SBP enhances housing finance limit for microfinance borrowers to Rs5m

KARACHI: The State Bank of Pakistan has increased the housing finance limit for borrowers of microfinance banks (MFBs) to Rs5 million, effective August 1. This move, experts believe, will help improve affordable housing opportunities in both urban and rural areas.

In May 2025, the central bank released prudential regulations for MFBs, allowing housing loans of up to Rs5 million for individuals with an annual income (after business expenses) of up to Rs1.5 million.

Previously, the microfinance housing loan limit was Rs3 million. According to the updated guidelines, lenders cannot extend housing finance solely for the purchase of land or plots. Financing is only allowed when it is linked to the construction or renovation of homes. The financing component for land purchases cannot exceed 90 per cent of the land’s market value and is capped at 50 per cent of the total approved loan. The remaining funds must be strictly allocated for construction purposes.

Hussain Haider, chief investment officer of JS Investments Ltd said that recent regulatory improvements in microfinance for housing are encouraging, but weakened purchasing power and stagnant demand remain the real obstacles. Easing credit alone won’t suffice without broader economic reforms.

He added that expanding the tax base is critical to create fiscal space and lower interest rates. With industrial investment stagnant and export growth over-reliant on textiles, deep institutional reforms -- particularly in strategic planning -- are essential. Without addressing these fundamentals, credit facilitation will have limited impact.

The increase in housing loan limits for small borrowers comes as the government is focused on providing low-cost housing for lower- and middle-income segments of society. Last week, the Economic Coordination Committee of the cabinet approved a mark-up subsidy scheme for 50,000 housing units, with a total budget of Rs72 billion for the current fiscal year. This scheme was developed in consultation with the State Bank of Pakistan (SBP) and will be ratified by the cabinet before being circulated to banks for participation. Furthermore, the government announced the restoration of the tax credit on mortgage facilities in the federal budget for 2025-2026.

The recent cuts in interest rates are also expected to enhance mortgage financing. Since June 2024, the SBP has reduced its benchmark interest rate by a total of 1,100 basis points, lowering it from a record high of 22 per cent as inflationary pressures eased. On Wednesday, the SBP kept its policy rate unchanged at 11 per cent, citing concerns about inflation risks.

Inclusive housing finance is a key factor for long-term asset creation and upward social mobility, Haaris Mahmood Chaudhary, CEO of Mobilink Microfinance Bank, told The News. “Mobilink Bank is already leading the way, offering the most market-competitive housing finance rate in the microfinance sector, ie, 22 per cent for enhanced lending limits of Rs3-5 million, ensuring low and middle-income families can access secure and dignified housing,” Chaudhary said.

“While challenges persist -- including documentation gaps, limited financial literacy, and land title complexities -- we continue to address these through innovative solutions and customer education,” he added.

Ibrahim Amin, an expert in property valuation and real estate investment trust (REIT) advisory, believes that the revision in housing loan limits will empower microfinance borrowers, support structured growth in the housing sector, and stimulate formal real estate activity in underdeveloped districts.

Amin, who is also the chairman of Tristar International Consultant (Pvt) Ltd, a leading valuation and REIT consultancy firm, urged provincial land departments to upgrade their systems to ensure transparent, digitised, and efficient property transactions, which are essential for facilitating rapid housing disbursements.