The International Finance Corporation, the investment arm of the World Bank, is proposing to take a 20% stake in a new company, being set up by Dewan Housing Finance Corporation Ltd (DHFL).

DHFL is setting up a housing finance firm targeting the low-cost home segment, according to disclosures made by the IFC. The IFC board will take a view on the proposal next month.

The total cost of the new project is expected to be $20 million and DHFL, one of country's largest housing finance firms, could rope in more private investors.

The new company will look at low and low-middle income households in the states of Bihar, Uttar Pradesh, Madhya Pradesh, Chattisgarh, Jharkand and Orissa.

DHFL is part of the Wadhawan group which has interests in real estate, education and hotels. The company reported revenues of Rs 713 crore and a net profit of Rs 91 crore for FY09. DHFL has around 164,000 clients and an existing network of 87 branches and 77 service centers.

The low-cost housing finance venture will target people who usually are not able to get loan sanctions from commercial banks and other institutions. The demand for affordable housing in India is huge as the Planning Commission has predicted a shortfall of 25 million homes. If one takes the average cost of $10,000 per unit, this is expected to be at least a $250-billion market.

The space has already witnessed interest from funds. Last year, Micro Housing Finance Corporation raised Rs 25 crore in private equity funding from India Financial Inclusion Fund (IFIF) and Michael and Susan Dell Foundation.

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