The State Bank of Pakistan has announced five regulatory relaxations toincentivize banks for financing low-cost and affordable housing, astatement issued by the central bank on Friday read.
Firstly, the definition of low-cost housing finance used in the currentregulations for banks has been aligned with definition used underGovernment Markup Subsidy Facility for Housing Finance eligible under TiersI & II of housing finance. Specifically, in the SBP regulations, the valueof housing unit has been increased from Rs3 million to Rs3.5 million withmaximum loan size increased from Rs2.7 million to Rs3.15 million.
Consequently, the incentive for low cost housing finance will increase forbanks as they will not only be able to enjoy markup subsidy facility by theGovernment but the regulatory incentives under low cost housing finance bySBP as well.
Current regulations and banking practices require banks to obtaindocumentary evidence of income. Provision of this information is difficultfor people generating income from informal sources which are generally inlow income segments. In order to facilitate financing for this segment, SBPis urging the banks to use alternate methods to identify income sources andassess the credit worthiness of the borrower.
Read Top Stories
The 2nd and 3rd type of relaxations are being given to facilitate financingfor this segment. Accordingly, under the 2nd relaxation, banks have beenexempted from the requirement of using ‘verifiable income’ for the purposeof calculating Debt Burden Ratio (DBR) in case of low cost housing financewhere banks are using income proxies and where income of borrower is notverifiable. Resultantly, borrowers with ‘non-verifiable income,’ estimatedby banks using income proxies, will also become eligible to avail low costhousing finance.
Thirdly, banks have also been exempted from the requirement of observingDBR, in case of low cost housing finance, where banks are using repaymentsurrogates like rent, utility bills, telco bills, etc. to assess repaymentcapacity of borrower. Hence, borrowers without verifiable or non-verifiableincome will become eligible to avail low cost housing finance.
