Pakistan Mortgage Refinance Company (PMRC), the secondary housing finance institution, has established a fund worth Rs 15 billion to cover losses, if any, of financial institutions on low-cost housing finance.
PMRC which provides long-term financing to banks for their housing and construction consumers at fixed and comparatively cheaper rates has now established a fund worth Rs 15 billion to cover losses. This initiative aims to encourage financial institutions both Shariah-compliant and conventional. Also, it will extend housing finance for up to 20-25 years to small loan-seekers.
Earlier, banks were reluctant to offer mortgage financing to people from low and middle-income groups for multiple reasons. The company officials said on Monday, “Pakistan’s first credit guarantee agreement for low-cost housing finance has been signed between Credit Guarantee Trust of Government (managed by PMRC) and The Bank of Punjab.”
Also stated, “Several other financial institutions, including leading banks, will opt to avail the credit guarantee next week,” he said. “Almost all the banks offering low-cost housing finance (under the Naya Pakistan Housing Scheme or some other scheme) will secure financing by availing the guarantee.”
“The World Bank has provided funding of $10 million…for the credit guarantee which is like an insurance policy to cover risk,” he said, adding that the guarantee was established with the support of the Ministry of Finance and the State Bank of Pakistan (SBP).
Moreover, the established fund by PMRC would cover up to 40% losses of banks on their respective low-cost housing finance portfolios and credit’s guarantee size can also be increased from Rs 15 billion as and when needed.
“The amount (Rs15 billion) is for starting purpose…PMRC is providing the credit guarantee to banks at a fixed rate of 2% for 10 years that translates into 0.2% per annum,” he said.
Banks may provide up to Rs 5 million for a property valued at a maximum of Rs 6 million under the low-cost housing finance.
PMRC has lent approximately Rs 5 billion for low-cost housing finance to banks since the SBP established the company in 2018. “We have provided low-cost housing finance to banks at an interest rate of approximately 5.5-7%.”