SEWA Bank's Housing Microfinance Program in India

This report examines SEWA Bank operations in Ahmedabad, Gujarat. Findings on housing microfinance products show that:

• Housing microfinance products do not significantly diverge from its microenterprise loans;
• Client has up to 60 months to repay housing loan amount, as opposed to 35 months for a microenterprise loan;
• SEWA Bank offers one principal housing loan - the Paki Bhit;
• SEWA Bank offers other specific housing products such as the equitable mortgage loans for new home purchases;
• Infrastructure loans under the Parivartan slum-upgrading program represent only 4 percent of SEWA's housing loan portfolio;
• Most of the other loans SEWA Bank offers may also be used for housing purposes and around half of all loans the Bank disburses are used for housing.

The report finds that SEWA also differentiates between its secured and unsecured housing loans. Secured loans are backed by assets, such as jewelry or a lien on the client's fixed deposits held at SEWA Bank while unsecured loans are backed by a lien on the client's demand deposits with the bank and guarantors. Typically, unless a loan is secured, clients must establish a savings record with SEWA before taking a loan. In rare cases, clients can obtain a loan without prior participation in a savings program if they are members of the bank and can produce adequate collateral.

The report concludes that:

• More orthodox methods for calculating loan interest rate, arrears, and for setting loan repayment period would lead to greater accountability and simplify financial reporting;
• SEWA Bank is well-positioned to increase the size of its outstanding portfolio by expanding the current client base and through better marketing of SEWA Bank's full product range to its existing clientele;
• SEWA's housing loan clients receive a preset amount that may exceed or fall short of the amount needed to complete the improvement. SEWA Bank should evaluate whether it makes more sense to peg the loan amount to the client's request;
• Cost of capital on Housing and Urban Development Corporation-financed loans is higher than what SEWA Bank pays for client deposits, and the interest rate is lower than what it charges clients for non-Housing and Urban Development Corporation housing loans. Given SEWA Bank's low credit-to-savings ratio, it should assess whether its relationship with HUDCO is altogether positive;
• SEWA Bank needs to track its arrears in a more systematic manner, for instance, tracking portfolio at risk;
• Participants in the Parivartan scheme will be good candidates for future home improvement loan and especially if these families are able to pay for the Parivartan-related improvement through the savings program.