25 January 2004	Sunday	02 Zilhaj 1424

KARACHI: Jan 24: Official statistics show that there has been a surge in consumer finance, which claimed the largest share in total private sector credit during July-September 2003. The small and medium sized industries was the second highest recipient of bank credit followed by agriculture. Corporate borrowings were the lowest.

A sector-wise break-up of the consumer credit in the last fiscal was as follows: Auto loans 35 per cent, credit cards 15 per cent, house financing 8 per cent, consumer durable one per cent. Personal loans accounted for 41 per cent.

Net credit to housing sector jumped up about 400 per cent in fiscal 2003 to reach Rs3.8 billion.

Yet, the amount is small when compared with countries where a lion's share, often 60 per cent of the total credit, goes for house building secured by mortgage, yielding lucrative returns.

Since most banks started housing finance in the past one year or so, they have targeted corporate executives or businessmen in the upper income groups. The banks are moving cautiously and lending to those who can afford the current property prices and repay the loans. Some major housing schemes have been launched by defence housing authorities. The low-income segment that constitute about 65 per cent of the total number of households is being currently excluded.

On an aggregate basis, the poor also have huge assets locked in property or land that are considered as bankable. But a key issue of mortgage finance is the legal title to the property. Banks also complain that the law for repossession of mortgaged property in case of loan default is not easily enforceable.

About a week ago, a meeting was convened by prime minister Zafarullah Khan Jamali in Islamabad to discuss bank financing and other problems related to low cost housing and housing for the government employees. Among others, the presidents of the nationalized commercial banks attended.

The prime minister stressed that the banks should lend to the poor income groups at lower rates of interest. But the mortgage policy designed by the banks has no space for the low income groups. In a seminar held in December 2000 on housing finance, a World Bank official had advised that in the first phase only the upper income group should be targeted. In some countries, an initial phase of prosperity inducted by consumer financing has been followed by massive credit defaults and rise in poverty levels.

However, the Association of Builders and Developers(ABAD) has complained to Federal Finance Minister Shuakat Aziz that banks were financing "only a handful of affluent citizens" who it said "did not need such largess."

"All banks have developed a negative area list"- areas in which citizens of low income dwell- and are "most in need of these loans". ABAD has urged the government to instruct State Bank to formulate a policy for financing low cost housing.

Bankers want that major issues in respect of legal and regulatory framework including titles and repossession and provision of infrastructure such as roads, water and electricity supply must be resolved to facilitate mortgage financing. A property boom cannot be sustained without increased and cheaper supply of water, electricity, gas, etc. The prices of cement, steel and other building materials have gone up since mortgage finance has picked up.

Builders see as "counter-productive" curbs imposed by the Securities and Exchange Commission on advances and deposits they collect from buyers. They say it is impossible for a developer/builder to complete the entire housing project from his own resources. Without matching funds from the general public, no housing project can be built. Now, the law requires that builders get approval from the SECP for accepting advances/deposits. ABAD has urged the government to immediately withdraw the SECP law.

Land for housing is a major issue between the builders and the Sindh government. ABAD says that official policies and instructions are not taken seriously at the implementation stage. On de-freezing of lands, the association laments that the differential of malkano (ownership) "is too high to bear." Likewise, it says various fees and charges of Karachi Building Authority are too high "to attract any prospective applicant." Many charges including betterment claims are outside the Authority's mandate. Electricity collections are a major problem. These snags should be removed to boost housing and construction industry, concludes ABAD.