KARACHI: Pakistan Mortgage Refinance Company (PMRC), an organization that provides long-term financing to banks for their construction and housing consumers at comparatively cheaper rates, has joined hands with The Bank of Punjab (BOP) for promoting and providing affordable housing finance in Pakistan by signing a Credit Guarantee Agreement with Credit Guarantee Trust for Low-Cost Housing, established by the Government with PMRC as Trustee.
A fund worth Rs.15 billion has been allotted to cover losses (if any) of financial institutions on low-cost housing finance. The primary goal of this initiative is to encourage financial institutions, both conventional and Shariah-compliant, to extend housing finance for up to 20 to 25 years to people seeking small loans.
“Pakistan’s first credit guarantee agreement for low-cost housing finance has been signed between Credit Guarantee Trust of Government (managed by PMRC) and The Bank of Punjab,” a PMRC official told.
“Several other financial institutions, including leading banks, will opt to avail the credit guarantee next week,” he said. “Almost all the banks offering low-cost housing finance (under the Naya Pakistan Housing Scheme or some other scheme) will secure financing by availing the guarantee.”
“The World Bank has provided funding of $10 million…for the credit guarantee which is like an insurance policy to cover risk,” he said, further stating that the guarantee was established with support of the State Bank of Pakistan (SBP) and the Ministry of Finance.
“The amount (Rs15 billion) is for starting purpose…PMRC is providing the credit guarantee to banks at a fixed rate of 2% for 10 years that translates into 0.2% per annum,” he said.
Banks may offer up to Rs.5 million for a property priced at a maximum of Rs.6 million under the low-cost housing finance. PMRC has lent Rs.5 billion approx. for low-cost housing finance to banks since the State Bank of Pakistan established the company in 2018. In total, the organization has extended financing of Rs.14.3 billion to the primary financial institutions, such as commercial banks.
“The housing and construction finance ratio in Pakistan currently stands at 0.2% of GDP (gross domestic product) while the ratio stands at 3% in Bangladesh and 6% in India,” the deputy governor, State Bank of Pakistan said.
“The (low-cost housing) scheme is designed in a way that borrowers will only have to pay Rs10,000 to Rs13,000 per month, which will be within their reach,” the State Bank of Pakistan official said.
To recall, PM Imran Khan had promised the public during his election campaign to establish 5 million low-cost houses during his tenure. So far, the PTI-led government has announced a subsidy of Rs.30 billion for low-cost housing, with a significant reduction in tax rates, particularly for low-cost houses in a bid to encourage economic activities.