What's luring an emerging HFC to rural market? There is a need for a clear title to land and secure property rights in rural India in order to unlock access to formal financial systems.

If we talk about the current scenario of housing in rural parts of India the figures show that there is a shortage of approximately 40 million units and it will increase by another 23-25 million units by 2022.

For investors, housing finance is emerging as the next frontier in the financial services spectrum. While the established HFCs and banks continue to focus on urban part of the country, unique models like Swarna Pragati is emerging as a successfully model to serve the untapped rural customer who actually has good repayment records and low delinquency rates.

Set up and promoted by a team of senior bankers led by A Ramesh Kumar, former CGM, State Bank of India and chairman of NABARD's National Committee on Rural Habitat, SwarnaPragati Housing Microfinance Private limited is a housing finance company (HFC) which focus on micro-housing loans. It operates through exclusive partnerships with NGOs and MFIs for customer sourcing and collections.

The Company is committed to financial inclusion by providing access to housing finance to economically weak and low-income families, especially in rural India. Since inception, SPHM has disbursed over Rs. 1,157 million of housing loans to nearly 9,700 customers.

The Company's products include housing loans of Rs. 50,000 – 200,000, housing plus loans of Rs. 200,000 – 700,000, and water, sanitation and hygiene loans (WASH Loans) of Rs. 15,000 – 25,000. The housing loans are provided both for fresh construction and for renovation/ repairs/ up-gradation of existing houses.

"Our aim is to provide easy access to finance to address rural people's basic need of housing and hygiene thus enabling them to lead a life of dignity and security from nature's onslaughts. Our products and processes are uniquely adapted to mitigate constraints of rural borrowers in taking a housing loan, which is reflected in our rapid growth. We hope to replicate the successful business model of operating in rural India across the length and breadth of the country." said Ramesh.

Recently, the venture has raised Series B funding from Bengaluru-based private equity fund Zephyr Peacock and Pierre Omidyar's Omidyar Network. The transaction also involved a follow-on investment by Aavishkaar Goodwell II, an existing investor in the Company and participation from I3N (Intellecap Impact Investment Network) and selected high-profile HNIs. Intellecap was the exclusive advisor to SwarnaPragati on this transaction.

With established presence in the states of Maharashtra, Odisha, Karnataka and Tamil Nadu, the Company will be using the funds to strengthen its position in existing geographies as well as to expand into the states of Madhya Pradesh, Bihar, Uttar Pradesh, Chattisgarh and Gujarat.

Commenting on the investment, Mukul Gulati, Managing Partner, Zephyr Peacock said, "The Company has a highly innovative model for serving the needs of rural customers. With the use of robust technology and smart data analytics, the model can be scaled up rapidly and the Company can cover a broad range of product offerings for the rural customers. This will have a multiplier impact on the local economies," says.

Till November 30, 2015, the Company has a portfolio of approximately Rs. 850 million and has built a customer base of nearly 8,700 borrowers since it became operational in 2011. The Company is targeting a portfolio of approximately Rs. 24 billion by 2020-21 and a customer base of one hundred and sixty thousand customers by then.

Our Take

Venture is addressing deeply entrenched socio-economic issues that remain largely unresolved and ignored. There is a need for a clear title to land and secure property rights in rural India in order to unlock access to formal financial systems.