Formal and informal housing finance for the urban poor in India 1
Robert-Jan BakenandPeer Smets
Institute for Housing Studies, Rotterdam and Vrije Universiteit, Amsterdam, The Netherlands
This chapter deals with the formal and informal housing finance markets in two Indian cities, Visakhapatnam and Hyderabad, in the state of Andhra Pradesh. The chapter concentrates on how formal and informal housing finance relate to the housing conditions of the ‘economically weaker section’ (EWS) households, defined as having an income of less than Rs 1,250 per month (US$ 41), which is regarded as barely sufficient to cover basic needs. 2 This group represented approximately 26.1 per cent of the urban population in 1987-8 (Dandekar et al. 1993:19). Our aim is to examine to what extent each finance market is compatible with the survival strategies of the low-income households by introducing the concept of the ‘finance gap’ and the implications for household debt and displacement. We argue that the form of house construction and the financial arrangements which are part of public housing programmes do not match household survival strategies and that the terms and conditions of informal housing finance are generally more adequate.
The material for this chapter was gathered through two independent research projects conducted in 1993-4. The first was on land and housing market development in Vijayawada and Visakhapatnam. Material from Visakhapatnam, one of India’s fastest-growing cities with a growth rate of more than 60 per cent per decade and a 1991 population of 1.05 million, is used in this chapter to illustrate formal housing finance. The project included a survey of sixty-six settlements, selected on the basis of location, method of land delivery, age, and level of consolidation, as well as the form of government intervention (sixteen