Scope of housing finance for the people of Khulna City

Chapter – One: Introduction

1.1 Introduction

Bangladesh is a country of third world. It has a huge population against limited land like other third world countries. Natural increase of population, in migration, and unplanned development create the housing shortage in urban areas of Bangladesh. This problem is clearly unfavorable for rapid development. The effort of governments and the urban authorities in terms resource, capabilities and initiatives are highly inadequate to face the challenge. Khulna City Corporation has 15-lakh people within the area of 14 square miles. In a report of Asian Development Bank 1991, it was observed that about 54 thousand people live in 54 slums in Khulna city in KCC area. Now more than 2 lakh people are slum dwellers. On the other hand 50% population of Khulna City lives as tenants. Khulna Development Authority is responsible to supply plots among the city dwellers of varies income groups under site and services projects. However the lower income people have little access to this land. Hence only important thing is finance for housing. The existing resource for housing finance include personal funds of potential urban builders and buyers, individual savings, governmental loans, governmental budgetary allocations, construction by international donor agencies, commercial banks, specialized financial institutions and NGOs. But the poor, who are majority and desperately need financial support for housing, are kept totally out of the financial market. In this situation government should take appropriate measures to solve this massive problem. The aim of this study is to search the scope of finance for housing especially for the people of Khulna City Corporation. 

1.2 Background

 Housing is a basic need of human life. It does not merely an amenity, but an essential necessity. In ancient time people live in natural adverse condition and they used caves, treetops, tree holes for their house. After that when their number increased and food requirements become enormous they come out from forest and to live in suitable land for cultivation and habitation. Protection from the various climate and wild animals was the main purpose of a house.

         Now in this civilized world house is an essential part of human life and also an important problem of human life. This problem is more acute in urban areas. Land is a scare commodity in an urban area. Bangladesh has limited natural resources, huge population, a great migration problem towards cities, unplanned development etc. For this urban areas need so many shelters for new people and making shortage as land is in a confined situation. So housing problem is one of the burning questions here. So to provide housing is the responsibility of the government of Bangladesh as well as other welfare states.

               In our country the financial problem is the main constraints to build a house. In urban areas the problem is more complex and due to the pressure for houses and services due to both natural increase and in migration. To solve this massive problem any break through is possible only if larger funds are allocated to housing. But housing has to compete with many other important sectors like industry, power, agriculture, transport etc. Low and lower income families need a great financial aid in long-term basis and a soft repayment system, and a good institutional support. Innovative and ingenious approaches are necessary to tackle this problem. In this affairs governmental with some other non-governmental big push and planned approach in financial side is very much needed to solve this huge problem.

Within the KCC area there were 1,50,000 households in 1991 with 1,06,7000 housing units and backlog was 8300 units, and in 1998 the figure is 1,44,700 households, 1,29, 300 dwelling units and 15000 backlogs. 18% of KCC population lives in slums and squatters. One third of the city households live below poverty line. (Master plan report, Volume 3, 2002). Only 5% housing units in Bangladesh are financed by formal sector (Hasan 2000). Socio economic survey shows that, in Khulna City 60% households have dwelling units, 96% financed the construction by themselves, and 1.4% has access in institutional finance and 2% borrowed from their colleagues (Interim Report, Khulna Master Plan Project, Khulna Development Authority, 1999).

The lack of available and accessible housing finance has been identified by the Government of Bangladesh (GOB) as one of the important hurdles in improving the housing conditions for lower income households. In that connection, the Ministry of Local Government and Rural Development, and Cooperatives, recently requested UNCHS to provide policy advice on the housing finance sector, with a particular focus on policies to increase access to housing finance by lower income households. UNDP agreed to provide funding for the study. The housing finance consultancy is to a) provide a brief overview of existing housing finance systems in Bangladesh, including those available to the urban and rural low-income households, and, b) to make suggestions for the improvement of housing finance mechanisms for lower-middle and lower income groups suitable to the conditions in Bangladesh. The consultancy took place from November 11 through 23, 1998 in Bangladesh.

UNCHS has been involved in the shelter and urban sector of Bangladesh since 1979. It conducted an Urban and Shelter Sector Review in 1993, and has recently formulated an Urban Poverty Alleviation Project, which is awaiting final approval by the GOB. In addition, UNCHS has completed a Shelter Rehabilitation Assessment Study after the recent floods. A housing finance component that would increase access to housing credit for lower income groups, would complement projects by the GOB and International Agencies that already include micro-credit, infrastructure and services provision.

The need for improvements in the housing finance system has been expressed in several studies and by different government and international agencies. The Asian Development Bank prepared a comprehensive urban institutional improvement project in 1993, of which an analysis of the housing finance sector was a part. Detailed recommendations for action were made. However, the project was not approved and government did not take up the proposed actions. The World Bank is presently assisting Bangladesh in the formulation of an Urban Strategy. The draft report also identifies housing finance as one of the constraints in improving housing in urban areas, but it does not include an analysis of the sector. The present study builds on these efforts and attempts to formulate recommendations for improving access to housing credit for various groups of presently underserved urban people.

The analysis and related recommendations fall into four categories: 1) the macro-economy and the efficiency of capital markets generally as these relate to the functioning of the formal housing finance market, 2) the way housing is supplied in urban and rural areas, 3) the structure and efficiency of the housing finance system, and, 4) micro-finance mechanisms for housing accessible to households that are unable to be served by the formal finance system. This brief consultancy cannot do justice to the complexity of these four different areas, but attempts to provide a coherent picture of present practices and potential improvements that might be explored in both the formal mortgage market and the alternative housing credit programs offered by micro-finance providers.

1.3 Objectives of this study

1. To know the present housing finance system in Khulna City.
2. To find out the scope of housing finance for the people of Khulna city.

1.4 Justification of the study

     Bangladesh is a small and very poor of third world countries. People of this country are struggling with different kinds of their daily problems. There is an acute shortage of houses which is a great problem of this country. In Khulna city is problem is the burning question as urbanization is triggering up at a high rate here. Within the KCC area there were 1,50,000 households in 1991 with 1,06,7000 housing units and backlog was 8300 units, and in 1998 the figure is 1,44,700 households, 1,29, 300 dwelling units and 15000 backlogs. 18% of KCC population lives in slums and squatters. One third of the city households live below poverty line. (Master plan report, Volume 3, 2002). Only 5% housing units in Bangladesh are financed by formal sector (Hasan 2000). Socio economic survey shows that, in Khulna City 60% households have dwelling units, 96% financed the construction by themselves, and 1.4% has access in institutional finance and 2% borrowed from their colleagues (Interim Report, Khulna Master Plan Project, Khulna Development Authority, 1999).  The national housing policy was formulated in 1993 keeping in focus the basic objective of providing housing to people at all strata of the society especially to the low and middle income people and those without home. The emphasis of the national housing policy was on the construction of inexpensive housing units, development of land and construction of condominiums for the low and middle-income people, multi-storied buildings for the government employees, hostels for working women, low cost houses in the coastal belt and inducting the private sector in the housing sector. Housing loan operations of the Government has long remained confined to the towns and metropolitan cities. So housing is the important issue in the developing countries like Bangladesh and its finance is the first and foremost thing in developing this sector.

1.5 Limitations and problems of the study

 The study has analyzed the finance scope in the spatial context. But the data has not been found for direct support for this study.

 The more detailed information about the study has not been properly collected for the lack of money constraints and limitations of the study time.

 The education level of all the loan recipient people has not been so satisfactory level that their given date would be properly reliable. Their understanding level has been so poor. So, crosscheck of the data should be necessary and it was a time consuming matter.

 The secondary information about the finance and the population census data had not been collected in the same year. For this reasons, it has not been possible to compare different elements of housing finance in a same year.

  The office authority are not willing to supply the informations and also correct information all the time in the same manner.

 Collection of data from the authorities is a tedious job because the employees are busy all the time for their respective jobs. So it is very hard to them to manage time for the help of research work.

 Finding out the old datas which are jammed in the old files is also a tedious job.

 People are not willing to supply the informations about their housing loans for some of their personal causes.

  

Literature Review

Suri Promila in his book, “Urban Poor: Their housing needs and Governmental response”, expresses the way how the low income people would be able to easy access to finance for housing. In the book she showed that formal financing is too complicated for poor and illiterate people and the poor are unable to take full advantages of loan schemes. The urban poor need to borrow in small amounts and easily. The concept of long-term finance is alien to the poor. There is need for bank loan to replace finance from informal sources.

Mr. P K Umashankar and Mr. K Misra Girish; in their book  “Public- Private Responsibilities in Urban Housing” express about the need of housing finance and need of organizational set up and some financial mechanism for housing. Improvement Trusts, Housing Boards and Development Authorities have the all-kind responsibilities of housing development. The performances of these institutions are no very encouraging for the poor class. Inadequate finance, problems and delays in land procurement through acquisition, insufficient expert manpower, problems in executing or implementing land development and house construction programmes etc. are the main obstructions of housing development.

Housing finance is the most important input to housing. There are some finance institutions are present but the lower and lower middle-income group are always remaining far from the aid. In view of the fact that 30 percent of the urban population lives in slums and another 10 percent in substandard houses. This people need financial support from financial institutions to build or develop their houses. But the rules and regulations discourage them. Hence change of the rules and regulations or new institutions are essential to improve the access of housing of lower and lower middle income group people.

                                                                                                                                                                    Interim Report Vol. 1, of Master Plan Project, KDA, 1991 has shown the existing housing stock and shortage of Khulna City. In 1991, there were 187195 housing units in the KDA areas and the amount of shortage of housing units about 12358(6.6 percent). In KCC area this shortage is too much wide and it is about 8 percent. In overall view about 7 percent of all households in Khulna are homeless or do not have proper housing.

Abir-Ul-Jabbar in his thesis paper “Public Sector Housing Finance in Khulna City: Role of House Building Finance Corporation” has shown that in our country the financial problem is the main constraints to build a house. The existing resource for housing finance include personal funds of potential urban builders and buyers, individual savings, governmental loans, governmental budgetary allocations, construction by international donor agencies, commercial banks, specialized financial institutions and NGOs. The share of housing in public sector development programmes has been comparatively less. Banking, insurance, and investment agencies have shied away from this field. The poor who are the majority and desperately need financial support for housing, are kept totally out of the financial market.

Chapter – Two : Methodology

 Methodology

                        Methodology is the presentation or approach of the study, which gives a clear picture of the study. A proper methodology is always necessary for successful accomplishment of any research work. It helps to streamline and organize the experiences, observations, examinations, analysis of data and information and their logical interpretation through a systematic process to achieve the ultimate goal and objectives of any research.

 For this study the synoptic method are as follows

n   Selection of topic

n   Conceptualization

n    Selection of the study area

n   Formulation of goals and objectives

n   Data collection

n   Sampling technique and sample size selection

n   Data analysis

n   Data presentation

2.1 Selection of topic

Housing is the basic need of the people of the world. Now to provide housing for all is a very crucial work for all welfare states. But the people of third world countries like Bangladesh are very poor. They are not capable to finance or build their house and the governments have so many difficulties in providing the houses. Hence housing finance comes in front for housing development of all the people. Government recognizes housing as a constitutional right that has clearly enunciated national housing policies. Admittedly, for many years, housing policies have predominantly remained statements of intent rather than being translated into implementation.

In the past, government viewed housing as a social rather than an economic sector. So government housing and subsidies were synonymous and hence the tendency was to view housing finance from the angle of its cash budget and not as a developmental activity with tremendous spin-offs to the economy. Today, this has clearly changed. Financing in housing development is one of the main goals of each government. In this light the present topic has been selected for study.

2.2 Conceptualization

For research work concept growing is the preliminary work. Reading of various books, magazines, journals and so other articles can help in growing concept of any subject. Discussion with teachers and other related professionals can help in this regard.

For this research conceptualization growing is done in the following way.

a. Communicating with informative persons / professionals.

b. Literature review.

By communicating with the informative persons and studying different books, journals, seminar papers, reports, magazines, review papers etc., which focus on the issue, related to the research topic, the concepts of different aspects of the research helped to develop the concept of present research.

2.3 Selection of the study area

Khulna is one of the most important and third largest cities of the country. Due to the natural increase and in migration the population is increasing in a high rate. Many people are being homeless or living in substandard houses. According to the Master Plan-1991 in KCC area there are 1500000 households and 106700 housing units. There were housing backlogs of 8300 units in KCC area in 1991. Here it has been estimated that by the year 2020, the structure plan area will require additional 224376 new dwelling units with another 90000 units as replacement. So this area has an acute shortage of housing. Hence this area is selected as the study area of this study.

2.4 Formulation of Goals and Objectives

The formulation of goals and objectives for the study area based on facts rather than on a designer’s interests and values. These objectives are inspiring, non-controversial and on the basis of study areas problems.

2.5 Data collection

Data collection revolves around making a judgment about the environment and its natural and built components. Two types of data are necessary for the study. Required data for the study are:

n   Primary data

n   Secondary data

Primary data are getting from survey of existing condition. Survey finds out the present condition of natural and built component about the study area. Survey will be conducted on the basis of following required data.

Required data: Income, savings, housing types, help from institutions (amount, conditions, repayment time, interest rate etc).

Secondary data (Institutions, amount of loan, conditions, peoples need, amount of supply etc.) are getting from the documents of Khulna Development Authority documents, Khulna City Corporation Office, Bangladesh House Building Finance Corporation (Khulna Office), Other government office, NGOs etc.

2.6 Sampling technique and sample size selection

HBFC Khulna branch has divided the city area into some blocks or zones. The main block or zones of Khulna city they has selected are Nirala, Sonadanga, Boyra, Khalishpur, Daulatpur and Shiromony.

The selection of sample size is 5 households from each zone. So the sample size is       6*5 = 30. Random sampling is chosen for this study.

 2.7 Data analysis

Data processing is necessary to convert data into information. Using this information analysis has done. Analysis have incorporated a variety of techniques. Information helps to identify problems, opportunities and constraints of the area. Both primary and secondary data helped to analysis permeability, variety requirement, path, nodes, edge etc.

  

2.8 Data Presentation

The next step is presentation of the analyzed data in a sequential order of any research work. Good presentation is a crucial thing for making understand the research findings to the people. By this process the researcher find out the faults or disputes of his research. Then by correcting the faults the revised outcome come. By this way a good outcome is very much possible.