In Rural India, Mahindra Rural Housing Finance Ltd is Leading the Example in Housing Microfinance

Mahindra Rural Housing Finance Ltd is demonstrating how tailored financial products and a personalized approach to housing finance is the best strategy for reaching low-income segments.

12.22.2015
 

Objectives

  • Expand home loans to customers in rural and semi-rural urban areas
  • Provide loans to at least 500,000 customers by 2017 and at least 1 million customers by 2020

Summary

Mahindra Rural Housing Finance Ltd is a financial institution that provides cost effective and flexible home loans that are tailored to the low-income, often rural market. Mahindra’s offer is effective because it is catered to the low income segment, but what makes their particular offer special is how they surround their financial product with other services.

The financial product is quite simple. Mahindra Rural Housing Finance Ltd offers loans averaging Rs. 110,000 or about $2,000 USD with repayment periods of up to 5-7 years. Interest rates are fixed rather than variable in order to simplify the repayment scheme as much as possible for clients who are not financially literate. MRHFL aims for a net return on assets of about 2%, which is adjusted based on borrowing costs. In awareness of the additional needs required particularly by the low-income segment, Mahindra has also provided a variety of value added services.

MRHFL has made raising awareness about housing loans a priority. They realized that mass advertising efforts were futile when targeting this customer segment and therefore, invested in loan officers who go door to door to inform residents about housing finance. Mahindra has also provided services that help home owners apply for the land ownership documentation required to qualify for most home loans. This involves liaising with local governments and acting as a political advocate for these misrepresented communities. In addition, Mahindra provides planning services during the construction process and streamlines the construction in order to reduce costs and mitigate default risk. For MRHFL tailoring a financial product offer is key – Mahindra makes a credit decision based on field investigation that help them determine the size of the loan amount and devise a customized repayment schedule that fit the individual’s lifestyle. MRHFL’s approach to value direct contact with individual clients is a defining feature of its business model that distinguishes its offer from the competition.  

Results

Mahindra served more than 81,000 new customers in 2014-15, a 44% increase from the year before. 75% of co-applicants are women. To date, 250,000 home loans have been provided in rural India.