A Pakistani mortgage refinancing company held a ceremony to sign a major guarantee agreement with six other Pakistani banks to bolster a newly introduced mark up subsidy on low-cost housing plans. These banks include Bank Islami, Meezan Bank, Faysal Bank, Habib Bank, Soneri Bank, GS Bank, and bank of Punjab.
The Government of Pakistan has established a trust fund, which is trustee by the PMRC. The fund was created with the support of the State Bank of Pakistan and financed by the World Bank.
The Loan Guarantee Fund will provide up to 40% risk coverage to primary mortgage sponsors – banks – on a first-loss basis in an effort to boost affordable housing, especially for low-income and informal segments of the economy.
The guarantee will partially reduce the credit risk of banks and create favorable conditions for banks to finance housing for people with low incomes. The program is designed for both conventional and Islamic banks.
According to PMRC Director and Executive Director Mudasir H. Khan, this is an important step in the implementation of the government’s Naya Pakistan housing program, which makes affordable housing reachable for everyone.
Khan said the loan guarantee scheme will surface the way for the banking sector to expand housing finance to the low-income group, a segment of the market that has been neglected for a long time.
He said the PMRC is playing a catalytic role in the development of the mortgage market and the growth of affordable housing in the country.
Jamil Ahmed, Deputy Governor of SBP, said that the coverage of mortgage portfolio risks under the government subsidy facility gives banks the convenience of providing housing finance to low-income people to buy or build new homes.
Ahmed urged the banking industry to take advantage of this unprecedented favorable environment and provide loans in full. He also urged the committee to focus on developing the subprime mortgage market by issuing mortgage-backed securities in the capital market.
The SBP Deputy Governor stressed that all stakeholders must make a concerted effort to achieve the goal of housing the population.
He praised the efforts of financial institutions over the past few months under the auspices of the SBP Housing and Construction Finance Steering Committee.
Ahmed said the government’s low-cost housing initiative will benefit not only the construction industry but also support dozens of related industries.
The PMRC is a mortgage liquidity mechanism that eliminates long-term financing problems in the banking sector and provides reliable lending.
Risk coverage will help banks and the PMRC provide Pakistanis with affordable housing finance. This will help banks mitigate credit risk while providing affordable mortgages for low-income people.
The 10-year credit guarantee system has been assessed by the State Bank of Pakistan as a liquid security.
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