Home loans are no longer enough: Why affordable lenders are turning to LAP and MSME

For a borrower, an affordable housing finance company may seem like a lender you approach simply to buy or build a home. But these companies are increasingly doing more than financing houses. They are also lending against property and funding small businesses, as they look for ways to grow their books while earning better returns.

This shift is changing the economics of the affordable housing finance sector. According to a Systematix Research report, non-housing loans accounted for 32% of the AUM of affordable housing finance companies (AHFCs) in FY26, up sharply from 21% in FY20. Loan against Property (LAP) and MSME loans are becoming an increasingly important part of this strategy.

Why are lenders moving beyond home loans?

The attraction is relatively straightforward: higher yields.

According to the report, LAP and MSME products typically generate yields 150–200 basis points higher than housing loans. This gives lenders an opportunity to improve their spreads and overall profitability, although these products also carry incremental credit risk. So far, the report says, the stronger spreads have more than offset that additional risk.

For AHFCs, this diversification also reduces dependence on a single product. Instead of relying entirely on affordable home loans, lenders can use their existing customer relationships, branches and underwriting capabilities to build businesses around property-backed and small-business lending.

The impact is already visible in margins

The change in product mix has had a meaningful impact on sector profitability.

Systematix estimates that aggregate net interest margin (NIM) increased from 5.9% in FY20 to 7.0% in FY26, while return on assets (RoA) rose from 3.1% to 4.7% over the same period. The report identifies diversification into higher-yielding non-housing products as an increasingly important driver of the sector's economics.

This is particularly relevant as AHFCs face higher competition for affordable housing borrowers. Higher-yielding products can help protect profitability even as competition puts pressure on housing-loan pricing.

Aptus stands out

Among the companies covered by Systematix, Aptus Value Housing Finance has one of the strongest non-housing franchises. Its portfolio spans housing, LAP and small-business loans, with non-housing businesses generating around 17–20% yields, compared with roughly 14–14.5% for housing loans. This gives Aptus a blended yield of around 17% and an estimated average NIM of about 10%, the highest among its peers, according to the report.

But higher returns come with a catch

The move into LAP and MSME cannot be viewed simply as a margin-enhancement exercise. These products bring additional credit risk, making underwriting and collections critical.

For investors, therefore, the key question is not merely how much an AHFC can earn on these loans, but whether it can maintain asset quality while scaling them.

Systematix remains constructive on the sector, forecasting 18–23% PAT CAGR through FY29E, alongside low- to mid-20s loan growth.

The broader story, then, is no longer just about how many affordable homes lenders can finance. It is increasingly about how effectively they can combine housing, LAP and MSME lending to build a higher-return business without compromising credit quality.