Housing finance companies have found their sweet spot— low-cost houses for the low-income segment.
While working with Max Life Insurance in Delhi, Anil Mehta always had to deal with customers who had limited access to financial products. His field work had taught him that customers with monthly incomes below Rs 50,000 may not be able to save much, but are reliable when it comes to repaying loans. “We were trying to sell them insurance but most believed in deferring such products for a better day. They wanted to improve their present lives. So, I decided the best product for them was a housing loan,” says Mehta.
In 2010, with a Rs 25-crore investment from private equity firm Sequoia Capital, Mehta started India Shelter Finance Corporation, an affordable housing finance company (AHFC) that lends money to economically weaker sections.
Over the years, his hypothesis on the high creditworthiness of the poor have been more than validated. Gurugram-based India Shelter has been profitable from its maiden year and has been growing revenues at 75 percent annually over the last six years.
In FY2017, it is expecting revenues of Rs 100 crore, mostly interest income from customers. It has already disbursed loans worth Rs 900 crore to 16,000 customers, with an average ticket size of Rs 5 lakh.
Like Mehta, many institutions in the credit market have realised the potential of affordable housing. In 2013, Motilal Oswal Financial Services (MOFS) applied to the National Housing Bank for a licence to enter the housing finance business.
At the time, the financial services company was generating significant profits from its fee-based businesses related to investment banking, mutual funds and broking. But these businesses were competitive and their overall share of the pie was not increasing.
The group reasoned that a housing finance business would help offset the vagaries of the capital markets, which have prolonged bull and bear phases.
This story is from the April 14, 2017 edition of Forbes India.
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This story is from the April 14, 2017 edition of Forbes India.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 9,000+ magazines and newspapers.
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