In India, there are people who have Income but not necessarily “a documentary proof of income”. They comprise – a vast majority of people – employed in the unorganized / informal sector – small and marginal traders, tradesman, workers in small scale and cottage industries, etc. Their incomes are below the threshold subject to Income Tax and thus don’t generally file tax returns and till recently, i.e., prior to the advent of Jan Dhan Yojana, were highly unlikely to bank with. Obviously, in the absence of paperwork, the formal financial establishments generally don’t consider them credit worthy for extending credit. However, the Government of India’s Financial Inclusion drive – such as Jan Dhan Yojana and MUDRA Loans are intended to reach this Bottom of the Pyramid. So is another ambitious scheme – Housing For All by 2022.
I am presenting a proposition – specifically – Housing Finance – to this section in the Bottom of the Pyramid.
Deposit – Linked Loans
| Present Requirements | Proposed Requirement |
| 3 year Documentary Proof of Income such as Salary Slips or Income Tax Return. | 3 year deposit of EMI’s equivalent sum with Banks / Housing Finance Companies. This is in lieu of documentary proof of income and will earn market rates of interest such as on Recurring deposits. |
| Margin Money – separately required | The deposit + interest accrued is used to defray the Margin Money [Own Contribution] towards the acquisition of property. |
| Security – Immoveable property acquired is the security. | Security – Immoveable property acquired is the security. |
| Max EMIs – Generally at 50% of Income as per ITR | Max EMI – @ 50% of the threshold for Income not chargeable to Tax. |
| Interest Subsidy | Interest Subsidy + [Sub-Prime] Credit Risk Subsidy |
| First or Subsequent Home. | Only First Home. |
Lapse
In case the depositor does not intend / fails to buy property during the period – he gets refund of the deposit with due interest.
Collateral Advantages
- To Banks and Housing Finance Companies – Initially deposit during the 3 year period, will shore up their deposit base.
- Collection of statistics – KYC’s forms may also collect data about the location(s) and property cost outlay where the buyer depositor wants to purchase the property. This will help Real Estate Developers plan and estimate the requirement of value & budget housing units especially in smaller towns where they are at present reluctant to launch projects.
CA Nirmal Ghorawat's Blog 