KARACHI, Sept 5: Banks and development finance institutions or DFIs can offer housing loans also in rural areas under a new ruling by the State Bank of Pakistan. The central bank told all banks and DFIs on Monday that they can make housing loans in rural areas after meeting all relevant guidelines and regulations on this subject.
The move may give the rural economy a real boost in the long run but agriculturists doubt it would hardly have an impact on the standard of living of the poor. “At best, this can benefit semi-rural semi-urban economy,” says Syed Qamaruzzaman Shah, chairman of Sindh Chamber of Agriculture.
“As for the really rural areas, where a vast majority of the poor people live, banks or DFIs may dare not venture into housing finance. They will question the credit worthiness of the borrower, and the poor have no credit worthiness.”
Senior bankers also say it is difficult for banks and DFIs to make housing loans in rural areas though they hope that starting from semi-rural areas, they can eventually reach out to the remotest part of a city or province. “What seems more practical is that the banks lend to builders based in semi-rural areas and they build low priced housing units for farmers and village-dwellers,” said senior executive of a bank. “It would be too much to expect banks and DFIs to start making housing loans in the rural areas in the first step because they are at a stage when they have their own no-go areas even in cities.”
The banker was referring to the practice whereby banks and DFIs refuse to make housing loans in those parts of a city which they think are troublesome and recovery of the loans are too difficult. The most serious problems the banks and DFIs face include ambiguity in titles of ownership of land; multiple claims on it, litigation involved and perceived inability and unwillingness of the borrowers of certain areas to repay the loans.
The central bank is, however, keen to promote housing finance as the resultant activity in construction and allied industries, gives the economy a boost. In March this year, the central bank had removed the cap on housing finance limits for a single party. Earlier, it had set the per-party limit for housing finance at Rs10 million.
During July 2004 — May 2005, banks and DFIs offered consumer loans worth Rs80.3 billion. Housing loans of Rs17.5 billion made up quite a significant part of this consumer loaning — the second largest after auto loans that totalled Rs37.4 billion. In addition to that the banking system also offered Rs10.6 billion loans to the construction industry.
Farm Lending: The central bank also said on Monday that banks and DFIs can accept urban property against agricultural financing or financing to agriculturist provided they accept the credit risks involved.
Senior bankers reached by Dawn said that the move would result into faster and larger disbursement of agricultural loans so badly required to boost the agricultural sector. During the last fiscal year, banks and DFIs offered Rs108.6 billon to the agricultural sector, far higher than Rs74 billion a year earlier. They are supposed to make at least Rs130 billion agricultural loans during this fiscal year.
