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Making Affordable Housing a Reality for Low and Middle-Income People in Bangladesh: IDLC Affordable Home Loan

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Apr 11, 2021

“The ache for home lives in all of us”, writes American poet Maya Angelou in All God's Children Need Traveling Shoes. “The safe place where we can go as we are and not be questioned.” Everyone wants a home. Without our abode, we are rootless, always transient, and never belong. A secured house provides us shelter, safety, and a sense of belonging and is the basis of a good life. Decent housing for all is the foundation of a well-functioning society. In the human psyche, the meaning of owning a house runs deep. Unfulfilled, we remain incomplete with a lingering feeling of displacement.

Owing to land scarcity, the high price of properties, high interest rates on home loans, and a lack of policy initiatives owning and building homes remains a distant dream for a large part of the population. If you could manage to own a piece of land, the cost of building a house makes it prohibitive for most low and middle-income people. Several estimates suggest, as much as 84% of the population in Bangladesh live in tin-roof houses. Housing remains a major challenge for low and middle-income people.

“The housing situation is dire,” said Ishrat Islam, professor of Urban and Regional planning at BUET in an interview with the Daily Star.

Although the existing financing market predominantly caters to affluent groups, this scenario, however, is changing slowly. Several financial institutions, banks, and NBFIs are delving into the affordable housing market with loans tailored for the low and middle-income people inspired by a growing market and a sense of meaning.

“Accessing home loans is challenging for people like us,” says Shamol Kumar Lama. Mr. Shamol works as a gatekeeper at a public library in Mymensingh. He owns a small land beside Bangladesh Agricultural University, Mymensingh but the land is so tiny he does not qualify for most home loan programs by banks and NBFIs.

“I have always wanted to have my own home,” reminisced Mr. Shamol. “When I started running the numbers I realized probably not all dreams come true. I was not hopeful about getting loans either because I knew I would not qualify.”

Mr. Shamol’s story ends on a high note. He later learned about IDLC Affordable Home Loan and managed to get a BDT 11 lakh loan within a short period to fulfill his dream. Today, Mr. Shamol lives in his own home with his daughter and wife.

Mr. Shamol is not alone. Since its launch in 2019, IDLC has served over 830 clients with its affordable home loan product designed particularly for low and middle-income people who can’t access regular home loans.

Anyone with a monthly income between BDT 20,000-60,000 can access IDLC affordable home loans upto BDT 25 lakhs. The purpose can be to purchase, build or renovate a building, apartment, or semi-pucca house. The interest rate is in the single digits and very competitive, which makes it accessible for low and middle-income people.

The repayment can be made in EMI which depends on several factors such as repayment tenure, interest rate, etc. To put it simply, if you take a loan of BDT one lakh for 15 years EMI would be roughly BDT 1000. Both principle installment and interest are included in the installment.


Although the existing financing market predominantly caters to affluent groups, this scenario, however, is changing slowly. Several financial institutions, banks, and NBFIs are delving into the affordable housing market with loans tailored for the low and middle-income people inspired by a growing market and a sense of meaning.


II.

Financial institutions usually do not cater to low and middle-income people for various valid and perceived reasons. In most cases the main challenge in dealing with clients such as middle class or low-income families is documentation and assessment — in the majority of instances, their salaries are not managed via banks. Since financial institutions assess customers based on documentation, it is difficult for them to assess customers without adequate documents. Misconceptions such as the chance of defaulting are higher among low and middle-income groups puts them at disadvantage. Hence usually financial institutions don’t want to work with people with limited income.

Many low and middle-income people are not much aware of how these loans work. Moreover, various reports suggest these people rarely get the assistance that affluent clients often enjoy, making it even more difficult for this segment to access home loans.

The IDLC Affordable Home Loan team has studied these challenges and design strategies to address them. Since the customer segment for the affordable home loan struggles with documentation, the company provides elaborate support in preparing for the loans and educates prospective clients to prepare documentation related to income certification and property ownership.

“IDLC has been extremely supportive throughout the process,” says Salma Sultana, a mother of two and a widow from Khulna who took an IDLC affordable home loan to complete the unfinished work of her house, which changed her life.

Ms. Salam had a good life with her husband and two sons. Our life, however, could change in an instance. “One day my husband came home with a high fever”, says Ms. Salma. “His body was burning. After three days we lost him.” With two small children, she had nowhere to go. Her husband started work on a four-bedroom house before his death but could not complete it. Ms. Salma did not have the means to complete the half-finished work that could provide shelter for her children and a source of additional income. “I went to different institutions,” recounts Ms. Salam. “But who would give a loan to a widow without an income?” Most financial institutions do not go to these people. Moreover, she had other challenges. The land was in the names of her under-aged minor children ineligible for loans. She had to get a court order for her to get loans, a complex lengthy process of which she had no clue.

One day returning from her child’s school, she came to learn about the IDLC affordable home loan. The next day she went to IDLC's local branch. “Initially, they said, they would not be able to process the loan because the land was not in my name,” says Ms. Salma. “But I persisted. And after a few days, someone from the branch called and informed me that they have thoroughly investigated the situation and came up with a possible solution and asked me to submit the documents.”

To avail of IDLC affordable home loan, clients are required to submit three types of documents: identification documents (NID), income documents (Salary Certificate, Bank Statement, Documents of other income sources if any), and the security documents of the mortgaged property. After getting all the required documents from a client and verification from relevant teams at IDLC, the company approves the loan. The total process requires 10-15 days.

IDLC assists clients along with the financing procedures. The company has built a culture where customers receive all the support they need in preparing for loans.

“They helped me get the court permission and eventually gave me the loan. My children now have their shelter over their head and I feel that I have been able to perform my responsibilities”, says Ms. Salma.  

To process the loan for Ms. Salma, the IDLC team had to work quite a bit. When the branch manager saw Ms. Salma approaching for Affordable Home Loan and learned about her situation, he wanted to assist her. He discussed it with the central and legal team. The teams took care of the legal issues and finally, provided the loan to Ms. Salma.

This is just one of many such stories where the IDLC Affordable Home Loan team went the extra mile to help a client own a home.

For example, IDLC has provided affordable home loans to a driver, a segment of customers financial institutions avoid. “We took a chance on him”, says Alawol Ahamed, ‎who works as the Head of Alternate Sales Channel and Affordable Housing at IDLC. “He was paying around BDT 5000 in house rent monthly. Father of a son and a daughter, he has land and wanted to build a two-unit house on it which would cost him BDT 10 lakhs approximately and save him the house rent. We knew he would not be able to access home loans. We decided to give the loan. We realized he could easily pay the installments if he could save the house rent and it would markedly improve his life and happiness.”

IDLC eventually gave the loan and he now has his own home. “He never missed an installment,” adds Mr. Alawol. “For us, the happiness and satisfaction of our customers are what matters the most. We want to set these examples with our affordable loans.”

IDLC has so far disbursed BDT 100 crore in affordable home loans. The company currently offers affordable home loans within the 50 kilometers radius of an IDLC branch across the country where it has a branch.

The company has excellent penetration outside Dhaka. A majority of its affordable home loan customers are from Gazipur, Savar, Mymensingh, and the outside of Dhaka, areas like Kushtia, Jessor, Khulna, Barisal, Bogura, Rangpur, and Rajshahi, Sylhet, Habiganj, Narsingdi, Cumilla & Chattogram. IDLC has a deeper reach at district levels than any other players in the space. In the coming days, IDLC plans to go even deeper into rural levels and empower more people to access affordable housing.  


The IDLC Affordable Home Loan team has studied these challenges and design strategies to address them. Since the customer segment for the affordable home loan struggles with documentation, the company provides elaborate support in preparing for the loans and educates prospective clients to prepare documentation related to income certification and property ownership.


III.

Almost 60 percent of the population in Bangladesh is in the middle-income group. Affordable housing remains a far cry for a large majority of them.

“Our ambition is to enable more and more people to access affordable housing in Bangladesh who otherwise could not access it”, says Mr. Alawol. The company says it aims to become a leader in the vertical. “In five years, we would like to serve at least 10,000 families and touch 50,000 lives,” he adds.

IDLC is unique in the space in that it has a dedicated product for affordable home loans targeted towards limited-income households. The company has brought down the interest rate to make the loan accessible to an ever greater number of low and middle-income people. The company says it sees IDLC affordable home loan as an enabling vehicle to empower more people to own homes.

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Ruhul Kader is a technology and business analyst based in Dhaka, Bangladesh. He is also the co-founder and CEO of Future Startup and author of Rethinking Failure: A short guide to living an entrepreneurial life. He writes about internet business, strategy, technology, technology policy, and society. He can be reached at ruhul@futurestartup.com

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