HDFC, India's largest home loan provider, has entered a deal with SKS Microfinance for a pilot project in, under which to loans loan will be provided for improvement of dwellings primarily to low-income women clients.

The companies indicated that the project will provide loans mainly for extension and improvement of dwelling units which double up for income-generating activities like eateries, kiryana shops, and papad and agarbathi-making.

The loan is to be provided in the range of Rs 50,000-1.5 lakh for a 3 to 5 year period. SKS Microfinance will charge processing fees of 2% and interest of 21% on a monthly reducing basis.

The chief executive officer of SKS Microfinance, Mr. Suresh Gurumani said, "We are piloting this in Andhra Pradesh. These loans would be given to borrowers who have a good credit history of three years with us."

According to the joint managing director at HDFC, Renu Sud Karnad, SKS Microfinance will get the technology support and the first tranche of funding of Rs10 crore from HDFC.

In a statement, Mrs Karnad said, "We will be happy to give more. The tenure for the loan is three to five years. The market of microfinance industry is such that it is better to recover the loan as fast as possible. In case of a default it will not be the same as in urban market where the property can be sold and the money can be recovered,"

KFW, which is a German development bank, will provide the funds for this project under a special agreement with HDFC.