The State Bank of Pakistan (SBP) said on Thursday that banks had granted a loan of Rs180 billion for low-cost housing and had disbursed Rs66 billion against accepted applications under the Mera Pakistan Mera Ghar Scheme until April 11, 2022.
This represents a rise of more than 11 times in application approvals, as banks granted only Rs. 16 billion a year earlier in April 2021.
Building on the current pace, the banks have made significant progress in approving and disbursing credit under the Mera Pakistan Mera Ghar Scheme, despite a surge in borrowers seeking housing loans, according to the central bank.
Banks received applications for house finance totaling Rs409 billion until April 11, 2022, up from Rs57 billion a year earlier, representing a seven-fold increase. The banks have approved Rs180 billion in applications and disbursed Rs66 billion in response to the approved applications.
Similar trends can be seen in bank lending to the housing and construction industries as a whole. As of March 31, 2022, the banks’ housing and construction finance portfolio had nearly doubled to Rs404 billion, up from Rs204 billion a year earlier.
The banks have almost reached their first quarter target of Rs405 billion for 2022 by boosting their housing and construction credit.
Since July 2020, the State Bank of Pakistan has implemented many initiatives with the backing of the Pakistani government to improve finance for the housing and building sector, increase adequate housing in the country, and stimulate construction sector operations.
The government bolstered these efforts in October 2020 by implementing the Government Markup Subsidy Scheme, often known as the Mera Pakistan Mera Ghar (MPMG) Scheme. This program, which is available in both conventional and Islamic forms, allows banks to provide financing for the construction and purchase of homes at very cheap interest rates to low- and middle-income people.
Allowing third-party guarantees throughout the construction period, waiving the debt burden ratio (DBR) in the case of informal income, and requiring banks to use a uniform facility offer letter were all key efforts implemented under the MPMG program.
The SBP also recommended banks to build and use income assessment models for borrowers with a variety of revenue sources.
The State Bank conducted frequent mystery shopping of banking locations across the country to assess the readiness, knowledge, and propriety of banking staff’s behavior toward consumers.
The banks’ improved preparedness for handling housing finance is also attributed to MPMG’s current progress, which includes alignment of the banks’ strategic focus, continued improvements in their systems and procedures, staff training and capacity-building, extensive marketing, and the use of technology to reach out to customers.
These enhancements have aided banks in better addressing potential consumers’ borrowing requests. The massive surge of applications and subsequent bank approvals of financing under the program suggests that the current pace of MPMG disbursements will continue in the months ahead.
On July 15, 2020, the SBP also informed banks of the housing and construction finance targets. By the end of 2021, banks have to expand their housing and construction finance portfolio to 5% of their domestic private sector advances. As a result, bank lending to the housing and construction sector climbed to Rs367 billion by December 31, 2021, up from Rs148 billion by June 30, 2020.
Banks have been advised to grow their housing and construction portfolio to 7% of their domestic private sector advances, or Rs560 billion, by 2022.