Interest Subsidy Scheme for Housing the Urban Poor

The Interest Subsidy Scheme for Housing the Urban Poor (ISHUP) was launched w.e.f. 26/12/2008 with a view to enabling the access of urban poor to the long term institutional finance. The scheme was to be implemented in the 11th Five Year Plan as on pilot basis. The total plan outlay for the scheme was Rs.1,100 crores. The scheme seeks to provide interest subsidy to Economically Weaker Section (EWS) (income upto Rs. 5000/-) and Low Income Group (LIG) (income from Rs.  5,001 – Rs. 10,000/) beneficiaries on availing loans from the Banks /Housing Finance Companies (HFCs) to enhance affordability of these income segments. Under this scheme, an interest subsidy of 5 percent per annum will be given upfront on loans upto Rs. 1,00,000/- taken from Banks / Housing Finance Companies (HFCs) during 11th Five Year Plan. The loan repayment period would be 15-20 years.

Cumulatively, up to December, 2011 only 8,734 beneficiaries in Andhra Pradesh, Chhattisgarh, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan, Tamil Nadu, Uttar Pradesh and Kerala have been covered under the scheme and a total NPV of interest subsidy of Rs. 7.57 crore has been released. This has been primarily due the lack of willingness on the part of banks to provide loans to EWS and Low Income segments. Since June 2011, ISHUP has been dovetailed with the Government`s flagship Mission of Rajiv Awas Yojana (RAY) for a Slum free India.

The scheme had certain assumptions at its onset, which proved unsuitable to make the scheme to gain its target. The Advisory Committee set up by the Ministry has contemplated constraints coming in the way of its implementation and suggested valuable suggestions. As the scheme is to be closed in 2012, the last year of the 11th Five Year Plan Period (2007-12), based on the suggestions made by the Advisory Committee, the Ministry is in the process of launching Interest Subsidy Scheme for Housing the Urban Poor (ISHUP) in its revised form to be implemented in the 12th Five Year Plan (2012-17).

The innovative Interest Subsidy Scheme for Housing the Urban Poor (ISHUP) is being redrafted into two parts as (i) Revised ISHUP Scheme and (ii) Rajiv Rin Yojana (RRY) to be implemented in the 12^th Plan period.

(i)         Revised ISHUP Scheme

(a)      A new scheme with this nomenclature is proposed to be introduced in order to extend the benefit of existing ISHUP (loan up to a maximum of Rs.1/Rs.1.6 lakhs to EWS and LIG beneficiaries with interest subsidy of 5% on Rs. 1.0 lakh given for a maximum period of 20 years) to the beneficiaries of IHSDP and BSUP under JNNURM and RAY.  The need to do so has been felt because of the stipulation of minimum beneficiary contribution of 10-12% being at times, extended beyond this limit where ULBs/State is unable to bear the extra costs. Some of the State Governments/Urban Local Bodies (ULBs) are constrained to pass on the increased costs of construction including infrastructure (beyond Central Subsidy) to beneficiaries, who, in turn, are forced to borrow from the open market at high rates. Also, the non-availability of credit could adversely affect the prospects of the having a house for beneficiaries of JNNURM and RAY.  The proposal is being mooted to allow an interest subsidy to these beneficiaries under BSUP/IHSDP/RAY over and above the capital subsidy as given in the case of Indira Awas Yojana (IAY) and Differential Rate of Interest (DRI) Schemes.  The financial implication of this scheme would be a net of Rs. 2,100 crores for a target of 5.7 lakh beneficiaries at the rate of Rs. 36,800 of interest subsidy (for 20 years) per beneficiary.

            The experience under JNNURM has demonstrated that a strategy of relying wholly on construction of new housing stock is neither feasible nor optimal. It has been estimated by the Expert Committee of the Ministry on Housing Shortage that a significant part of the total housing shortage of 26 Million [about 20 %] is caused by the congestion factor; and that the construction of additional rooms would be sufficient to address this need. Under RAY, given that the focus of the program is in-situ upgradation of slum dwellers, it is estimated that a substantive part of the demand for housing stock could be met through community and beneficiary led incremental housing. The availability of credit at affordable rates to the urban slum dwellers and urban poor for incremental housing would thus be a major step forward in addressing the housing shortage in the country within the most optimal time frame and costs. It is hence proposed that the current ISHUP subsidies at the rate of Rs 1 Lakh be made available to slum-dwellers for making additions to the living area and for conversion of katcha houses into pucca structures under the Revised ISHUP scheme.

(ii)        Rajiv Rin Yojana

            Based on the recommendations made by a committee set up by this Ministry, it is proposed that the existing scheme of ISHUP be revised with increase in the upper ceiling of the loan for current Rs.1 lakh with interest subsidy of 5% to Rs. 3.0 lakh for the Economically Weaker Section households and Rs. 5.0 lakh for the Lower Income Group beneficiaries.  Both these loans would be granted with 5% interest subsidy.  NPV subsidy under this scheme for a 20 year loan period would work out to be Rs.1,10,000 for EWS and Rs.1,84,000 for LIG. Keeping a target of reaching out to 2.37 lakh beneficiaries the financial implication under this new (being proposed) scheme called Rajiv Rin Yojana (RRY), would be Rs.2900 Crores. This would not only provide necessary credit to acquire the house but also give the necessary impetus to the housing sector.

      A sum of Rs. 5,000 crores is proposed to be drawn out of the ACA funds of Rs.50,000 crores sought under RAY during the 12^th plan period, as the scheme of ISHUP has been dovetailed into RAY presently. Therefore, the Revised ISHUP Scheme as well as Rajiv Rin Yojana (RRY) would be within the overall outlay sought under Rajiv Awas Yojana (RAY) for the 12^th Plan.