Housing finance for NRPs to boost Islamic banking footprint

KARACHI: Islamic housing finance is expanding at a fast pace and the new scheme that facilitates overseas Pakistanis to buy a house for themselves or their families in Pakistan provides Islamic banks an opportunity to increase their footprint in the country’s mortgage market, bankers said on Friday.

“Islamic home finance has more than 55 percent of the overall housing finance market in Pakistan, and monthly mortgage finance acquisition has increased from Rs1 billion to Rs4 billion in one year,” Muhammad Jehanzeb Saeed, head, home, and business finance products at Dubai Islamic Bank told a webinar on “Roshan Apna Ghar through Islamic Finance” hosted by IBA Center for Excellence in Islamic Finance (CEIF).

The total housing finance in Pakistan is Rs110 billion, and Shariah-complaint financing is around Rs65 billion, Saeed said.

“Each NRP (non-resident Pakistani) has a dream to own a home in Pakistan. We expect the Roshan Apna Ghar scheme to help boost Islamic mortgages in the future. The overseas Pakistanis have more savings and liquidity so they are likely to avail this facility at a higher level than expected.”

He said activity in the construction sector impacts multiple industries in the country and increases employment.

The State Bank of Pakistan launched a new product Roshan Apna Ghar for NRPs last week. Under this, two types of financing facilities are being offered. First, standard financing in which both lien-based and non-lien-based financing is available. In lien-based financing, the NRPs can obtain house finance facility against a lien on their Roshan Digital Account (RDA) deposit balances or Naya Pakistan Certificates.

Banks can finance up to 100 percent of the property value for purchase or construction of a house; for the renovation of the house, financing is capped at 40 percent of the property value. Non-lien based financing is the typical housing finance offered against mortgage of the property to be purchased; banks may fund up to 85 percent of the property value for the purchase or construction of house, and up to 30 percent of the property value for renovation of the house. Ahmed Ali Siddiqui, director IBA CEIF and group head Shariah compliance at Meezan Bank, in a presentation on “Islamic banking basic concepts and product structure for Islamic Home Finance” said to get a good house is considered as a basic need of a person and is also a source of happiness and blessing.

“Conventional housing loans are based on Riba and are not in line with the Islamic rules, hence many customers avoid it due to religious reasons, Islamic housing finance is now effectively helping the customer and a vast majority of the customers are now shifting towards Islamic schemes,” Siddiqui said.

“Recent step to offer via Roshan Apna Ghar and low-cost Islamic housing by Islamic banks and the government is a step in the right direction.”

He said this facility is designed specifically for RDA and Islamic Naya Pakistan Certificate (INPC) holders. Financing is available under buyer, builder, and renovation types. It provides flexibility to choose between variable and fixed rental rate variants. It also gives the option to purchase property directly from own funds, he said.

The tenor for the facility is from 3 to 25 years. It offers attractive rental rates. The financing under Mera Pakistan Mera Ghar is also applicable (if the customer qualifies the criteria).