wife has been doing small household chores for families in the same locality for a fairly long period of time, she is likely to be certain of her jobs. Then they can financially sustain the loan.”
But the opportunity cost that the decision will entail has to be considered, too. Sahasranaman adds, “Moving away from the main city should not come at the cost of their livelihood. Therefore, it is important to ensure that commuting to work places will not be too difficult and time consuming.”
They may even need to check whether the area they are relocating to has basic facilities, such as a school in the neighbourhood.
Getting a loan
Once the decision is made, a key question would be getting a loan. With the nature and amount of salary your household staff earns, getting a home loan may seem impossible. But that is not the case any more.
Where can they get a loan from? There are several companies that will lend a helping hand to those in the low-income group. For instance, Micro Housing Finance Corp. Ltd (MHFC), a Mumbai-based lender, Aadhar Housing Finance Pvt. Ltd, GRUH Finance Ltd and SEWA Bank. While Aadhar disburses such loans only in select locations in Uttar Pradesh, Madhya Pradesh and Bihar, GRUH has a pan-India presence across several cities. Yes Bank Ltd also plans to begin disbursing similar loans on a pilot basis in Mumbai next month. It eventually plans to extend the facility to other metros as well.
The best part in these companies is that they have a list of projects they are financing and your household staff can zero in on the project and house that suits the family. While MHFC disburses loans only for projects pre-recognised by it, others have no such restrictions and can sanction a loan even if they do not already have a tie-up with the project your household staff is interested in, provided the titles are clear.
Paperwork required: They will be required to fill up an application form, which will ask them for basic details such as identity and address proofs, family status (number of family members employed and the number of dependants on the total family income), income sources and the total family income. A permanent account number (PAN) card is also necessary. If your household staff doesn’t have one, lenders even help you apply for one.
These companies will then verify the sources and authenticity of the income by calling up the employers. You as the employer do not have to give any guarantee as such.
Says Rajnish Dhall, chief operating officer and managing director, MHFC, “For instance, if a person says that he is a driver in Mumbai and earns about Rs7,000 a month, then it is not difficult to believe because we know what the average salary of a driver in Mumbai is that. So all we have to do is check whether he really is employed at the place he claims he is.”
Loan details: The borrower has to put in at least a 20% margin. However, MHFC ensures that the borrower does not take the margin amount on loan. This amount can be arranged by savings, jewellery, or an ancestral property back home they have. Says Dhall, “In fact, we have noticed that most of our borrowers put in a margin of almost 35% as they themselves also want to be debt-free as soon as possible.”
The loan amount would be up to rs7 lakh in most companies.
The loan comes at an interest of 12-14% per annum, which is slightly higher than market rates; the processing fee is 1%. The duration of the loan is 15 years maximum. The best part is there is no prepayment penalty.
If you have had a long association with your staff, you can consider helping them not just financially, but even otherwise. Confirming his salary details to the loan company would be one way to do that. Says Dhall, “Taking on a loan is a big responsibility. You can help them by counselling and conveying to them the importance of repaying it on time, lest they fall in a debt trap. You can also help buy them an insurance (to cover the loan liability) which we insist on in case there is no co-applicant.”
A house that you can call your own is a big security for almost everyone. If people in the low-income group manage one, it could be a breather for them given that rents keep increasing every year. Moreover, it will be the biggest financial asset they are likely to acquire and one that may become their biggest financial back-up.