KARACHI: The government has formed a Credit Guarantee Trust (CGT) with participation of the State Bank of Pakistan (SBP), six commercial banks and the Pakistan Mortgage Refinance Corporation (PMRC) to boost low-cost housing in the country, a press release showed on Monday.

The CGT has been established with the support of the World Bank and the SBP.

The PMRC as the trustee signed a master guarantee agreement with six leading Islamic and conventional banks including Meezan Bank, Habib Bank, BankIslami, Faysal Bank, JS Bank and Soneri Bank.

“This is a major step for the government’s Naya Pakistan Housing Program and making affordable housing possible for all,” the SBP said in the press release.

In line with the government’s vision to promote affordable housing specially for the low- and informal-income segments, the CGT will provide risk coverage of up to 40 per cent to primary mortgage financiers on a first loss basis.

The guarantee will partially alleviate the credit risk of primary mortgage financiers and provide a conducive environment for banks to finance housing for the low-income demographics.

“Keeping in view the dynamics of the mortgage market and to facilitate market growth, the scheme has been designed for both conventional and Islamic banks,” said the SBP.

Speaking at the signing agreement, SBP Deputy Governor Mr. Jameel Ahmed said the risk coverage of mortgage portfolio under government markup subsidy facility provides due comfort to banks in extending housing finance to the low-income segment for buying or construction of new houses.

He said the banking industry will benefit from this unprecedented facilitative environment and extend loans to their maximum potential. He also urged the PMRC to focus on developing a secondary mortgage market through issuance of mortgage-backed securities in the capital market.

Mr Ahmed said that all stakeholders needed to make concerted efforts to achieve the goal of providing housing to the common people. He also lauded the efforts by financial institutions over the last few months under the umbrella of the SBP’s Steering Committee on Housing and Construction Finance.

Moreover, PMRC MD and CEO Mudassir H. Khan said the CGT will pave the way for the banking industry to extend housing finance to low-income groups, a market segment which has remained negligible for long.

He said the PMRC has a role as a catalyst in the mortgage market development and for growth of affordable housing in the country.

“This is a proud moment for us all and I would like to thank everyone who has been a part of this project from the start. In just the last two years, the PMRC has received more than Rs15 billion in advances which is a significant achievement,” he said.

Published in Dawn, December 29th, 2020