KARACHI: State Bank of Pakistan (SBP) on Wednesday said that as a result of numerous measures of the SBP and full support of the government, bank lending for the government’s flagship markup subsidy scheme, commonly known as Mera Pakistan Mera Ghar (MPMG), has picked up momentum.
Since the launch of the scheme, applications of Rs 154 billion under MPMG have been received by banks and banks have approved housing finance of over Rs 59 billion up till August 31, 2021. Similarly, the pace of disbursement under MPMG that was initially slow because of a number of factors, including the availability of housing units, has also picked up.
By August 31, 2021, disbursement under the scheme has reached Rs 11.5 billion, showing an increase of around Rs 3.8 billion or 49 per cent in August 2021.
On average, to date banks have approved 38 percent of the amount applied and 19 percent of the approved amount has been disbursed.
These approval and disbursement ratios have similarly risen over the past few months as banks have put in place the needed upfront investment in procedures and technology to process applications for low-cost housing.
It would be pertinent to mention here that banks disbursed amounts in different stages of construction or purchase. Thus the pace of disbursement is contingent upon the speed of construction and completion of the purchasing process.
Since the announcement of MPMG scheme last year, SBP has taken various enabling steps such as introducing standardized and simple application form; adopting an informal income assessment model; providing relaxations in prudential regulations; establishing helpdesks at all SBP field offices; and, designing a complaint portal supported by a network of focal persons of all banks across all geographical areas.
On the instructions of SBP, banks are accepting MPMG applications from over 8,000 dedicated branches across the country. Further, SBP has also allocated targets to each bank under MPMG.
An e-tracking system within each bank and a dedicated joint call center for the facilitation of the applicants have also been established. Naya Pakistan Housing Development Authority (NAPHDA) and Pakistan Banks’ Association (PBA), a representative body of banks, are fully supporting MPMG.
It is expected that with the ongoing efforts by SBP, Government, and Banks, bank finance for MPMG will gain further momentum in the days to come.
KARACHI: State Bank of Pakistan (SBP) on Thursday issued guidelines for financing the housing units in under-construction projects.
The SBP said that builders/developers are developing and marketing a number of multistorey projects of housing units across the country.
Although these under-construction projects are exposed to project completion risk and performance risk of builders/developers, many individuals are attracted to book housing units in these projects owing to their affordability and option of payments through installments.
However, the banks/DFIs have traditionally shied away from financing the housing units in under-construction projects due to issues in the availability of legally enforceable title documents and registration of mortgages as per requirements of Prudential Regulations (PR) for Housing Finance.
It may be noted that banks/DFIs extend project financing to builders/developers for the construction of multistorey housing projects after adequately securing their project and builder risks through mortgage of project land and other securities.
Utilizing these already established security arrangements with the builders/developers, the banks/DFIs may also extend housing finance against housing units in multistorey housing projects.
This will expand options of affordable housing to individual borrowers. This will also facilitate banks/DFIs in ensuring repayment/ settlement of their project financing through conversion of the same in housing finance.
In view of the above considerations, State Bank has decided to issue guidelines to encourage banks/DFIs to extend housing finance to the housing units in under-construction projects for which they have already entered into arrangements of project financing with builders/developers.
These Guidelines for Financing of Housing Units in Under-construction Projects have been developed considering current market norms of buying/selling of housing units in under-construction projects by addressing issues of legally enforceable rights and responsibilities.
While guidelines comprehensively cover various aspects, it may be noted that all payments to the builder/developer for completion of construction/project shall be routed through an escrow account maintained by the bank/lead bank of the consortium.
The builder’s/developer’s equity and purchasers’ equity contribution and subsequent payments of the purchasers through mortgage financing shall be routed through the same account.
Accordingly, the State Bank has decided to exempt banks/DFIs extending housing finance for under-construction housing units from requirements as specified under Regulation HF 8: Creation of Mortgage for Housing Finance.
This exemption will be available till the arrangement of the completion certificate, NOCs, approvals, utility connections, and registered title deed between builder/developer and buyers of housing units. In order to avail of this exemption, the banks/DFIs will, however, be required to meticulously comply with provisions of Guidelines for Financing of Housing Units in Under-construction Projects.
KARACHI: Housing and construction finance outstanding increased by Rs111 billion or 75 per cent during fiscal year 2020/2021 over the preceding fiscal year, reaching Rs259 billion by end of June 2021.
An increase of this quantum in housing and construction finance in one year is unprecedented in Pakistan’s history. As a result, 97 per cent of the overall target set by State Bank of Pakistan (SBP) for June 30, 2021 was met.
Governor SBP Dr. Reza Baqir presented this information on unprecedented growth in housing and construction finance to the Prime Minister a day earlier in a meeting of the National Coordination Committee on Housing, Construction and Development (NCCHCD) chaired by the Prime Minister.
The meeting was attended by the Federal Ministers for Finance, Information, Aviation, and Climate Change, Chairman NAPHDA, State Minister for Information & Broadcasting, SAPM on Political Communication, Presidents/CEOs of banks and senior SBP officials.
The Prime Minister appreciated that efforts of SBP have been successful in stimulating the housing and construction finance in the country, which was hitherto a neglected area within commercial banks.
The Prime Minister expressed the strong resolve of the government to accelerate activity in this area and encouraged banks to continue to support this area of economic activity and especially to facilitate customers interested in availing the government’s mark-up subsidy scheme for housing.
In July, 2020, the State Bank, in line with Government’s vision to promote the housing & construction sector activities and improve home ownership in the country, mandated banks to increase their housing and construction finance portfolio to at least 5 percent of their private sector advances by December 2021. Accordingly, the SBP set quarterly targets with the mutual consent of Presidents/CEOs of banks supported by an incentive and penalty framework to motivate banks to achieve these goals.
Governor SBP, Dr Reza Baqir, also shared that in addition to strong growth in construction & housing finance, banks have started to extend housing finance under Government Markup Subsidy Scheme, commonly known as Mera Pakistan MeraGhar (MPMG), for the low to middle income segments of the society. Provision of housing finance to such segments of society is also unprecedented in Paksitan’s history.
In April 2021, banks were given separate targets under MPMG to induce them to grow this segement of housing finance. Consequently, the number of applications increased significantly and the amount of loans applied for more than doubled in the last quarter of FY21 to Rs111 billion. As of June 30, 2021, banks have approved home financing worth Rs39 billion.
Governor SBP also informed the Prime Minister that following his instructions to facilitate the public as much as possible, a simple one page application form has been designed separately for salaried persons, businessmen and applicants with informal income to apply for such housing finance.
In order to facilitate applicants with informal income, some very basic personal information, and payment information about house rent, utilities & children education will be required. Forms will be available both in English and Urdu by end July 2021.
While appreciating the SBP efforts to bring ease for borrowers through simple application form and processes, the Prime Minister voiced expectation that banks’ portfolio must show strong growth in disbursements in the coming days.
To facilitate access to home finance especially within lower and middle income groups, State Bank’s key initiatives include allowing acceptance of third party guarantee during the construction period, waiver of Debt Burden Ratio (DBR) in case of informal income and the introduction of standard facility offer letter by the banks. State Bank has also advised banks to develop and deploy income estimation models for borrowers with informal sources of income. In addition to gauge readiness, knowledge and appropriate behavior of banking staff towards MPMG customers, regular mystery shopping of banking branches on a pan Pakistan basis is conducted by State Bank.
In addition to State Bank’s dedicated online portal for the registration of complaints by MPMG customers, commercial banks have also established a 24/7 joint helpline to address the queries of general public regarding MPMG. Customers of MPMG can reach out to this helpline at 0-33-77-786-786.
KARACHI: The State Bank of Pakistan (SBP) on Tuesday decided to impose penalty of banks for falling disbursement of housing loans below given targets.
The SBP said that through Circular No. 03 of 2021, whereby Government’s Mark-up Subsidy Scheme (G-MSS) for Housing Finance was issued.
Banks are expected to make all-out efforts to harness full potential of Scheme.
Accordingly, in April 2021, SBP assigned monthly mandatory targets of number of housing units and amount of disbursements (G-MSS targets) to banks in proportion to share in total banking assets.
In view of foregoing, it has been decided that penalty will be imposed on banks falling short of their G-MSS targets w.e.f July 31, 2021 on both targets of number of housing units and amount of disbursements.
A baseline penalty will be charged on shortfall from cumulative targets till July 31, 2021 while higher penalty will be charged on shortfall from targets of subsequent months.
The penalty charged on a bank will be adjusted after review of bank’s efforts in terms of logins of applications, approvals of housing finance, results of SBP’s latest mystery shopping surveys, involvement of bank’s management, evidence of board information and support, sale and marketing efforts, innovation in delivery channels, capacity building of staff and human resource (headcount) involved in G-MSS.
To assess efforts, State Bank will, if required, collect information from banks which fail to meet their targets.
KARACHI: State Bank of Pakistan (SBP) on Thursday directed the banks to use a newly developed model for income estimation for extension of low cost housing finance.
The SBP said in order to facilitate low cost housing finance applicants with informal income, the central bank asked banks to develop and deploy income estimation model for extension of low cost housing finance to such applicants.
This measure is expected to ease difficulties being faced by general public in availing housing finance under Government’s Markup Subsidy Scheme (G-MSS), commonly known as Mera Pakistan Mera Ghar.
The SBP said the Pakistan Banks’ Association (PBA), through a consultative process, has developed and circulated among banks a baseline income estimation model. The purpose of this model is to assess income and repayment capacity on the basis of routine expenditures like house rents, utility bills and educational expenses etc. of a potential borrower who earns from informal sources.
The SBP asked the banks to use PBA’s baseline model, customize the same, or develop their own income estimation model.
Banks are required to confirm within 4 weeks that they have made their informal income proxy models operational, the SBP said. The availability of these models is expected to greatly enhance prospects of informal income applicants to secure housing finance from the banks, it added.
With this move, it is expected that financially excluded segment will be able to avail financing under G-MSS. On the other hand, this tool will enable banks to expand their outreach and cater to the financing needs of people having informal sources of income.
It is worth mentioning here that the SBP, with the support of banking industry, is working to reduce the hurdles being faced by the general public to availing housing finance under G-MSS.
A number of steps have already been taken to make this facility available to general public, especially low cost housing finance applicants.
These steps include relaxation of debt burden ratio, extension of housing finance against personal guarantee, development of online complaint resolution portal and establishment of banks’ joint call center to address queries.
Further, standardization and simplification of i) loan application form ii) facility offer letter and iii) documentary requirements for approval and disbursement are also proving beneficial for the applicants under G-MSS. As of June 15, 2021, banks have received applications of around Rs. 90 billion against which an amount of around Rs. 30 billion has already been approved whereas banks are processing rest of the applications.
KARACHI: State Bank of Pakistan (SBP) has taken notice of delayed processing of housing loans by banks and issued directives in this regard to ensure speedy process of applications.
The central bank on Friday said that it was receiving a number of complaints especially regarding delayed processing, long turnaround time and no mechanism to track the financing application after submission.
In this regard, banks/DFIs are directed to take the following measures:
a. Immediately start providing to the applicants a receipt with unique tracking number against each housing finance application. Meanwhile, banks/DFIs are advised to put in place within 30 days from the date of this Circular an online e-tracking mechanism and a phone based help line to provide, on query of applicant, status and expected time required for decision on application.
b. Devise a system to monitor 30 days Turn Around Time (TAT) for decision on applications received.
c. Record and convey reasons of rejection of housing finance application to the applicant in simple and clear form.
d. Equip the branch officials, through trainings and alignment of systems and procedures, to perform initial scrutiny and inform the customer about missing requirements/documents at the time of submission of application.
e. Conduct rigorous trainings of branch officials to enhance their knowledge on G-MSS and improve their behavior towards customers.
f. Conduct capacity building of call center officials to adequately address queries of customers.
It has also been observed that complaints lodged on State Bank complaint portal remain pending with banks for unduly long times.
The banks/ DFIs are advised to adopt appropriate measures to resolve complaints in timely manner.
Moreover, policy for designation of focal person for State Bank complaint portal must be reviewed and it should be ensured that at least one focal person is present in each region to handle the complaints.
Furthermore, potential borrowers under G-MSS have complained about exorbitant processing charges. Accordingly, banks/DFIs are advised to review and rationalize their processing fee for financing considering their actual costs and provide breakup of these charges to the applicants at the time of receipt of applications.
In order to increase prospects of applicants to avail housing finance under G-MSS, banks/DFIs are advised to guide the applicants regarding the options of 100 percent clubbing of income of up to four co-applicants and enhancing their credit worthiness through third party guarantee as allowed vide IH&SMEFD Circular No. 01 of 2021.
KARACHI: Recent measures taken by the State Bank of Pakistan (SBP) the financing for housing and construction sector increased significantly to Rs202 billion in March 2021.
The SBP in a statement said that housing and construction finance has been progressing significantly and a momentum in housing and construction finance is building up. The banks’ housing and construction finance portfolio has increased from Rs148 billion by the end of June 2020 to Rs202 billion in March 2021 (chart).
This represents a growth of Rs54 billion or 36 percent in three quarters of FY21 compared to a stagnant position in earlier quarters. Such growth in housing and construction finance in such a period has never been witnessed in Pakistan’s history previously.
Overall financing to the housing and construction sector by banks is likely to increase further significantly as mortgage finance activity under Mera Pakistan Mera Ghar Scheme is picking up pace. As of April 20, 2021banks have received applications for financing of more than Rs52 billion from the general public under this scheme. Of these, the banks have approved financing of more than Rs15 billion to the applicants while the remaining applications are at different stages of the evaluation and approval process.
The SBP said that keeping in view the need to improve housing in the country and the important role of construction sector in boosting economic activities in the countries, the Government of Pakistan envisions to increase the number of housing units manifold in coming years and has taken several measures in this regard. A key element to ensure sustainable increase in the construction of building activities is the provision of financing both to the supply and demand side players of the housing and construction sector.
Financing to the housing and construction sector in Pakistan has almost always remained quite negligible in the credit portfolios of banks when compared with other developed and developing countries for various reasons. To support the vision of the Government of Pakistan, the State Bank of Pakistan has taken several measures since July 2020 to support the provision of financing for the housing and construction sector by way of giving incentives and targets to the banks. A key regulatory measure in this direction was assigning mandatory targets to banks to increase financing for mortgages to builders and developers. Banks are required to increase their housing and construction finance portfolios to at least 5 percent of their private sector advances by end December 2021.
In October 2020, the Government of Pakistan augmented these efforts by introducing the Government Markup Subsidy Scheme, now commonly known as Mera Pakistan Mera Ghar Housing Finance Scheme. This scheme enables banks to provide financing for the construction and purchase of houses at very low markup rates, targeting low to middle income segments of the population.
The State Bank of Pakistan has been actively engaged with banks to ensure that a vast majority of masses could benefit from the Mera Pakistan Mera Pakistan Housing Finance Scheme. For this purpose, SBP with the help of Pakistan Banks’ Association (PBA) and banks is ensuring that process of applying for housing finance is easy for the masses and in case they face any difficulty or have complaints, help is provided to them promptly and complaints are resolved in a timely manner.
To begin with, commercial Banks have designated 50% of their branches, around 7,700, across the country for accepting applications under Mera Pakistan Mera Ghar Housing Finance Scheme. In addition, all the remaining branches will also provide basic information about the scheme and refer applicants to the designated branches. Banks are regularly advertising the features of the scheme to attract and encourage potential customers.
In order to address complaints, the State Bank has established a comprehensive complaint resolution mechanism which comprises of an internet portal supported by a network of State Bank and commercial bank staff. The IT portal is live for registration of complaints by applicants who face any difficulty in obtaining loans. State Bank has also established help desks in its 16 offices across the country to facilitate applicants in registration of their complaints through the IT portal. These help desks address access challenges of applicants, especially from low-income strata, arising out of potential language and technology barriers.
The Pakistan Banks’ Association (PBA) has also been playing a very active role in the promotion of Mera Ghar Mera Pakistan Housing Finance Scheme. It is very close to establishing a single call center to address applicant’s questions and to guide them towards their nearest branches to submit application for home loans.
A significant number of Pakistanis who currently do not own a house and are eligible for financing under the Mera Pakistan Mera Ghar Scheme face difficulties in providing documentary evidence of regular sources of income to prove their ability to repay. To address this issue, the State Bank is coordinating with banks to develop a mechanism whereby income proxies, based on demonstrated expenses like rent payments or utility bills, could be used for credit evaluation and income assessment.
PBA is engaged with internationally renowned experts to develop scoring models in this regard in the coming months. The State Bank is facilitating banks to get data from mobile phone companies, utility providers and other government agencies to run these credit scoring models. Banks have already developed initial judgmental income proxy model to accommodate applicants with informal incomes till the time expert’s developed scoring models are implemented.
KARACHI: State Bank of Pakistan (SBP) on Monday issued mechanism for payment of markup subsidy for housing finance and issued instructions to banks and development financial institutions (DFIs) for the facility.
The SBP advised banks to submit their claims to Development Finance Support Department (DFSD), SBP BSC, Karachi as per instructions contained in the attached payment mechanism within 15 working days from the end of each Quarter.
However, the banks shall submit their claim within 15 working days for the quarter ending December 2020 and March 2021 from the date of issuance of this circular.
According to markup subsidy payment mechanism (MSPM), the SBP said that the government had issued markup subsidy scheme to provide concessional housing finance for promoting home ownership.
The SBP issued necessary instructions to all commercial banks, microfinance banks and HBFCL through a circular no. 03 dated March 25, 2021 and revised instructions issued from time to time.
All loans disbursed under the scheme shall be reported to SBP under housing finance.
Under the Scheme, loans are segregated into four tiers:
i. Tier 0 (T0) – (a) House up to125 sq yds (5 Marla) and (b) flat/apartment with maximum covered area of 1,250 sq ft.
ii. Tier 1 (T1) – (a) House up to125 sq yds(5 Marla) with maximum covered area of 850 sq ft and (b) Flat/apartment with maximum covered area of 850 sq ft.
iii. Tier 2 (T2) – (a) House up to125 sq yds (5 Marla) and (b) flat/apartment with maximum covered area of 1,250 sq ft.
iv. Tier 3 (T3) – (a) House up to250 sq yds (10 Marla) and (b) flat/apartment with maximum covered area of 2,000 sq ft.
Pricing for Housing Loans
Loan Tiers
Customer Pricing
Bank Pricing
Tier 0
5% for first 5 years & 7% for next 5 years
1 Year KIBOR + 700 BPS
Tier 1
3% for first 5 years & 5% for next 5 years
1 Year KIBOR + 250 BPS
Tier 2
5% for first 5 years & 7% for next 5 years
1 Year KIBOR + 400 BPS (Spread may vary)
Tier 3
7% for first 5 years & 9% for next 5 years
1 Year KIBOR + 400 BPS (Spread may vary)
For loan tenors exceeding 10 years, market rate i.e. bank pricing will be applicable for the period exceeding 10 years.
Procedure for loans disbursements and availing markup subsidy:
EAs shall evaluate financing applications of customers as per parameters of Markup Subsidy Scheme for Housing Finance approved by the Federal Cabinet and circulated by the State Bank of Pakistan to all banks/DFIs vide IH&SMEFD Circular No. 03 dated March 25, 2021 and revised from time to time. The financing facility for a borrower shall be sanctioned and disbursed by the EA after completion of documentation formalities. These financing shall be entitled for markup subsidy as prescribed above. No further evaluation on eligibility of borrowers would be conducted by the State Bank of Pakistan.
Calculation of Equally Monthly Installment (EMI) for Borrower
For first five years EMI, amortization schedule would be prepared for full tenor of financing at markup rate i.e. 3 percent, 5 percent or 7 percent depending upon the financing tier.
EMI for next five years i.e. 6th year to 10th year would be on the basis of amortization schedule prepared at the applicable subsidized markup rate (i.e. 5 percent, 7 percent or 9 percent depending upon the financing tier) on outstanding principal for remaining financing tenor.
After 10th year of financing, EMI would be calculated on the basis of amortization schedule at applicable markup rate.
Calculation of Markup Subsidy for Banks
After calculating the EMI for end user, the EAs will calculate the difference to be paid by Government of Pakistan by applying the difference between 1-Year KIBOR + spread and end user markup rate on the outstanding principal.
The banks will calculate the subsidy for the period of markup subsidy i.e. 10 years.
Mechanism for Payment of Markup Subsidies: Payment of subsidy to EAs will be made through SBP’s operational arm viz. Development Finance Support Department (DFSD), SBP BSC, Head Office, Karachi.
The executing agencies (EAs) / banks shall prepare and submit claims on quarterly basis to DFSD for receiving government markup subsidy on outstanding principal amount of their performing housing finance portfolio up to expiry of each individual loan. In case of a loan becoming non-performing, no markup subsidy will be paid after being classified as ‘Loss’ as per SBP PRs for Housing Finance. The EAs claims shall contain particulars of each individual loan along with calculations of subsidy based on relevant 1-year KIBOR used. For the sake of simplicity, EAs shall assign unique number to each loan i.e. “Bank Name—Loan Number” (ABC-12345678). The markup subsidy claim should be duly vetted by internal audit department of the EA. The audited claim along with a certificate from EA relating to eligibility of borrowers for the subject scheme and correctness of the subsidy amount shall be submitted to DFSD within 15 working days after the end of respective quarter for payment of subsidy. The claims shall be submitted to DFSD as per the format attached as Annexure B (Annexure B-1 for Banks/DFIs and Annexure B-2 for MFBS).
DFSD, SBP BSC shall scrutinize subsidy claim of EAs within 15 working days after receipt of complete information from EAs. DFSD shall ascertain that calculations of EAs subsidy claim are correct and applicable KIBOR has been used by the EAs. Thereafter, DFSD shall submit scrutinized claims to Accounts Department, SBP BSC for release of funds, through Karachi Office, to respective EA account maintained with SBP BSC, Karachi from Government account ‘Non-Food Account 1’.
Banking Inspection Department of State Bank during regular inspection of the EAs shall conduct inspection of their housing finance portfolio on sampling basis using its own sampling techniques. SBP inspectors shall randomly select credit files and review them from the perspective of eligibility of borrowers under the Program, status of loan (regular or NPL) and GOP subsidy claim. The BID inspection report section on ‘Markup Subsidy on Housing Finance’ shall be used as an important input for reviewing the Scheme and assessing its effectiveness in fulfilling the Government objective of promoting home ownership in the country.
KARACHI: The State Bank of Pakistan (SBP) on Monday eased condition for availing loan for housing loan by allowing personal guarantee.
The SBP said that currently applicants face difficulties in obtaining housing finance, especially for low cost housing, as banks are reluctant to take the risk of the house not being completed or documentation completion.
The completion of housing unit and mortgage creation takes time. In order to address this issue for applicants and banks, the SBP has allowed acceptance of a third party guarantee for this period up to a maximum of one year.
With the aim to facilitate the banks in extending low cost housing finance, SBP has allowed them to accept personal guarantee of third party until the housing unit is completed and the mortgage is perfected.
The guarantee will remain valid for a maximum period of one year. This step will help promote home ownership of potential borrowers wishing to avail housing finance under Government Markup Subsidy Scheme issued by State Bank of Pakistan on October 12, 2020.
Third party guarantee will cover the period from the disbursement of loan to the time when construction is completed and risk coverage becomes available by Pakistan Mortgage Refinance Company. Acceptance of third party personal guarantee will provide additional comfort to banks for extending low cost housing finance, an area in which banks have keen interest for its business potential.
It is expected that with this move, banks will increase their efforts to ensure that the benefits of the markup subsidy scheme reach marginalized segments of the society who currently do not own a house.
KARACHI: The State Bank of Pakistan (SBP) has adopted a policy of carrot and stick for banks related to mandatory targets for housing/construction financing.
