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The Growth and Performance of Affordable Housing Finance Lenders in India

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  • Karmali,Nadeem M.
  • Guillermo J. Rodriguez Ruiz

Abstract

Anecdotal studies have highlighted the recent rapid growth of so-called affordable housingfinance companies across India. These new lenders are reported to be using a high-touch approach common tomicrofinance to provide mortgages to households that are newer to credit, have irregular incomes, and live in smallerurban centers. As there is no specific license type for these lenders, this paper uses detailed credit bureau datato identify which lenders could be tagged as affordable housing finance companies. Using several classificationtechniques, the paper then assesses their growth and performance. The results vindicate the anecdotal studies andshow that this nascent sector grew at an average annual compound growth rate of 27–32 percent between 2016 and 2020.Affordable housing finance companies have been able to lend to more marginalized borrowers who are newer to credit anddo so in a markedly different way than other lenders. Delinquencies at affordable housing finance companies arehigher only for smaller loans, while risk-adjusted lending spreads are higher for all affordable housing financecompany loan sizes. This suggests that, thus far, the approach is profitable and sustainable. Looking forward,this lending model could be useful for other countries to explore given the incipient success in India, although thereare crucial capital market and institutional features that are unique to India. The paper also discusses demand-sidesubsidies for mortgages in India and identifies opportunities to improve the targeting of the program.

Suggested Citation

  • Karmali,Nadeem M. & Guillermo J. Rodriguez Ruiz, 2022. "The Growth and Performance of Affordable Housing Finance Lenders in India," Policy Research Working Paper Series 10038, The World Bank.
    • Handle: RePEc:wbk:wbrwps:10038
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    3. Tiwari, Piyush & Rao, Jyoti, 2016. "Housing Markets and Housing Policies in India," ADBI Working Papers 565, Asian Development Bank Institute.
    4. Abhijit Banerjee & Esther Duflo & Rachel Glennerster & Cynthia Kinnan, 2015. "The Miracle of Microfinance? Evidence from a Randomized Evaluation," American Economic Journal: Applied Economics, American Economic Association, vol. 7(1), pages 22-53, January.
    5. John Y. Campbell & Tarun Ramadorai & Benjamin Ranish, 2015. "The Impact of Regulation on Mortgage Risk: Evidence from India," American Economic Journal: Economic Policy, American Economic Association, vol. 7(4), pages 71-102, November.
    6. Loic Chiquier & Michael Lea, 2009. "Housing Finance Policy in Emerging Markets," World Bank Publications - Books, The World Bank Group, number 2641, December.
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