Banks approve Rs30bln under low-cost housing finance

KARACHI: Banks have approved Rs30 billion against applications of around Rs90 billion under the government markup subsidy facility for low-cost housing finance, the central bank said on Thursday, while allowing banking sector to use estimation models to assess informal income of applicants.

“As of June 15, 2021, banks have received applications of around Rs90 billion against which an amount of around Rs30 billion has already been approved whereas banks are processing rest of the applications,” the State Bank of Pakistan (SBP) said in a statement.

“In order to facilitate low cost housing finance applicants with informal income, the SBP has 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 public in availing housing finance under government’s markup subsidy scheme (G-MSS), commonly known as Mera Pakistan Mera Ghar.”

In October last year, the government announced markup subsidy facility for the construction and purchase of new homes.

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. SBP advised banks to use PBA’s baseline model, customise the same, or develop their own income estimation model. Banks are required to confirm within four weeks that they have made their informal income proxy models operational.

“The availability of these models is expected to greatly enhance prospects of informal income applicants to secure housing finance from the banks,” said the SBP. “With this move, it is expected that financially excluded segment will be able to avail financing under G-MSS.”

The tool will enable banks to expand their outreach and cater to the financing needs of people having informal sources of income. The SBP, with the support of banking industry, is working to reduce the hurdles being faced by the 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, standardisation and simplification of loan application form, facility offer letter and documentary requirements for approval and disbursement are also proving beneficial for the applicants under G-MSS.