KARACHI: The State Bank of Pakistan (SBP) on Monday increased limit for housing finance loans to Rs3 million from Rs1m for borrowings from the microfinance banks.

The SBP in a press release said the maximum size of general loans has also been enhanced from Rs150,000 to Rs350,000.

It said that in order to commensurate with enhanced loan sizes, annual income eligibility for general loans and housing loans has been increased up to Rs1.2m and Rs1.5m respectively.

The limit for lending against gold collateral to meet borrowers’ immediate domestic or emergency needs has also been enhanced.

Microfinance banks can now extend loans against gold collateral for consumption purposes categorised as domestic needs or emergency loan, said the SBP adding that the aggregate loan exposure of a bank against the security of gold will not exceed 50 per cent of its gross loan portfolio.

“The above relaxations will expire after one year from the date of issuance of these instructions. Thereafter, MFBs will reduce their aggregate loan exposure against the security of gold to 35pc within a maximum period of one year,” said the SBP.

Emphasising the need to increase housing loans, the SBP said the decision to increase the limit of housing finance loans has been made in view of the fact that the existing loan limit was insufficient to promote low-cost housing finance through MFBs.

Similarly, limits for lending to micro enterprises needed to be enhanced considering the large unmet demand from micro and small enterprises.

“These initiatives would further support micro borrowers and enterprises and an early revival of economic activities in the current challenging times,” said the SBP.

However, in order to ensure sustainability, the enhanced loans sizes for housing and microenterprises would be allowed to those MFBs which are on sound footing and have the capacity to successfully cater the higher loan sizes.

“Only those MFBs that are fully compliant with Minimum Capital Require­ment (MCR) and Capital Adequacy Ratio (CAR) shall be eligible to undertake microenterprise lending,” said the SBP.

In addition, the SBP’s relief package for microfinance banks, which included deferment of principal and restructuring of microfinance loans to deal with the adverse implications of the ongoing Covid-19 pandemic, has now been expanded.

Published in Dawn, August 11th, 2020